iAnthus Capital Holdings, Inc.

Period: 05/14/2018 to 04/06/2020
Lead Plaintiff Deadline: 06/15/2020

SUMMARY OF CASE:

A securities class action has been filed against iAnthus Capital Holdings, Inc. (ITHUF) on behalf of purchasers (the “Class”) of the common stock of iAnthus, who purchased or otherwise acquired the Company’s common stock between May 14, 2018 through April 6, 2020.  This case has been filed in the USDC – S.D.N.Y.

iAnthus is a holding company and, “[t]hrough its wholly-owned subsidiaries, the Company’s principal business activity is to provide Shareholders with diversified exposure to bestin-class licensed cannabis cultivators, processors and dispensaries throughout the United States” by “acquir[ing] and operat[ing] a diversified portfolio of cannabis licenses and investments for Shareholders.”  Heavily leveraged, iAnthus is dependent upon equity and debt financing to fund its aggressive expansion plans. Throughout the Class Period, the Company issued a series of statements showing that the Company’s business operations, financed through various debt and equity offerings, were expanding throughout the United States.

The Complaint alleges that in May 2018, the Company entered into the $50 million 2018 Debenture Agreement with GGP.   Among other things, that agreement provided for the withholding and escrow of $5,722,222.22 from the 2018 Debenture proceeds to pay one year’s interest on the 2018 Debentures in the event of an iAnthus default.

On September 30, 2019, iAnthus and GGP entered into the Amended Debenture Agreement, which provided an additional $20 million to the Company.  The Amended Debenture Agreement included the provision from the 2018 Debenture Agreement that provided for the withholding and escrow of $5,722,222.22 to pay one year’s interest under the Amended Debenture Agreement in the event of an iAnthus default.

On April 6, 2020, iAnthus issued a press release announcing that it did not make the applicable interest payments to GGP under the Amended Debenture Agreement, due on March 31, 2020.  The Company ascribed its inability to make the payments to the “decline in the overall public equity cannabis markets, coupled with the extraordinary market conditions that began in Q1 2020 due to the novel coronavirus known as COVID-19 (“COVID-19”) pandemic” that caused liquidity constraints for iAnthus.  The Company stated that it had “attempted in good faith to negotiate with the holders of the Secured Debentures for temporary relief of interest payments, but the parties were not able to reach a satisfactory agreement” and, as a result, “iAnthus and its subsidiaries did not fund the March 31, 2020 interest payment totaling $4.4 million to the holders of the Secured Debentures and Unsecured Debentures.

On news of the default, the price of the Company’s common stock fell from a close of $0.469 per share on April 3, 2020, the last trading day before the announcement, to a close of $0.179 per share on April 6, 2020, on unusually high trading volume.

Neither the Company nor GGP, however, disclosed why funds that had been withheld and escrowed under the 2018 Debenture Agreement and the Amended Debenture Agreement, approximately $5.72 million, were not used to satisfy iAnthus’ interest obligations. That money, purportedly set aside under those agreements in the event of the Company’s interest payment default, was adequate to make the $4.4 million payments due to GGP in March 2020.
Moreover, Defendants never disclosed that the escrowed funds had ever been diminished, exhausted or were otherwise unavailable to satisfy interest payment obligation to GGP.

Defendants’ materially false and misleading statements concerning the withholding, escrow and intended use of the $5,722,222.22 in proceeds in the 2018 Debenture Agreement and the Amended Debenture Agreement were publicly disclosed and available on the CSA System for Electronic Document Analysis and Retrieval (“SEDAR”).   The members of the Class reasonably relied on Defendants’ materially false and misleading statements concerning the intended use of
the escrowed funds to protect against an event of default in connection with the Company’s interest obligations to GGP.  Alternatively, if such funds had been exhausted and/or were otherwise unavailable for payment of the March 2020 interest payments to GGP, Defendants intentionally, or recklessly, failed to disclose such information rendering the earlier statements concerning the availability of the escrowed funds materially false and misleading.