National Bank avoiding cannabis partly due to concerns over potential tobacco-style lawsuits
National Bank of Canada is not investing in the cannabis industry partly due to concerns that tobacco-style lawsuits could be filed against marijuana companies.
“There’s significant risks of class-action lawsuits with respect to the cannabis industry,” said chief executive Louis Vachon during the bank’s annual shareholder meeting on Friday.
“The tobacco industry operated for 50 years without class action. I think it’s only going to take maybe 50 months or 50 weeks before a significant class action is launched against cannabis producers and contributors,” Vachon said.
He said that National Bank, the sixth-largest bank in the country, was also avoiding investment in the industry due to expectations of ongoing black market competition and concerns about Canadian companies operating in the U.S., where cannabis remains illegal at a federal level.
“There’s significant risk because of the regulatory uncertainty in the United States. It has increased following certain declarations of the Trump administration. We want to be sure that there’s no legal contamination between a Canadian operator or producer and U.S. activities which could have an impact on the bank,” Vachon said.
Canada’s large banks have largely avoided investing in the marijuana space, even as rapidly expanding licensed producers soak up billions of dollars of capital and the country moves towards legalizing recreational use.
There have been a few exceptions, most notably BMO Nesbitt Burns Inc., which helped underwrite $200-million in financing for Canopy Growth Corp. But for the most part, the industry has been financed by smaller investment banks such as Canaccord Genuity Group Inc. and GMP Capital Inc.
Bruce Linton, chief executive of Canopy Growth, dismissed Vachon’s concerns about potential lawsuits, suggesting they had more to do with National “having entirely missed the opportunity to bank the most actively growing sector” of the market.
“I suspect that (National Bank) needs a new answer,” Linton said.
There’s little risk for legal liability, he added, “as long as the products are prepared and presented, and they are what they’re exhibited to be, with all the warning labels that you would see on the containers.”
This was echoed by Allan Rewak, acting executive director of Cannabis Canada, an industry association.
“There’s no evidence that cannabis is lateral with tobacco in terms of harm,” said Rewak. “It’s not free of harm, no product is…. That’s why we’re going to regulate this, we’re going to keep it away from kids, we’re going to make sure that adult consumers of cannabis are freely choosing knowing the risks.”
So far there’s been at least one lawsuit filed in the cannabis space. In 2017, a notice of action was filed in the Nova Scotia Supreme Court against Organigram Inc. and Mettrum Ltd. (now part of Canopy Growth) for selling cannabis containing banned pesticides in 2016.
The main potential for legal risk has to do with disclosure, said André Lespérance, one of the lawyers involved in a massive class action lawsuit against three tobacco companies in Quebec.
In 2015, a Quebec Superior Court judge ordered Imperial Tobacco Canada Ltd.; Rothmans, Benson & Hedges Inc.; and JTI-Macdonald Corp. to pay $15 billion in compensation for withholding information about the negative effects of smoking.
“By choosing not to inform either the public health authorities or the public directly of what they knew, the Companies chose profits over the health of their customers,” wrote Justice Brian Riordan in 2015. The tobacco companies are appealing the decision.
“It’s not because a product is risky that it creates liability, it’s what you say about it and how you induce people (to use it),” said Lespérance. “There’s an obligation on you to divulge all of the risk. And if you don’t then you can have a tobacco case. If, on top of it, you conspire to lie, then you get to a second level,” he said.
“If you say nothing about it, that could create a tobacco-like case; it’s lying by omission,” Lespérance added.
Vachon said National Bank would reconsider investments in the cannabis industry if new information emerges that “demonstrates that our analysis is outdated or isn’t accurate.”
“But right now these are the risks we see and so we’re taking a very cautious stance with respect to that sector,” he said.
• mrendell@postmedia.com | Twitter: @markrendell