Pomerantz Appointed Lead Counsel in Neptune Wellness Solutions Securities Litigation
On January 4, 2022, U.S. Magistrate Judge Arlene R. Lindsay of the Eastern District of New York appointed Pomerantz LLP as Lead Counsel on behalf of Kenneth Rickert, the Lead Plaintiff in Gong v. Neptune Wellness Solutions Inc., 21-cv-1386 (E.D.N.Y.), a securities action brought on behalf of a class of defrauded investors concerning allegations that Neptune Wellness Solutions, Inc. (“Neptune” or the “Company”) failed to disclose the true cost and financial strain of integrating the assets and operations that it had acquired from SugarLeaf Labs, LLC and Forest Remedies LLC (collectively, “SugarLeaf”), two commercial hemp companies.
Neptune operates as an integrated health and wellness company that offers turnkey product development and supply chain solutions to businesses and government customers in various health and wellness verticals, such as legal cannabis and hemp, nutraceuticals and white label consumer packaged goods. The Company also provides cannabis and hemp biomass extraction and purification services; raw material sourcing, formulation, quality control, and quality assurance primarily for omega-3 and hemp-derived ingredients; and formulation and manufacturing solutions for value added product forms comprising tinctures, sprays, topicals, vapor products, and edibles and beverages.
On May 9, 2019, Neptune announced that it had signed a definitive agreement to acquire the assets of SugarLeaf, a registered North Carolina-based commercial hemp company providing extraction services and formulated products (the “SugarLeaf Acquisition”). On July 24, 2019, Neptune announced the closing of the SugarLeaf Acquisition.
Allegations against Neptune include that: (i) the Company failed to disclose that the cost of Neptune’s integration of the assets and operations acquired in the SugarLeaf Acquisition would be larger than it had acknowledged, placing significant strain on its capital reserves; and (ii) accordingly, it was reasonably foreseeable that Neptune would need to conduct additional stock offerings to raise more capital.
On February 15, 2021, Neptune announced disappointing financial results for the third quarter of the Company’s fiscal year 2021, missing analyst expectations. Among other results, Neptune reported third quarter revenues of CA$3.32 million and a net loss of CA$73.8 million, down 63.81% and over 1,000% year-over-year, respectively. Neptune attributed the net loss, in part, to a CA$35.6 million impairment of goodwill and a CA$2.1 million impairment of “property, plant and equipment and right-of-use assets related to the acquisition of SugarLeaf in July 2019,” as well as accelerated amortization of CA$13.95 million “also related to the SugarLeaf acquisition.” Additionally, the Company disclosed that its “[g]ross margin declined to a loss of 268.3%,” which included a non-cash CA$7.39 million “write-down of inventory and deposits to reflect their net realizable value.”
On this news, Neptune’s stock price fell $0.86 per share, or 30.7%, to close at $1.94 per share on February 16, 2021.
Then, on February 17, 2021, Neptune announced the termination of an at-the-market offering conducted by the Company, selling 9,570,735 of its common shares and raising approximately $18.6 million in gross proceeds. Just minutes later, Neptune issued a second press release announcing that the Company was conducting a $55 million registered direct offering.
On this news, Neptune’s share price fell a further $0.21 per share, or 10.8%, to close at $1.73 per share on February 17, 2021.