Class Action Against Organigram Set to Go to Trial

In late 2016 and early 2017, Organigram Holdings Inc (TSXV:OGI) began voluntary recalls of its medical marijuana products after pesticides which were not permitted to be used on cannabis, as per the Pest Control Products Act, were detected. The recalls fell into hazard categories II and III, which suggested that at worst, there might be temporary side effects for affected customers.

Health Canada issued a statement back in 2017 stating the same thing, that one of the pesticides in question, myclobutanil, posed minimal risk: “The level of cyanide from the burning of myclobutanil found on the cannabis samples is more than 1000 times less than the cyanide in cannabis smoke alone, and is 500 times below the acceptable level established by the U.S. National Institute for Occupational Safety and Health. As such, the risk of serious adverse health consequences resulting from the inhalation of combusted myclobutanil in the recalled cannabis products was determined by Health Canada to be low.”

However, that did not prevent Organigram from facing a class action lawsuit from consumers alleging that they were harmed. And on Monday, we learned that the action would be proceeding to trial. Organigram is considering whether to appeal the decision.

While it’s by no means proof of anything or any wrongdoing by The Company, it ensures this issue isn’t going away anytime soon.

Organigram isn’t concerned

Organigram stated on its website that it “has insurance to cover the cost of legal fees associated with the defense of the class action. Insurance coverage may also cover some or all of any monetary damages associated with any resolution of this matter. ” The company also notes that many customers have already been refunded voluntarily by Organigram.

From a financial perspective, it doesn’t look like Organigram has much to worry about if the above statements are true. If it’s paid back most customers and the overall risk is indeed low, then it’s not likely that The Company will incur any serious damage to its financials as a result of this class action, should it be successful. But that doesn’t mean there might not be big problems as a result of this.

The bigger picture

Even if its balance sheet isn’t adversely affected by these developments, there could be much more harm done to Organigram’s image. In an industry with many providers of medical marijuana and many trying to position themselves as being the safest, healthiest option – news like this could make consumers think twice before buying from Organigram.

With limited marketing and exposure, any press is going to matter in the minds of consumers. And bad press needs to be avoided at all costs. The longer that this issue drags on for Organigram, the worse it will be for The Company’s brand.

This could also impact the medical marijuana industry as a whole. Many consumers are still very hesitant about using cannabis for medical purposes and news like this could put them off entirely.  However, this is still a fairly minor issue for the industry, but it shouldn’t be ignored. When it comes to medical marijuana, safety is top priority. And if consumers lose confidence, that could have a big impact on the industry’s long-term growth.