Executive Summary: Key Legal and Evidentiary Issues

• Justice Morgan granted leave under section 138.8 of the Ontario Securities Act and certified a proposed class action against Canopy Growth Corporation, David Klein, Judy Hong, and KPMG LLP.
   
• Investors alleged that Canopy made quantitative and qualitative misrepresentations concerning its subsidiary BioSteel's revenue, its Code of Conduct, and its disclosure controls and internal controls over financial reporting.
   
• Dueling expert reports on Benford's Law and the Beneish Manipulation Index were found largely unhelpful, with the court instead relying on the market's reaction to the Corrective Disclosures to establish materiality.
   
• Certification of both the statutory misrepresentation claim and an oppression remedy claim under section 241 of the Canada Business Corporations Act was granted, with the court rejecting Canopy's argument that oppression claims cannot proceed on a class-wide basis.
   
• The certified class was defined to include Canadian residents and purchasers on Canadian or other non-U.S. exchanges, rejecting Canopy's request to exclude all non-Canadian shareholders.
   
• A subsequent order approved leave and certification against KPMG alone, on consent and for settlement purposes only, pending a further hearing to approve the settlement itself.
   

Facts of the case

Craig Dziedziejko [also spelled "Dziedzieko" in the second document's style of cause] brought a proposed securities class action on behalf of investors who acquired shares of Canopy Growth Corporation between June 1, 2021, and June 22, 2023. The claim alleged that Canopy made material misrepresentations, including quantitative misstatements about its own financials and those of its subsidiary, BioSteel Sports Nutrition Inc., as well as qualitative misstatements about executive and employee conduct, adherence to Canopy's Code of Conduct, and the effectiveness of its disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR). Canopy had acquired roughly 76.7% of BioSteel in October 2019, and a dispute later arose over BioSteel's reported 2019 net revenue: Canopy publicly disclosed a figure of $14.54 million, while BioSteel's minority shareholders asserted the true figure was $22.74 million, a difference that they claimed entitled them to a further purchase-price adjustment of roughly $24.1 million. On May 10, 2023, and again on June 22, 2023, Canopy issued Corrective Disclosures acknowledging material misstatements in its financial statements for fiscal 2022 and the first three quarters of fiscal 2023, restating its financials, and disclosing material weaknesses in its DC&P and ICFR. Canopy's share price fell 14% on the Toronto Stock Exchange and 15% on the NASDAQ the day after the first disclosure, and a further 12% and 14% respectively after the second. Defendants included Canopy, its CEO David Klein, its CFO Judy Hong, and its auditor KPMG LLP, though KPMG's role was not addressed in the primary leave and certification decision because a tentative settlement had been reached with that defendant.

Policy and legislative provisions at issue

The leave application was brought under section 138.8 of the Ontario Securities Act, which requires the plaintiff to establish that the action is brought in good faith and that there is a reasonable possibility it will succeed at trial, and section 138.3, which governs liability for secondary market misrepresentation. Certification was sought under section 5(1) of the Class Proceedings Act, 1992, which sets out a five-part test: a cause of action, an identifiable class, common issues, a preferable procedure, and a suitable representative plaintiff. The oppression remedy claim was brought under section 241 of the Canada Business Corporations Act, which allows a complainant to seek relief where corporate conduct is oppressive, unfairly prejudicial to, or unfairly disregards the interests of a security holder. Canopy's own Code of Conduct, which committed the company and its personnel to "strict compliance with both the letter and spirit of all applicable laws" and "the highest standards of business integrity and ethics," was also central to the claim, as were Canopy's periodic disclosure statements asserting that there had been "no changes" to its ICFR throughout the class period.

Reasoning and analysis

Justice Morgan found the good faith element of the leave test easily satisfied, noting that supporting affidavit evidence is generally sufficient absent contrary evidence, and there was no indication of an exploitative "strike suit." On the misrepresentation element, the court held that Canopy's own Corrective Disclosures and financial restatements were sufficient to establish that untrue statements had been made; the real dispute was materiality. The parties had filed competing expert reports — Professor Ramy Elitzur for the plaintiff and Jacqueline Peterson and Jake Dwhytie for Canopy — addressing Benford's Law and the Beneish Manipulation Index. The court described this expert debate as largely self-referential and unhelpful, since neither methodology could connect statistical deviation to actual wrongdoing. Instead, the court relied on the Supreme Court of Canada's guidance that an immediate, significant market reaction to disclosure is itself strong evidence of materiality, finding that the sharp and sustained drops in Canopy's share price following the Corrective Disclosures were sufficient to establish a reasonable possibility of success without resort to the expert evidence. On certification, the court found each of the five statutory criteria met, including for the oppression claim, rejecting Canopy's submission that oppression remedies are inherently too individualized for class treatment; the court held that shareholder expectations arising from public disclosures and statutory obligations are objective and common to the class. The court also rejected Canopy's request to exclude non-Canadian shareholders who purchased on Canadian or other non-U.S. exchanges, finding the broader class definition consistent with Canopy's real and substantial connection to Ontario.

Ruling and overall outcome

In the December 22, 2025 decision, Justice Morgan granted the plaintiff, Craig Dziedziejko, leave to proceed under section 138.8 of the Ontario Securities Act and certified the action as a class proceeding under the Class Proceedings Act, approving the plaintiff as representative plaintiff and his counsel as class counsel, with costs submissions to follow separately; no monetary award or damages figure was determined at this stage, as the decision addressed only leave and certification. In a later order dated July 21, 2026, arising from a proposed settlement between the plaintiff and KPMG, the court granted leave and certification against KPMG alone, on consent and for settlement purposes only, with the sole common issue identified as whether KPMG's audit report for Canopy's fiscal year ended March 31, 2022, contained a misrepresentation. That order approved notice procedures to class members and set a future hearing to approve the settlement and class counsel's fees; the settlement amount itself is not specified in the material provided, and the action against the remaining defendants — Canopy, Klein, and Hong — remains unresolved.