Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 1 of 24 Page ID #:1
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`Laurence M. Rosen (SBN 219683)
`THE ROSEN LAW FIRM, P.A.
`355 South Grand Avenue, Suite 2450
`Los Angeles, CA 90071
`Telephone: (213) 785-2610
`Facsimile: (213) 226-4684
`Email: lrosen@rosenlegal.com
`
`Counsel for Plaintiff
`
`
`
`DANIEL GABBARD, Individually and
`on behalf of all others similarly
`situated,
`
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
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`
`No.
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`CLASS ACTION COMPLAINT
`FOR VIOLATIONS OF THE
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`FEDERAL SECURITIES LAWS
`
`
`CLASS ACTION
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`JURY TRIAL DEMANDED
`
`
`Plaintiff,
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`
`v.
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`
`
`PHARMACIELO LTD., DAVID
`ATTARD, and SCOTT LAITINEN,
`
`
`Defendants.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 2 of 24 Page ID #:2
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`Plaintiff Daniel Gabbard (“Plaintiff”), individually and on behalf of all
`other persons similarly situated, by Plaintiff’s undersigned attorneys, for
`Plaintiff’s complaint against Defendants (defined below), alleges the following
`based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and
`information and belief as to all other matters, based upon, inter alia, the
`investigation conducted by and through his attorneys, which included, among
`other things, a review of the Defendants’ public documents, conference calls and
`announcements made by Defendants, public filings, wire and press releases
`published by and regarding PharmaCielo Ltd. (“PharmaCielo” or
`the
`“Company”), and information readily obtainable on the Internet. Plaintiff
`believes that substantial evidentiary support will exist for the allegations set forth
`herein after a reasonable opportunity for discovery.
`NATURE OF THE ACTION
`This is a class action on behalf of persons or entities who purchased
`1.
`or otherwise acquired publicly traded PharmaCielo securities from June 21, 2019
`and March 2, 2020, inclusive (the “Class Period”). Plaintiff seeks to recover
`compensable damages caused by Defendants’ violations of the federal securities
`laws under the Securities Exchange Act of 1934 (the “Exchange Act”).
`JURISDICTION AND VENUE
`The claims asserted herein arise under and pursuant to Sections
`2.
`10(b) and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule
`10b-5 promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5).
`This Court has jurisdiction over the subject matter of this action
`3.
`pursuant to 28 U.S.C. § 1331, and Section 27 of the Exchange Act (15 U.S.C.
`§78aa).
`This Court has jurisdiction over each defendant named herein
`4.
`because each defendant has sufficient minimum contacts with this District so as
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 3 of 24 Page ID #:3
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`to render the exercise of jurisdiction by this Court permissible under traditional
`notions of fair play and substantial justice.
`Venue is proper in this judicial district pursuant to 28 U.S.C. §
`5.
`1391(b) and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)) as the alleged
`misstatements entered and the subsequent damages took place in this judicial
`district.
`In connection with the acts, conduct and other wrongs alleged in this
`6.
`complaint, Defendants, directly or
`indirectly, used
`the means and
`instrumentalities of interstate commerce, including but not limited to, the United
`States mails, interstate telephone communications and the facilities of the
`national securities exchange.
`
`PARTIES
`Plaintiff, as set forth in the accompanying Certification, purchased
`7.
`the Company’s securities at artificially inflated prices during the Class Period and
`was damaged upon the revelation of the alleged corrective disclosure.
`Defendant PharmaCielo,
`through
`its subsidiary, PharmaCielo
`8.
`Colombia Holdings S.A.S., purports to cultivate, process, produce, and supply
`medicinal-grade cannabis oil extracts and related products in Colombia and
`internationally.
`The Company is incorporated in Canada and its head office is
`9.
`located at 1 Toronto Street, Suite 805, Toronto, Ontario, Canada M5C 2E3.
`PharmaCielo’s securities trade on the OTCQX Best Market (“OTCGX”) under
`the ticker symbol “PCLOF” and previously traded under the ticker symbol
`“PHCEF.”
`10. Defendant David Attard (“Attard”) has served as the Company’s
`Chief Executive Officer (“CEO”) and as a Director during the Class Period.
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 4 of 24 Page ID #:4
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`11. Defendant Scott Laitinen (“Laitinen”) has served as the Company’s
`Chief Financial Officer (“CFO”) during the Class Period.
`12. Defendants Attard and Laitinen are collectively referred to herein as
`the “Individual Defendants.”
`13. Each of the Individual Defendants:
`(a)
`directly participated in the management of the Company;
`(b) was directly involved in the day-to-day operations of the
`Company at the highest levels;
`(c) was privy to confidential proprietary information concerning
`the Company and its business and operations;
`(d) was directly or indirectly involved in drafting, producing,
`reviewing and/or disseminating the false and misleading
`statements and information alleged herein;
`(e) was directly or indirectly involved in the oversight or
`implementation of the Company’s internal controls;
`(f) was aware of or recklessly disregarded the fact that the false
`and misleading statements were being issued concerning the
`Company; and/or
`approved or ratified these statements in violation of the federal
`securities laws.
`14. The Company is liable for the acts of the Individual Defendants and
`its employees under the doctrine of respondeat superior and common law
`principles of agency because all of the wrongful acts complained of herein were
`carried out within the scope of their employment.
`15. The scienter of the Individual Defendants and other employees and
`agents of the Company is similarly imputed to the Company under respondeat
`superior and agency principles.
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`(g)
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 5 of 24 Page ID #:5
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`16. The Company and the Individual Defendants are referred to herein,
`collectively, as the “Defendants.”
`SUBSTANTIVE ALLEGATIONS
`Materially False and Misleading
`Statements Issued During the Class Period
`17. On June 21, 2019, PharmaCielo issued a press release touting the
`Company’s recent position in the stock market and announcing that the Company
`was “now trading on the OTC Markets under the symbol ‘PHCEF.’”
`18. On August 27, 2019, PharmaCielo issued a press release which
`announced the Company’s second quarter 2019 financial results which touted its
`“maturing” oil producing capabilities, stating in pertinent part:
`“The first six months of 2019 have been incredibly productive for
`PharmaCielo, as the team in Colombia nears completion of the key
`foundational elements that will enable the Company to support the
`sale and export of processed oil,” said David Attard, Chief Executive
`Officer of PharmaCielo Ltd. . . . “Over the past several months
`PharmaCielo has been transitioning from our founding stage as we
`finalize the operational infrastructure and are now entering into a
`more mature operational phase with inventory, finished products
`(oils and isolate), distribution channels, sales agreements and, most
`recently, our announcements of international sales relationships
`and successful export.”
`
`(Emphasis added.)
`
`19. Also on August 27, 2019, PharmaCielo issued its “Management’s
`Discussion and Analysis For the Three and Six Months Ended June 30, 2019” (the
`“August Management’s Discussion and Analysis”).
`In the August Management’s Discussion and Analysis, PharmaCielo
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`touted its expanding production capabilities, particularly with regards to oil
`production, stating the following, in pertinent part, about its operations and
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 6 of 24 Page ID #:6
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`facilities:
`in place complements
`Additional processing equipment now
`technologies previously installed and will immediately increase
`annual dried flower processing capacity in support of previously
`announced strategies for the expansion of hectares under cultivation,
`with a corresponding increase in finished oil production.
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`*
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`*
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`The Company continues to expand the land area under active
`cultivation, currently at 12.1 hectares (capable
`in annual
`cultivation in excess of 0.48 million kg) from 5.3 hectares at the
`beginning of the year, with additional cultivation expansion
`expected to continue throughout the balance of the year.
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`*
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`*
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`*
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`PharmaCielo’s nursery and propagation center, located in the
`municipality of Rionegro in the department of Antioquia, consists of
`12 hectares of open-air greenhouses situated on a 27 hectare property,
`along with a manmade lake (natural water reservoir), ample cold
`storage, and industrial “plugging” systems customized to handle
`large-scale cutting operations. Each hectare of greenhouse contains
`180 planting beds, each bed is 40.5 sq. meters (1.35 m x 30 m). The
`total bedding area per hectare is 7,290 sq. meters and the entire
`nursery and propagation center contains approximately 1.3 million
`square feet of planting beds. This nursery and propagation center is
`capable of producing on a weekly basis, significantly more than 12
`million cuttings (e.g., clones) that would be required to supply 600
`hectares of contract cultivation.
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`PharmaCielo is also currently constructing a research technology
`and processing center (“Research Technology and Processing
`Centre”), with the anticipated completion of construction in late
`2019. Once complete, the Colombian National Food and Drug
`Surveillance Institute (“INVIMA”) must certify the center to ensure
`that it meets Colombian good and manufacturing standards. The
`Research Technology and Processing Centre will contain facilities to:
`(i) dry flowers naturally and by using drying machines; (ii) a milling
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`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 7 of 24 Page ID #:7
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`area; (iii) extraction areas; and (iv) an area designed for testing for
`levels of THC and CBD levels in cannabis as well as for general
`compliance. To date, the Research Technology and Processing
`Centre costs have been USD$9 million and management projects
`that the completion of facility will require an additional USD$6
`million.
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`(Emphasis added.)
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`21. On September 25, 2019, PharmaCielo issued a press release which
`“announced that it has signed a United States sales agreement (the "Agreement")
`with an established multi-state distributor, General Extract LLC ("General
`Extract”).”
`22. On November 25, 2019, PharmaCielo issued a press release which
`announced the Company’s third quarter 2019 financial results (the “3Q 2019
`Financial Results”) which touted its expansion, stating in pertinent part:
`Nearing completion of extraction and processing center (“RTC”),
`which will expand the Company’s extraction capacity to 265 tonnes
`of dried flower per year (processed equivalent volume of 28,900 kg
`of cannabis oil per year).
`
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`*
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`*
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`*
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`[S]aid David Attard, Chief Executive Officer of PharmaCielo Ltd.
`“Our focus in Q4 and through 2020 will be on a continued ramp up
`of our processing facilities and on generating revenue at commercial
`scale both through the expansion of global sales relationships, and
`the signing of commercial supply agreements in jurisdictions where
`we are present today.[”]
`
`(Emphasis added.)
`
`23. Also on November 25, 2019, PharmaCielo issued its “Condensed
`Interim Consolidated Financial Statements Three and Six Months Ended
`September 30, 2019” (the “November Financial Statements”).
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 8 of 24 Page ID #:8
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`*
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`*
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`In the November Financial Statements, PharmaCielo touted its
`24.
`expanding production capabilities, particularly with regards to oil production,
`stating the following, in pertinent part, about its operations and facilities:
`PharmaCielo Colombia Holdings S.A.S. is developing a farm and a
`processing plant, located in Rio Negro the municipality of La Cieja
`(Antioquia), for the purpose of cultivating and sowing, as well as
`assembly of the cannabis oil. The farm includes greenhouses, offices
`and agricultural areas. As of September 30, 2019, the construction
`and assets in transit balance of $6,601,714 (December 31, 2018 -
`$3,066,880) represents the developing activities that have not yet
`been completed.
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`
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`The Company has an agreement with CNV Construcciones S.A.S.
`(“CNV”), a Colombian construction company,
`to pay CNV
`USD$32,314
`to complete
`the construction of
`the Research
`Technology and Processing Centre in 2019. The construction of the
`Research Technology and Processing Centre is progressing with
`the anticipated completion of construction in late 2019. Once
`completed, the Research Technology and Processing Centre must be
`certified by INVIMA in order to ensure that it meets Good
`Manufacturing Practice (GMP) standards.
`
`(Emphasis added.)
`
`
`In the November Financial Statements, PharmaCielo purportedly
`25.
`listed all of its related party transactions but did not include the transaction with
`General Extract.
`26. On January 27, 2020, PharmaCielo issued a press release which
`announced:
`. . . that it has entered into a three-year agreement (the “Agreement”)
`with XPhyto Therapeutics Corp. (“XPhyto”) (CSE:XPHY;
`FSE:4XT), whereby PharmaCielo will supply medicinal-quality
`cannabis extract oils and isolates, including those containing THC, to
`XPhyto for analysis, further processing, product development and
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 9 of 24 Page ID #:9
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`manufacturing at its European Union Good Manufacturing Practice-
`certified (“EU GMP”) facility in Biberach in the state of Baden-
`Württemberg, and thereafter for sale into the German market.
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`*
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`*
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`Pursuant to the Agreement, XPhyto granted PharmaCielo 500,000
`Common Share purchase Warrants (“Warrants”) with an exercise
`price of $2.00 per Common Share.
`
`As a term of the Agreement, PharmaCielo will enter into an
`agreement (the “Purchase Agreement”) to purchase CAD $500,000
`of unsecured convertible debentures of XPhyto (the “Debentures”), to
`fund expansion of its processing capabilities. The Debentures mature
`two years from the date of issue and bear interest of 8.0% per annum.
`The Debentures will be convertible by PharmaCielo into 500,000
`common shares of XPhyto subject to certain XPhyto acceleration
`rights. The purchase of the Debentures is subject to approval by the
`Canadian Securities Exchange (the “CSE”). XPhyto will also grant
`PharmaCielo 500,000 Warrants with an exercise price of $1.50 per
`Common Share.
`
`27. The statements referenced in ¶¶17-26 above were materially false
`and/or misleading because they misrepresented and failed to disclose the
`following adverse facts pertaining to the Company’s business, operational and
`financial results, which were known to Defendants or recklessly disregarded by
`them. Specifically, Defendants made false and/or misleading statements and/or
`failed to disclose that: (1) PharmaCielo engaged in an undisclosed related party
`transactions with General Extract; (2) PharmaCielo engaged in misleading
`transactions and loans with General Extract and XPhyto; (3) PharmaCielo’s
`Research Technology and Processing Centre was never on-schedule and is
`delayed; (4) the Rionegro facility is located on a floodplain and contaminated with
`mold and pesticides from its previous tenants; (5) PharmaCielo’s Cauca
`Department land has never been utilized by the Company and is idle; and (6) as a
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 10 of 24 Page ID #:10
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`result , Defendants’ public statements were materially false and/or misleading at
`all relevant times.
`
`THE TRUTH EMERGES
`28. On March 2, 2020, Hindenburg Research published a report (the
`“Report”) explaining that PharmaCielo had failed to disclose: (i) transactions
`with related parties; (ii) misleading business transactions and loans with General
`Extract and XPhyto; (iii) the delayed state of its Research Technology and
`Processing Centre’s construction; and (iv) the poor state of its Rionegro Growing
`Facility.
`29. The Report noted the following, in pertinent part, regarding
`PharmaCielo’s undisclosed related party transactions:
`PharmaCielo recently announced a U.S. distribution deal with an
`opaque company called General Extract LLC. We found that this is
`yet another undisclosed related party deal, involving PharmaCielo’s
`former COO.
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`*
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`*
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`*
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`The company’s U.S. distribution partner is actually yet another
`undisclosed related-party deal with a company that appears to have
`limited to no credible operations.
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`Undisclosed Related-Party Deals: PharmaCielo’s New U.S.
`Distribution Deal with General Extract LLC Is Yet Another
`Questionable Deal with A Former PharmaCielo COO
`
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`*
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`*
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`*
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`But what the company did not disclose seems far more important:
`General Extract appears to be a related party entity with no credible
`operations run by PharmaCielo’s former Chief Operating Officer.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 11 of 24 Page ID #:11
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`The articles of incorporation [] for General Extract, LLC show “John
`Knapp” as the company’s registered agent.
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`Mr. Knapp was former “Chief Operations Officer” of PharmaCielo,
`per this 2016 regulatory filing [] with British Columbia Securities
`Regulators.
`
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`*
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`*
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`*
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`All told, nearly all of the key people at PharmaCielo’s new U.S.
`distribution partner General Extract (and its parent Redwood
`Green) appear to be related to PharmaCielo.
`
`(Emphasis added.)
`
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`30. The Report noted the following, in pertinent part, regarding
`PharmaCielo’s transactions with General Extract:
`General Extract, Which PharmaCielo Described as an
`“Established Multi State Distributor” Appears to Have No
`Products and No Credible Operations Whatsoever
`
`Most “established” companies at least have a website.
`
`When we examined General Extract, we found that its website []
`domain was registered on November 14, 2019, about 3 weeks after
`entering into its sales agreement with PharmaCielo.
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`Along the same lines, the email address used by General Extract in
`its press [] with PharmaCielo was a Gmail address [] (presumably
`because they didn’t even have a domain registered at the time)[.]
`
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`*
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`*
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`*
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`Despite the claim by PharmaCielo that General Extract is a “multi-
`state” [] distributor, we were unable to find evidence to confirm this.
`Nothing on General Extract’s website as of 3/1/2020 [] says anything
`about multi-state distribution, multiple locations, or suggests any
`clients exist other than PharmaCielo.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 12 of 24 Page ID #:12
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`We Visited General Extract in Colorado And We Found Its
`“Offices” Bore the Logo of a Different Company. Its Parent
`Company’s Office “Suite” Was Actually A Mailbox at A UPS
`Store
`
`Our investigator, did, however, see people leaving various parts of
`the building around 4:50pm local time; some of whom were wearing
`grey sweaters with a logo that resembled a “Good Meds” logo.
`“Good Meds” is the other brand owned by Redwood Green and
`operated by John Knapp [], the individual listed on General Extract’s
`corporate documents [].
`
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`*
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`*
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`*
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`Instead, it appears that General Extract exists largely on paper.
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`Undisclosed Related-Party Deals: General Extract’s Parent
`Corporation, Redwood Green, Is Also Replete with Related Party
`Ties to PharmaCielo
`
`General Extract’s parent company, Redwood Green [] also consists
`of multiple people tied closely to PharmaCielo.
`
`
`*
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`*
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`*
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`All told, nearly all of the key people at PharmaCielo’s new U.S.
`distribution partner General Extract (and its parent Redwood Green)
`appear to be related to PharmaCielo. Most importantly, none of this
`was disclosed to investors when the company touted its “milestone”
`distribution deal.
`
`(Emphasis added.)
`
`31. The Report noted the following, in pertinent part, regarding
`PharmaCielo’s transactions with XPhyto Therapeutics:
`PharmaCielo’s other main partnership, a distribution deal with
`nanocap company XPhyto, appears to be little more than a shell
`game. PharmaCielo is supplying XPhyto with cash so XPhyto can
`turn around and buy PharmaCielo’s products.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 13 of 24 Page ID #:13
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`Another Sketchy “Partnership”: PharmaCielo Is Paying a
`Company Called XPhyto To Buy PharmaCielo’s Product with
`PharmaCielo’s Money
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`XPhyto’s financials show that the company was in apparent distress
`leading up to the deal. In the 9-month period prior to announcing the
`deal, XPhyto reported [] revenue of $45,000, operating losses of
`$5,351,789, and cash of only $791,030. In other words, they look to
`have been at the brink of insolvency.
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`When it boils down to it, this partnership appears to us to be a sham.
`PharmaCielo is paying a distressed company to “buy” its product.
`Aside from the splashy headline, the “deal” appears to offer no
`economic advantage.
`
`In a best-case scenario, we think PharmaCielo will get its own
`money back and have to hand over valuable product. So far, we
`haven’t seen any purchases by XPhyto as
`the partnership
`announcement [] was recent, on January 27, 2020.
`
`Realistically, given the state of XPhyto’s current balance sheet and its
`dwindling cash, we expect PharmaCielo will simply lose most of its
`investment in XPhyto with little to show for it.
`
`(Emphasis added.)
`
`32. The Report noted the following, in pertinent part, regarding
`PharmaCielo’s Rionegro greenhouse facilities:
`According to local sources, the Rionegro greenhouse facilities have
`issues with mold and residual pesticides from the flower-growing
`operation that preceded the company’s use of the facility.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 14 of 24 Page ID #:14
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`The company’s main facility in Rionegro may be troubled with
`mold and pesticide contamination, likely originating from the
`flower-growing operation that preceded PharmaCielo’s assumption
`of the facilities, according to local sources we spoke with. In
`addition, Rionegro planning authorities say one-third of the land is
`unusable due to environmental restrictions and the risk of flooding.
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`Financials and Operations: Reported Issues with Mold and
`Heavy Pesticides in the Company’s Rionegro Facility
`
`investigator spoke with, a
`that our
`Additionally, a source
`businessperson who is part of the flower-growing industry, said
`based on their recent knowledge and entry to the PharmaCielo
`facility, they believed the cannabis crop there was “suffering from a
`bad outbreak of the fungus botrytis (or gray mold.)”
`
`They said the fungus was a major problem with certain flower
`cultivations, especially daisy poms (pompoms) – which is the type of
`flower that our investigator was told was being cultivated on the
`property prior to PharmaCielo taking it over.
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`The other salient land issue is the flood risk from an adjacent stream.
`An officer at the Rionegro planning department explained about
`one-third of the 27 hectare facility could not be used for building or
`agriculture because it was on a flood plain and subject to strict
`environmental controls.
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`(Emphasis added.)
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`33. The Report noted the following, in pertinent part, regarding
`construction on PharmaCielo’s Rionegro Research Technology and Processing
`Centre:
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 15 of 24 Page ID #:15
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`The company’s Rionegro cannabis oil processing centre [the
`Research Technology and Processing Centre], a key element of its
`plan to export oils, remains unfinished after almost 6 months of
`delays.
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`Financials and Operations: Cap-Ex Needs and the Company’s
`Delayed Oil Processing Centre
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`We also see from the same filing that despite the company claiming
`the oil processing centre was “nearing completion” in August 2019,
`by September it estimated that over U.S. $7 million in anticipated
`capital expenditures would be needed in order to complete the
`project.
`
`The company has not yet announced whether the facility is
`completed. We contacted investor relations and asked about its
`status and have not yet received a reply. The facility does appear to
`be under construction, according to pictures posted by a development
`group [] associated with the project[.]
`
`The photos [] were posted around June 2019. Based on the timing,
`we anticipate that the external elements of the building are
`completed or close to being completed. We attempted to visit the
`facility to examine its progress but were unable to.
`
`In either case, investors should factor in the additional estimated $7
`million cash burn from the cap-ex required to complete the facility.
`We also think the company should provide investors with an update
`on progress, with pictures.
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`(Emphasis added.)
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`34. The Report noted the following, in pertinent part, regarding
`PharmaCielo’s land in the Cauca Department of Colombia:
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 16 of 24 Page ID #:16
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`The company announced it was building greenhouse facilities on
`newly purchased land in Colombia’s Cauca region in 2017. We
`visited the land and found the greenhouses don’t exist. The site is
`nothing more than an empty field covered in weeds. (We have photos
`and video)
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`The company’s key 3.6 hectare ‘operation’ in Colombia’s Cauca
`region is actually just an empty field (we have pictures and video).
`We confirmed this with local leaders of a farming co-op that struck a
`deal to grow cannabis with the company.
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`“There’s Nothing There, Just Weeds”: PharmaCielo’s
`‘Greenhouse Facility’ in Cauca Doesn’t Exist
`
`Our investigator visited the Cauca property in February 2020, led by
`a senior member of the cooperative. He saw that PharmaCielo’s
`greenhouse facility in Cauca, first touted 2 years ago, simply doesn’t
`exist.
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`Since the cultivation license was issued in November 2017, the
`person said there has been no further investment, no greenhouse
`has been built and not a single cannabis plant has been sown.
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`(Emphasis added.)
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`35. On this news, shares of PharmaCielo fell $0.5132 per share over the
`next two trading days, or 36.14%, to close at $0.9068 per share on March 3, 2020,
`damaging investors.
`36. As a result of Defendants’ wrongful acts and omissions, and the
`precipitous decline in the market value of the Company’s securities, Plaintiff and
`other Class members have suffered significant losses and damages.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 17 of 24 Page ID #:17
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`PLAINTIFF’S CLASS ACTION ALLEGATIONS
`37. Plaintiff brings this action as a class action pursuant to Federal Rule
`of Civil Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons
`other than defendants who acquired PharmaCielo securities publicly traded on the
`OTCQX during the Class Period, and who were damaged thereby (the “Class”).
`Excluded from the Class are Defendants, the officers and directors of
`PharmaCielo, members of the Individual Defendants’ immediate families and
`their legal representatives, heirs, successors or assigns and any entity in which
`Defendants have or had a controlling interest.
`38. The members of the Class are so numerous that joinder of all
`members is impracticable. Throughout the Class Period, PharmaCielo securities
`were actively traded on the OTCQX. While the exact number of Class members
`is unknown to Plaintiff at this time and can be ascertained only through
`appropriate discovery, Plaintiff believes that there are hundreds, if not thousands
`of members in the proposed Class.
`39. Plaintiff’s claims are typical of the claims of the members of the
`Class as all members of the Class are similarly affected by defendants’ wrongful
`conduct in violation of federal law that is complained of herein.
`40. Plaintiff will fairly and adequately protect the interests of the
`members of the Class and has retained counsel competent and experienced in
`class and securities litigation. Plaintiff has no interests antagonistic to or in
`conflict with those of the Class.
`41. Common questions of law and fact exist as to all members of the
`Class and predominate over any questions solely affecting individual members of
`the Class. Among the questions of law and fact common to the Class are:
`whether the Exchange Act was violated by Defendants’ acts as
`•
`alleged herein;
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`Case 2:20-cv-02182-PSG-JC Document 1 Filed 03/06/20 Page 18 of 24 Page ID #:18
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`whether statements made by Defendants to the investing public
`during the Class Period misrepresented material facts about the
`financial condition and business of PharmaCielo;
`whether Defendants’ public statements to the investing public during
`the Class Period omitted material facts necessary to make the
`statements made, in light of the circumstances under which they
`were made, not misleading;
`whether the Defendants caus