In 2023, TPCO Holding Corp., a British Columbia-incorporated cannabis company, merged with a private entity, Gold Flora LLC. A group of minority TPCO shareholders believed the deal undervalued their stake and exercised their dissent rights, asking the court to determine the payout value for their shares based on the fair value of the shares at the time the transaction was approved.

Managing Director Robert Patton was retained by the minority shareholders to provide an expert opinion on the fair value of TPCO shares. The company argued fair value was the contemporaneous trading price of TPCOs shares. Relying on Mr. Patton’s report and testimony, the court disagreed, finding that “Mr. Patton’s analysis reliably demonstrates that TPCO’s stock did not react to value-relevant news,” which, along with other tests of market efficiency carried out by Mr. Patton, demonstrated TPCO’s shares were not traded in an efficient market, implying its stock price was not a reliable measure of fair value.

Instead, the court agreed with Mr. Patton that the higher merger price, negotiated between the parties and communicated to TPCO’s shareholders and to securities regulators, was a reliable indicator of fair value. Mr. Patton confirmed this result by carrying out additional valuation analyses based on comparable companies and precedent transactions. The court found that these analyses were “reasonable, that [Mr. Patton] undertook his various valuation methodologies rigorously, and that his analysis produced reliable results.”

The court also noted the care taken by Mr. Patton in carrying out his analysis: “Mr. Patton took steps to review source documents (in the form of quarterly and annual reports) to verify the accuracy and reliability of the data summary source he had relied on.”

Ultimately, the court ruled the petitioners were entitled to 100% of their requested payout value. This resulted in a payout of approximately $17 million, as compared to the approximately $3 million payout the company had argued was appropriate. The court also awarded costs and pre-judgment interest to the petitioners. 

Download the Michalowski (Trustee) v Gold Flora Corporation decision here.