By Jonathan Stempel

NEW YORK (Reuters) – A U.S. judge on Monday dismissed a lawsuit accusing Tilray (NASDAQ:) Inc, the world’s largest cannabis producer by sales, of fraudulently overstating the value of a marketing and revenue-sharing agreement with Authentic Brands Group Inc.

U.S. District Judge Paul Crotty in Manhattan said shareholders failed to show that the Canadian company exhibited “conscious misbehavior or recklessness” in trumpeting the agreement, when it knew that regulatory uncertainty over cannabis-based products would dampen customer demand.

Crotty stated that Tilray “certainly appears to have overestimated by orders of magnitude both the ABG Agreement’s value and the probability of fortuitous regulation change.” But being wrong, embarrassingly or not, does not make you dishonest.

Crotty said that shareholders did not prove Brendan Kennedy, former chief executive of Tilray, intended to defraud them in arranging a downstream merger between Tilray’s Privateer Holdings Inc and Tilray to preserve Privateer’s voting power over Tilray so they could receive tax benefits.

According to the judge, shareholders can file a fresh complaint in order to correct any deficiencies.

The lawyers for the shareholders didn’t immediately reply to inquiries for comment. Tilray and its attorneys did not immediately reply to similar requests.

Tilray’s shareholder lawsuit on March 2, 2020 resulted in the ABG agreement being reduced by 86% or $102.6million. Shareholders cited regulatory uncertainty and claimed lower margins and inventory than expected.

Tilray’s shares fell 15% in the following day and then dropped 84% within a half-month, which coincided with the COVID-19 pandemic.

Crotty made the ruling nearly four months after a Delaware judge had said that investors could sue for the downstream merger. He also recommended a fairness review because Privateer received “unique” tax advantages.

The case is Kassin et al v Tilray Inc et al, U.S. District Court, Southern District of New York, No. 20-03459