Cannabis firm HEXO (NYSE:HEXO,TSX:HEXO) is coming forward with the revelation that it illegally grew cannabis in an unlicensed room in July.
After the markets closed on Friday (November 15), the Quebec-based cannabis producer informed investors that a section of one of its production facilities in Niagara, Ontario, was found to be inadequately licensed. This facility belongs to HEXO by way of its C$263 million Newstrike Brands acquisition.
Following the issue of a license for the facility in November 2018, the firm claims regulators did not indicate that a specific area, known as Block B, did not fall within the licensing segment, despite it being included as part of the original application.
HEXO states that the federal agency requested more information about that specific section of the operation, but went on to award a license for the Niagara facility.
According to HEXO, the lack of license for Block B went undiscovered in February during a facility inspection by the Canadian regulator, which failed to reveal any issues at large.
The company said it wasn’t until after the Newstrike Brands transaction closed in July that it found Block B was not fully licensed, forcing management to stop cultivation and production in the space.
“The company notified Health Canada instantly, and the regulator was satisfied with HEXO management’s corrective actions,” HEXO said in a statement, adding that cannabis from Block B was then held and scheduled for destruction.
The revelation comes after the company has suffered a variety of woes. Former CFO Michael Monahan announced his departure from the firm just five months after taking the position; this led to HEXO receiving a collection of analyst downgrades, including one from Bank of America Merrill Lynch, which changed its target to C$4 from C$9.
HEXO also withdrew its revenue outlook for 2020 in October, further driving down its value.
“While we are disappointed with what we uncovered, we assume responsibility for any issues with UP products prior to the acquisition,” said CEO Sebastien St-Louis in a statement.
This new transparency update is intended to be a proactive move on HEXO’s part, the firm said, in response to damaging “false information” being spread about the company.
St-Louis previously said the Newstrike acquisition was planned as a way to alleviate the heavy demands HEXO was facing for its products.
HEXO’s Niagara facilities aren’t currently in operation after the company announced in October it was rightsizing and eliminating 200 positions across the company.
HEXO issues follow CannTrust illegal growing debacle
HEXO isn’t the only company in the sector to face illegal growing issues.
CannTrust Holdings (NYSE:CTST,TSX:TRST) rose to infamy in July when its facility in Pelham, Ontario, was hit with a non-compliant rating by Health Canada after an inspection revealed some of its growing rooms weren’t licensed.
Things quickly went from bad to worse once it was found that high-level executives, including former CEO Peter Aceto and former Chairman Eric Paul, knew of the illegal growing, which led to their dismissal and the subsequent suspension of the firm’s production licenses.
Since then, CannTrust has lost 78.6 percent of its value in Toronto.
While falling outside the guidelines of Health Canada may seem like the end for a producer, the regulator set a precedent by issuing a reinstatement for Winnipeg-based cannabis producer Bonify in October.
Health Canada spokesperson Eric Morrissette said in a statement that Bonify had faced contamination issues and was found to be processing and distributing cannabis product from an illegal source. The cannabis was then delivered to stores in Saskatchewan.
CannTrust similarly has placed itself on a path to attempt to regain its status as a legal producer under the approval of Health Canada. In October, the firm announced it expects to complete all the activities marked in its remediation plan by the end of Q1 2020.
“The Company has already made significant progress in this regard, and is committed to completing all of the remediation actions outlined in the plan, with input from Health Canada as appropriate,” CannTrust Chairman and Interim CEO Robert Marcovitch said in a statement.
Don’t forget to follow us @INN_Cannabis for real-time news updates!
Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
As investors continue to prioritize cannabis opportunities in the US, market watchers expect mergers and acquisitions (M&A) to play a role in the future for Canadian companies.
A consolidation trend has been expected in the Canadian cannabis space for some time now based on the size of the market compared to the number of operations in the country.
BioHarvest Sciences Inc. Unveils the Unique Polyphenolic Content of Its Upcoming Olive-Based Nutraceutical
The product will include polyphenols known to have significant health benefits.
BioHarvest Sciences Inc. (CSE: BHSC) (“BioHarvest” or the “Company”) has reached an important milestone in its development program of additional Nutraceuticals. The olive-based Nutraceutical product scheduled for market availability in the second half of 2022 will contain the following unique matrix of polyphenols: hydroxytyrosol, trosol, and verbascoside. These compounds are the major polyphenols in naturally grown olives and are responsible for the high antioxidant activity of olives and olive oil. Importantly, the BioHarvest olive-based Nutraceutical product will provide all the benefits of olives and olive oil with a low calorie count per serving.
Cresco Labs (CSE:CL) (OTCQX:CRLBF) (“Cresco” or the “Company”), one of the largest vertically integrated multistate cannabis operators in the United States, announced today that it will report financial results for the fourth quarter and full year ended December 31 st , 2020 on Thursday March 25 th , 2021 before the market opens.
The Company will host a conference call and webcast to discuss its financial results and provide investors with key business highlights on Thursday March 25 th , 2021 at 8:30am Eastern Time (7:30am Central Time).
Canopy Growth to Participate in BofA Securities Virtual Consumer & Retail Technology Conference on March 11, 2021
Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) (“Canopy Growth” or “the Corporation”) announced today that EVP & CFO Mike Lee will be participating in a fireside chat at the BofA Securities Virtual Consumer & Retail Technology Conference on Thursday, March 11, 2021 at 9:30am ET .
Hill Street Beverage Company Inc. (TSXV: BEER) (“Hill Street” or the “Company”). The Company announces that further to its press release dated March 2, 2021, it has obtained TSX Venture Exchange approval to extend the closing date of its previously announced private placement of units (“Units”) until April 7, 2021. Each Unit is comprised of one (1) common share and one (1) warrant, exercisable for one common share at price of $0.11 per share, for a period of three (3) years from the date of Closing. The Company applied to extend the date of closing to allow a greater number of interested investors to participate.
For more information regarding the Company or the offering, please contact email@example.com, or