HEXO Reveals Illegal Cannabis Growing Amid Licensing Issues

Article by Danielle Edwards, Investing News

HEXO Reveals Illegal Cannabis Growing Amid Licensing Issues Danielle Edwards - November 18th, 2019 a marijuana plant in soil The Quebec-based company said a section of one of its cannabis facilities in Niagara, Ontario, was found to be inadequately licensed. Cannabis firm HEXO (NYSE:HEXO,TSX:HEXO) is coming forward with the revelation that it illegally grew cannabis in an unlicensed room in July.

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.

Read the full article here.

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