Hexo Corp Admits to Growing Cannabis in Unlicensed Space Due to Confusion

Hexo Corp (TSX: HEXO) this evening announced that it had previously been growing cannabis in unlicensed space at what was once a Newstrike Brands facility. The firm blamed the illegal cultivation on confusion related to what areas were specifically licensed by Health Canada. Upon the discovery in July, two months after the close of the Newstrike acquisition, the firm halted operations within the unlicensed space.

“The UP Cannabis cultivation facility in Niagara was licenced by Health Canada and production from that facility began shortly after. Block B – the space in question – was included in the licence application. In October 2018, Health Canada requested additional information for the application, pertaining specifically to the building where Block B is housed. When the licence was received, the team was under the impression that Block B was included in the licence. In February 2019, Health Canada conducted an inspection of the facility, which included Block B and no observations were made about cultivation in this space. This further reinforced the assumption that it was indeed a licensed growing space.”

Hexo came to the realization that the facility was not as fully licensed as originally believed to be on July 30, 2019 – two months after the close of the Newstrike acquisition in May. The firm states that it immediately halted production within the space and contacted Health Canada to alert them to what had occurred. Health Canada was reportedly satisfied with Hexo’s corrective actions.

The facility in question, Newstrike’s Niagara facility, is now no longer in operation as of October 24, 2019 following Hexo’s decision to halt certain production due to market pressures.

Hexo released the information this evening as a means of being “proactive” in addressing the occurrence due to allegedly false information being spread about the event. However, the claim of being proactive in releasing the information is questionable, considering the discovery happened over three months ago

Despite the discovery of the facility not being fully licensed, Hexo Corp has yet to conduct goodwill impairments on what was acquired through the acquisition of Newstrike, despite the assets now not being worth what was originally perceived.

Hexo Corp last traded at $2.35 on the TSX.

Information for this briefing was found via Sedar and Hexo Corp. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.