In recent news, HEXO Corp. (HEXO) plans to destroy cannabis from its unlicensed facility. A part of the company’s Niagra facility does not have a valid license for cultivation. Also, the company announced its decision to shut down its operations in the Niagara facility. From the time of this news, the company lost 22% in stock value.
HEXO loses license
The Niagara facility was a part of Newstrike Brands ltd. The company applied for a cultivation license from Health Canada. The license covered the Niagara facility, including Block B. In response to the application, Health Canada asked for more information about Block B in October 2018. HEXO got the license and started its operations in November 2018. However, management was under the impression that the license covered the Block B area.
Further, Health Canada inspected the facility in February 2019. The inspection included the unlicensed Block B area. However, Health Canada did not raise any objections about the Block B area. This further confirmed management’s assumption about the scope of the license.
On May 24, HEXO closed the deal with Newstrike Brand Ltd. At the end of July, Hexo discovered that Block B was not a part of the license. Management immediately stopped cultivation in the unlicensed Block B space. Also, the company informed Health Canada about the situation.
HEXO ceased its operations in the Niagara facility and moved it to the Gatineau facility. Management revealed a short part of the inventory from the Niagara facility reached the market. The company ceased shipping the inventory from the facility. Further, HEXO will destroy the inventory held from the Niagara facility.
Even though facility operations are shut down, HEXO keeps the right to reinstate the facility. The company plans to restore the facility if the demand increases. HEXO’s decision to downsize involves laying off 200 jobs. Also, this includes removing a few executive positions.
HEXO CEO and co-founder Sebastien St-Louis said, “Upon discovering that cannabis was being grown in an inadequately licensed area of the Niagara facility we immediately ceased all activities and notified Health Canada, While we are disappointed with what we uncovered, we assume responsibility for any issues with UP products prior to the acquisition.”
HEXO stock performance
HEXO’s stock is showing a declining trend like most of its peers. The company’s stock lost 22% after news broke about the company’s downsizing decision.
Another licensed cannabis producer Canntrust Holdings (CTST) faced a similar situation a few months back. CTST stock value fell by almost 80% after Health Canada uncovered its unlicensed cultivation sites and inventories.