HEXO CORP. (TSX: HEXO)

Quebec Superior Court of Justice, Court File No.: CV-500-06-001029-194

 

This securities class action relates to the Defendants releasing core and non-core documents which contained omissions of material fact about its April 11, 2018 supply agreement with the province of Quebec and representing that all of its operations, including the grow facility in Niagara, Ontario were properly licensed. The Plaintiff further alleges that the value and price of HEXO’s securities were artificially inflated after the Defendants released each impugned statement alleged to contain a misrepresentation.

First, on June 12, 2019, the Defendants released its Q3 2019 earnings and provided a conference call to clarify the numbers. In doing so, the Defendants conceded that it only sold 5,500 kg of product to Quebec was not on track to sell 20,000 kg of product to Quebec during the first year of the contract but, rather, it may be pushed out to as late as December 2019. Nevertheless, the Defendants stressed that Q4 would double Q3 numbers.

Second, on October 10, 2019, the Defendants released a statement about its preliminary Q4 2019 numbers. It shocked the market announcing that it was withdrawing its previously issued financial outlook of net revenues and sales and, as a result, reconfiguring its operations. On June 12, 2019, it projected approximately $31.8 million in net revenues but reduced to $14.5 to $16.5 million in net revenues and removed its 2020 guidance of $400 million in revenues.

Third, on October 28, 2019, the Defendants released its MD&A for its 2019 fiscal year ended July 31, 2019, announcing that it was suspending its newly acquired production and cultivation plant in Niagara, Ontario, and suspending cultivation at its main facility in Gatineau, Quebec.

Lastly, on November 15, 2019, the Defendants released statements revealing that by July 30, 2019, it learned that one of the buildings that it acquired from Newstrike Brands Ltd. was, in fact, not licensed to grow cannabis. HEXO’s management immediately ceased cultivation and production activities in the unlicensed space. The Defendants, however, did not inform investors at that time.

Claim or Motion for Authorization issued: November 19, 2019

Class Period: April 11, 2018 to and including June 12, 2019

Judge: To be assigned

Motion Record in Support for Statutory Claim Filed: 4Q 2019

Shareholders’ Canadian Counsel: Albert Pelletier, Morganti & Co. (Toronto) and Charles O’Brien, Lorax Litigation (Montreal)

Corporate Defendants’ Canadian Counsel: To be assigned