HEXO Corp. Class Action Lawsuit
- Company Name
- HEXO Corp.
- Stock Symbol
- Class Period
- January 25, 2019 to November 15, 2019
- Southern District of New York
On November 26, 2019, the HEXO class action lawsuit was filed charging HEXO and certain of its officers with violations of the Securities Exchange Act of 1934. The HEXO class action lawsuit was commenced in the Southern District of New York on behalf of purchasers of HEXO common stock between January 25, 2019 and November 15, 2019 (the “Class Period”) and is captioned Perez v. Hexo Corp., et al., No. 19-cv-10965.
HEXO is a licensed producer and distributor of branded cannabis products. The HEXO securities class action lawsuit alleges that during the Class Period, defendants failed to disclose that: (1) HEXO’s reported inventory was misstated, as it was failing to write down or write off obsolete product that no longer had value; (2) HEXO was engaging in channel-stuffing to inflate its revenue figures and meet or exceed revenue guidance provided to investors; (3) HEXO was cultivating cannabis at its facility in Niagara, Ontario that was not appropriately licensed by Health Canada; and (4) that, based on the foregoing, defendants’ positive statements about HEXO’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis. As a result of this information being withheld from the market, HEXO common stock traded at artificially inflated prices of more than $8.00 per share during the Class Period.
On October 4, 2019, HEXO announced the abrupt and immediate resignation of its then Chief Financial Officer, Michael Monahan. On this news, HEXO’s stock price fell more than 6%. Then, on October 10, 2019, defendants announced that they now expected HEXO’s net revenue for the fourth quarter of 2019 to be approximately CAD$14.5 million to $16.5 million, well below previous guidance that called for CAD$24.8 million. Further, defendants announced that HEXO had elected to withdraw its fiscal year 2020 financial outlook, which had included anticipated net-revenue of approximately CAD$400 million for the fiscal year. HEXO’s Chief Executive Officer, defendant Sébastien St. Louis, attributed the lower expected revenue to “lower than expected product sell through,” “[s]lower than expected store rollouts, a delay in government approval for cannabis derivative products and early signs of pricing pressure[,] . . . [a] delay in retail store openings [and] regulatory uncertainty.” On this news, HEXO’s stock price declined more than 22%.
On October 24, 2019, HEXO announced 200 layoffs, which resulted in the subsequent shutting down of several facilities HEXO operated near Niagara Falls, Ontario. HEXO further postponed its quarterly earnings report, having just inked a CAD$70 million deal with an investor group that included defendant St. Louis and three board members. That same day, CIBC World Markets Corp. published a scathing analyst report regarding HEXO and downgraded HEXO to Underperformer, with a new lowered $3 price target. On this news, HEXO’s stock price fell more than 6%. Then, on October 29, 2019, HEXO reported its financial results for the fourth quarter and 2019 fiscal year, announcing that HEXO had taken an impairment on CAD$16.9 million of inventory purchased in the prior period due to declining market prices. HEXO further confirmed that “[c]ultivation has been suspended at the Niagara facility.” On this news, HEXO’s stock price fell an additional 3%.
Finally, on November 15, 2019, HEXO issued a press release entitled “HEXO Corp provides additional transparency on licensing,” in which it admitted that it grew marijuana in an unlicensed facility in Niagara, Ontario. On this news, HEXO’s stock price dropped more than 5%.
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