HEXO stock has been in the red this week after it was revealed that MediPharm Labs (TSX:LABS) (OTCQX:MEDIF) is suing HEXO Corp (TSX:HEXO) (NYSE:HEXO) over failing to pay for millions of dollars’ worth of cannabis oil as part of a supply deal signed in 2018.
HEXO Fails to Pays Its Bills
In a press release issued last Friday, MediPharm Labs said that it had filed a lawsuit against an unnamed company for C$9.8 million in an outstanding payment related to a supply deal announced in 2018. Further court documents show that the suit has been brought against HEXO Corp in the Ontario Superior Court of Justice’s London office, which alleges that no payments have been made to MediPharm since October. HEXO stock has dropped around 15% this week since news of the suit broke.
The deal in question was actually signed between MediPharm and Newstrike Brands Inc.’s UP Cannabis brand in February 2018, a year before HEXO acquired Newstrike in an all-stock deal worth C$260 million. The deal between MediPharm and Newstrike, worth around C$35 million, would have seen the pot producer pay at least C$7.6 million for cannabis oil produced by the extractor, as well as a minimum of C$27 million over the next year and an option to purchase an additional C$13 million worth of oil. HEXO stock is currently trading for $1.67.
Isabelle Robillard, Vice President of Communications at HEXO, said, “The contract is a supply agreement for which we had serious concerns and, in an effort to drive value for our shareholders, we attempted to work in good faith towards a resolution that was suitable for both parties. Unfortunately, these efforts were unsuccessful.”
She added that HEXO Corp intends to “vigorously defend the claim."
Analysts Downgrade HEXO Stock
While the outstanding amount may be relatively insignificant, news of the suit has prompted analysts at MKM to downgrade HEXO stock from buy to neutral, citing a litany of issues arising since the resignation of CFO Michael Monahan last October, including an earnings miss and reduced guidance, a revelation of unlicensed cultivation, and multiple layoffs.
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