U.S. court dismisses class-action lawsuit against Ottawa-based Hexo

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An Ottawa-based cannabis company says a U.S. court has dismissed a class-action lawsuit filed against the firm on behalf of shareholders who claimed the pot producer misled them and failed to disclose problems with the business.

Hexo said Wednesday that the U.S. District Court for the Southern Region of New York ruled that the plaintiffs in the suit “failed to allege actionable misstatements or omissions” under U.S. securities law. 

The court also rejected the plaintiffs’ allegations that Hexo engaged in fraudulent or reckless conduct with the intent to deceive shareholders, the company said.

“We are gratified by the Court’s thorough opinion dismissing the plaintiffs’ claims and emphatically rejecting their arguments that Hexo made any material misstatements,” Hexo general counsel Roch Vaillancourt said in a statement. 

In a news release Wednesday, Hexo said class-action lawsuits have also been filed against it in the New York Supreme Court for the County of New York and in the province of Quebec.

“While there are still other shareholder suits pending, this ruling should help reduce the litigation burdens facing our company as we continue to build our global brand,” Vaillancourt said in an email to OBJ.

Hexo was one of three major Canadian pot producers listed on U.S. stock exchanges that were hit with class-action suits last year alleging they exaggerated or overestimated sales figures and market potential.

According to media reports in February 2020, Hexo was accused of failing to inform investors it was inflating its revenue figures by sending retailers more products than they were able to sell. The court filing also said the company didn’t tell investors its cannabis inventory was misstated and that a facility it acquired from a rival producer in 2019 was growing pot without proper federal approvals.

Meanwhile, Smiths Falls-based Canopy Growth, Canada’s largest pot producer, and Edmonton’s Aurora Cannabis are also facing lawsuits alleging they exaggerated or overestimated market demand for their products.

Both companies have denied the allegations, which have not been proven in court. 

In a statement to OBJ on Wednesday morning, Canopy Growth spokesperson Jennifer White said a proposed class-action suit against the company currently pending before a U.S. District Court in New Jersey remains active. Canopy filed a motion to dismiss the lawsuit last month.

Hexo shares were down 28 cents to $8.51 in mid-afternoon trading on the Toronto Stock Exchange. 

The company is slated to report its second-quarter financial results for fiscal 2021 next week. Hexo posted net revenues of $29.5 million for the first quarter ending Oct. 31, up from $14.5 million a year earlier.