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Medipharm Labs Sues HEXO for Breach of Contract

By Eric Volkman - Jan 27, 2020 at 4:18PM

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The dispute is over nearly CA$10 million in unpaid bills stemming from a 2019 supply deal.

A disagreement between two Canadian cannabis companies is headed to court. Medipharm Labs (MEDIF 7.52%) said in a tersely worded press release Friday that one of its subsidiaries has filed a legal claim against "a licensed producer" in the Ontario Superior Court of Justice.

Medipharm did not identify this party but did say that that "[t]he Claim relates to, among other things, the payment of outstanding amounts of approximately $9.8 million [Canadian dollars]."

This stems from a deal announced in Feb. 2019 with the "licensed producer," again not named, in which Medipharm's counterparty was to purchase roughly CA$35 million ($27 million) worth of cannabis oil concentrate from the company over the course of one year. "Licensed producer" also had an option to buy an additional CA$13.5 million ($10.3 million) of concentrate during the term of the deal. 

Marijuana leaf atop a gavel.

Image source: Getty Images

According to an article published Monday by BNN Bloomberg, citing court documents it obtained, the target of the lawsuit and the deal's counterparty is prominent Canadian producer and distributor HEXO (HEXO 0.67%).

The article quotes one of those documents as saying that: "The Defendant [HEXO] has failed to fulfill its contractual obligations for the months of November 2019, December 2019, and January 2020, specifically, the invoices have been delivered by the Supplier [Medipharm] and HEXO has failed to pay the 50% payable for the amount of the committed purchase for those months."

A HEXO spokesperson told BNN Bloomberg that the company will "vigorously defend the claim." HEXO has not yet issued an official statement on the lawsuit. Medipharm has said it will not comment further.

Shares of both marijuana stocks fell on Monday; Medipharm dropped sharply by over 18%, and HEXO's stock fell by almost 6%. 


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