Please ensure Javascript is enabled for purposes of website accessibility

Why Marijuana Stocks HEXO and Organigram Holdings Got Trounced on Friday

By Eric Volkman – Jun 19, 2020 at 6:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A new class-action lawsuit is a buzz kill for the two Canadian peers.

What happened

HEXO (HEXO -0.35%) and Organigram Holdings (OGI -0.96%) both declined more steeply than the overall stock market on Friday (in excess of 3% in both cases).

What seems to have triggered this sell-off is a new class action lawsuit that hit the headlines that day, in which HEXO and Organigram -- among other Canadian marijuana companies -- were named as defendants.

Gavel with marijuana leaf.

Image source: Getty Images.

So what

The suit, brought by a woman named Lisa Marie Langevin, alleges that these companies sold cannabis products that contained significantly different levels of THC or cannabidiol (CBD) than advertised on their labels. Some of these products had far higher levels than indicated, or had lost potency due to being stored in containers made of plastic (which supposedly affect potency due to degradation or absorption).

The lawsuit considers all Canadians who bought medical marijuana products from HEXO, Organigram, and 13 other businesses in the sector, including Aurora Cannabis and Tilray, between June 16, 2010 and the present day to be potential members of the class.

Langevin's lawyers are asking for 500 million Canadian dollars ($368 million) in compensation. She claims that a cannabis oil product she bought in February 2020 had no effect after she consumed it.

Now what

CA$500 million isn't a huge amount when spread over 15 businesses, but every financial hit is damaging in the cash- and profitability-strapped cannabis sector. This is particularly true of relatively smaller operators like HEXO and Organigram, which are already skating on thin financial ice.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends OrganiGram Holdings. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

OrganiGram Holdings Stock Quote
OrganiGram Holdings
OGI
$0.89 (-0.96%) $0.01
HEXO Stock Quote
HEXO
HEXO
$0.17 (-0.35%) $0.00
Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$1.20 (-1.64%) $0.02
Tilray Stock Quote
Tilray
TLRY

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.