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Class-Action Lawsuit Against HEXO Dismissed "In Its Entirety"

By Rich Duprey - Mar 10, 2021 at 1:46PM

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The judge's decision should clear one obstacle from the marijuana producer's path forward.

A class-action lawsuit filed against marijuana producer HEXO (HEXO 1.58%) for supposedly making material misstatements to investors and omitting material information about revenue, supply agreements, and facilities it acquired has been dismissed "in its entirety."

According to HEXO, the federal court for the Southern District of New York agreed with its assertion that the plaintiffs "failed to allege actionable misstatements or omissions" under U.S. securities laws, while also rejecting the contention HEXO engaged in fraudulent or reckless conduct over its disclosures.

The marijuana grower did note, however, that while the suit was completely dismissed, the plaintiffs have the right to appeal the decision.

Woman examining marijuana plant

Image source: Getty Images

The plaintiffs leveled a number of the charges against HEXO, among them accusing it of improperly reporting inventory levels because it failed to write down obsolete product that no longer held value, engaging in channel-stuffing to inflate its revenue to meet guidance, and cultivating marijuana at a Niagara facility that it acquired from Newstrike, which reportedly did not secure the appropriate licenses from Health Canada.

The lawsuits were filed against HEXO after it provided preliminary revenue results for its fiscal 2019 fourth quarter that were nearly 50% lower than the guidance it had previously issued, and withdrew the guidance it had served up for its fiscal 2020 (which ended July 31).

HEXO described the 60-page decision from the court as a "thorough opinion" that dismissed the plaintiffs' case by "emphatically rejecting their arguments." If the decision stands, it will allow HEXO to get on with building its global marijuana brand while reducing its litigation costs.

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