Hexo Corp. destroying cannabis grown in unlicensed area of Niagara facility

Hexo Corp. says it is in the process of destroying cannabis that was grown without a licence at a facility it acquired in Niagara, Ont., that was part of its purchase of Newstrike Brand Ltd.

The Quebec-based company said it discovered in July, soon after the Newstrike deal closed, that cannabis being grown in Block B of the UP cultivation facility was not licensed.

Hexo said it immediately ceased cultivation and production in the unlicensed space and notified Health Canada.

"We made them aware the same day that we were made aware of the situation," spokeswoman Isabelle Robillard said Friday. "They were satisfied with the corrective measures that we had already put in place."

She said the company wasn't fined or had its licence affected.

Health Canada couldn't be immediately reached for comment.

Robillard said it only disclosed the issue months after discovering the problem because it became aware of "false information that was being circulated to damage the reputation of the company."

"We worked with Health Canada, we shut it down immediately and deemed there was no need to disclose at that time," she said in an interview.

Hexo said Health Canada inspected the facility in February and made no observations about the space in question, reinforcing Hexo's belief that it was a licensed space.

"While we are disappointed with what we uncovered, we assume responsibility for any issues with UP products prior to the acquisition," Hexo chief executive and co-founder Sebastien St-Louis said in a news release.

The facility is no longer in operation after Hexo announced on Oct. 24 that it was winding down the Niagara operations as part of its downsizing effort and cutting 200 jobs, including the elimination of some executive positions and the departures of the chief manufacturing officer and chief marketing officer.

UP cannabis is now grown at Hexo's licensed cultivation facility in Gatineau, Que., and at an indoor cultivation facility in Brantford, Ont.

Hexo said it retains the ability to reopen the Niagara facility should demand increase.

The cannabis producer isn't the first to be affected by unlicensed production.

CannTrust Holdings Inc. has been mired in turmoil since it disclosed in July that Health Canada had discovered illicit cultivation in unlicensed rooms at its Pelham, Ont., greenhouse.

The company later terminated its chief executive "with cause" and asked its chairman to resign after the board discovered new information during an internal investigation. Health Canada suspended CannTrust's licenses to produce and sell cannabis in September.

It announced Oct. 25 that as many as 140 people — roughly one quarter of its workforce — was being laid off while it works to regain its federal licences to sell and produce pot.

This report by The Canadian Press was first published Nov. 15, 2019.

Companies in this story: (TSX:HEXO)

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