Call it “growing pains”. News is out of a legal dispute between major Canadian LP, Hexo Corp (US:HEXO / CAN:HEXO) and extraction leader, MediPharm Labs (CAN:LABS / US:MEDIF).
MediPharm is alleging CAD$9.8 million is outstanding with respect to an extraction contract between MediPharm and Hexo. Hexo acknowledges the dispute. However, Vice President of Communications Isabelle Robillard says Hexo had “serious concerns” regarding the contract and had tried to “work in good faith towards a resolution”.
Complicating the matter, the original contract was between MediPharm and Newstrike Brands Inc. Hexo subsequently acquired Newstrike and inherited its legal obligations.
The $9.8 million at issue is part of a CAD$35 million extraction contract between MediPharm and Newstrike executed in 2018. Under the terms, MediPharm asserts that it is owed a minimum of CAD$7.6 million for cannabis oil it provided, along with at least $27 million in additional payments for extraction services.
Hexo’s stock has been under pressure due to revenue growth that has failed to meet expectations. Based in Quebec and the province’s dominant cannabis supplier, Hexo has been particularly affected by the provincial government’s phobic behavior toward cannabis legalization – and a lack of licensed cannabis stores.
MediPharm’s shares have performed better for investors. One of two industry extraction leaders in Canada, MediPharm was one of the best-performing cannabis stocks in 2019. In 2020, the company remains a “buy” according to PI Financial analyst Devin Schilling.