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Jul 30, 2019

Hexo, pot investors shrug off Friendly Bear short-seller report

Bruce Linton says he feels 'very awkward' for cannabis sector amid CannTrust fiasco


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Hexo Corp. (HEXO.TO) is refuting a short seller’s allegations that it could be the next Canadian pot company to become embroiled in scandal. Investors seem to be shrugging off the report too.

The Gatineau, Quebec-based cannabis producer was the biggest gainer Monday on Canada’s S&P/TSX Composite Index, adding 9.2 per cent, the most since April. The stock was little changed in pre-market trading Tuesday in New York even as most other pot stocks declined.

These gains followed a report from short seller The Friendly Bear, which alleged Hexo ran “aggressive product promotions” on Snapchat, potentially violating Canadian marijuana advertising regulations, which prohibit promotions that associate a product or brand with “glamour, recreation, risk, excitement or daring behaviors.” It also questioned whether minors were exposed to the Snapchat ads.

The Friendly Bear predicted Hexo’s stock could follow the same trajectory as CannTrust Holdings Inc., which has tumbled 56 per cent since it revealed this month that it breached growing rules and fired Chief Executive Officer Peter Aceto.

“Hexo is scrupulous in adhering to rules and regulations surrounding cannabis promotion, both federally and provincially,” the company said in an emailed statement. It doesn’t advertise on Snapchat or run any promotional campaigns in its home province of Quebec, and it has an agreement with Snapchat to ensure its ads are only seen by adults in provinces where they’re permitted, it added.

Health Canada, the federal government regulator that oversees the cannabis industry, said it is “aware of the situation and looking into the matter” but couldn’t comment on the specifics of the Hexo ads. A spokesman noted that it’s up to companies to ensure social media promotions can’t be seen by minors.

Quebec’s cannabis regulator said it will contact Hexo in order to get the details related to the report. Hexo said it hasn’t received complaints or notices from the regulators.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.