Shares of Canadian pot producer HEXO (HEXO.TO)(HEXO) fell to a two-year low after the company revealed late Friday that it grew cannabis in a space “not adequately licenced” by Health Canada at a Niagara, Ont. facility. Now, analysts are asking why it took months for the company to tell investors after management discovered the lapse.

The public admission by Gatineau, Que.-based HEXO came more than two-and-a-half months after the company said it discovered its “Block B” room inside a building formerly-owned by Newstrike Brands was not fully licenced on July 30. Hexo acquired Newstrike Brands on March 28 for $263 million.

News of unlicensed cultivation at HEXO came on the heels of a dismal week of financial results from the sector’s largest producers, and months after the revelation of illegal growing at Vaughan, Ont.-based CannTrust (TRST.TO)(CTST), a scandal that led to the firing of CEO Peter Aceto and saw thousands of kilograms of cannabis seized by Health Canada.

CannTrust shares have fallen more than 80 per cent since the company disclosed Health Canada's finding that it was growing pot in a Southern Ontario greenhouse before getting the appropriate licences. HEXO shares are down about 53 per cent year-to-date following a series of financial stumbles, layoffs and operational changes.

According to HEXO, Health Canada requested additional information from Newstrike Brands about the building where Block B is located in October 2018, a month before it granted a licence for the facility. HEXO said, “the team was under the impression that Block B was included in the licence.” Adding to the confusion, HEXO said Health Canada inspected the facility where Block B is housed in February 2019. 

“No observations were made about cultivation in this space,” HEXO stated in a news release. “This further reinforced the assumption that it was indeed a licenced growing space.”

CEO Sebastien St-Louis said Health Canada was instantly notified when management discovered the licensing lapse, adding the regulator is satisfied with management’s corrective actions. HEXO has since shuttered its Niagara operations, moving production for its UP cannabis brand to its Gatineau facility.