Embattled cannabis producer Hexo Corp. (HEXO) says it has settled a dispute with an activist investor who sought to restructure the company’s board of directors through a proxy fight.
Hexo said it will add two directors nominated by Kaos Capital Chief Executive Officer Adam Arviv to its board - Nocera Investment Director Mark Attanasio and Brown Lab Industries President Rob Godfrey - effective immediately.
In addition to the new board appointments, Hexo's current board Chair John Bell announced that he will step down from his role and will be replaced by Attanasio, while Emilio Imbriglio, Adam Miron, and current Chief Executive Officer Scott Cooper will also resign from the board.
As a result of these changes, Hexo’s board of director’s size will be reduced to seven members, all of which are independent, and will stand for election during a shareholder meeting on March 8.
The settlement ends a six-month-long stand-off between Arviv and Hexo management following the company's financing efforts over the past year aimed at acquiring several cannabis producers to help it emerge as the top-ranked Canadian pot producer by sales.
In a letter to Hexo's board in September, Arviv stated those financing deals were poorly constructed and called for the resignation of then-CEO Sebastien St-Louis.
St-Louis stepped down from the top job a month later, but Arviv continued to press Hexo's board for further changes as the company's stock has plunged more than 91% over the past year while also alleging that it was running short of capital to handle daily operations and could be at risk of filing for bankruptcy.
He submitted a slate of five independent directors he would like shareholders to vote for earlier this month that included Attanasio and Godfrey, as well as himself.
With Hexo's board battle appearing to be over, the company's attention will likely turn to resolving issues with its listing on the Nasdaq exchange as its stock currently is not compliant with minimum pricing requirements.
Hexo said in a management circular that it is in the best interests of the company to conduct a reverse stock split to raise its shares above the $1 U.S. per share minimum threshold and abide by Nasdaq listing requirements. It plans to ask shareholders during its March meeting to vote on the proposed reverse stock split.
Earlier this month, Hexo announced it would lay off 180 staff in another move to cut costs as it looks to increase cash flow and report positive earnings. The layoffs are expected to generate approximately $37.5 million this fiscal year in new cash flow and about $135 million in its next fiscal year.
