b'Zynerba Pharmaceuticals, Inc.:HEXO Corp.: Whiteley v. Zynerba Pharmaceuticals, Inc.Perez v. Hexo Corp., et al., Case No. et al., Case No. 2:19-cv-04959-NIQA1:19-cv-10965-NRB (S.D.N.Y. Nov. 26, 2019)(E.D. Pa. Oct. 23, 2019) HEXO Corporation (HEXO) is Canada-based company Zynerba Pharmaceuticals, Inc. (Zynerba) is aand a licensed producer and distributor of branded clinical stage specialty pharmaceutical company thatcannabis products that cater to both recreation focuses on developing pharmaceutically-producedand medical use. In January 2019, the company transdermal CBD therapies for rare and near-rarefiled a Prospectus Supplement to the Amended neuropsychiatric disorders. and Restated Short Form Base Shelf Prospectus dated December 14, 2018 in connection with its Zynerba began developing a transdermal CBD gel,public offering, which provided revenue guidance Zygel, for treating children and adolescent patientson expected sales and revenue. Subsequently, with developmental and epileptic encephalopathiesin March 2019, HEXO announced that it planned to (DEE). In April 2018, the company initiated phaseacquire Newstrike Brands Ltd., which the company two of one of their clinical trials, which was a six-monthsaid would allow it to boost its production capacity open label multi-dose clinical trial designed to evaluateto 150,000 kg annually, diversify its domestic market the efficacy and safety of Zygel. In September 2019,penetration, and add infrastructure in order to become Zynerba announced the results of the clinic trial,one of the leading cannabis companies in the world. concluding that it was well-tolerated although nearlyIn the proceeding months, the company continued all the patients experienced adverse events rangingto tout its growing revenue and inventory value in from mild to serious, and eight patients discontinuedpress releases and public statements. On October the study. That same day, the companys stock price4, 2019, the company announced that its then-CFO fell approximately 22% to close at $8.84 per share. was resigning after only a few months on the job. Days later, investors filed a putative class actionWithin the next few days, the companys stock price alleging violations of Sections 10(b) and 20(a) of thefell 6.4%. On October 10, 2019, the company issued a Exchange Act, and Rule 10b-5 promulgated thereunder,press release announcing preliminary fourth quarter alleging that the company made materially falsefinancial results and withdrawing its fiscal year 2020 and misleading statements in their public filings andfinancial guidance given that the fourth quarter revenue statements because they failed to disclose the adversewas going to be well below previously released events that were allegedly occurring at the time.guidance. That same day, the companys stock price Instead, plaintiffs alleged that the company continuedfell an additional 35% to $2.85 per share from $3.66. to tout the benefits of CBD for treating patientsOn October 24, 2019, the company announced 200 suffering from DEE and contained only generic,layoffs and that it would be shutting down several of its boilerplate representations about the risks relatedfacilities in Ontario and eliminating certain executive to poor clinical results. roles. The same day, an analyst report scrutinizing HEXOs recent decisions concluded that the companys Lead counsel were appointed on January 9, 2020,position would worsen. The companys stock price and an amended complaint was filed oncontinued to drop to $1.79 per share by the end of March 9, 2020. Defendants filed a motion to dismiss onthe class period.April 23, 2020. The court denied the motion to dismissInvestors filed a putative class action alleging violations without hearing on November 25, 2020. The courtof Sections 10(b) and 20(a) of the Exchange Act, found that plaintiffs allegations that Zynerba knowinglyand Rule 10b-5, against HEXO and its executives for failed to disclose adverse events in their trial werealleged materially false and misleading statements sufficient at the current stage of litigation to supportmade in connection with the companys financial a claim for securities fraud. Defendants moved forreporting. Specifically, plaintiffs alleged that the reconsideration, and on January 15, 2021, filed theircompany failed to disclose that the company misstated answer to plaintiffs amended complaint. The courtits inventory, engaged in channel-stuffing in order to denied defendants motion for reconsideration. inflate its revenue figures in order to meet or exceed As the discovery process was underway the partiesthe revenue guidance provided to investors, and that filed a joint motion to stay the proceedings on Marchthe company was cultivating cannabis that was not 8, 2021 pending the courts consideration of theproperly licensed by Health Canada, the regulatory parties proposed class action settlement. The courtagency overseeing the countrys public health.granted the motion on April 30, 2021, in addition to staying discovery.14'