The Elixinol Global Ltd (ASX: EXL) share price has come under significant selling pressure today after returning from a trading halt.
The diversified cannabis company's shares crashed 10% lower to $1.92 this morning.
Why did the Elixinol Global share price crash lower?
Investors have been hitting the sell button on Wednesday after Elixinol Global provided an update on its Japanese operations.
According to the release, the company has established that non-compliant hemp-derived cannabidiol (CBD) products were being sold by Elixinol Japan. The non-compliance relates to the strict requirements in Japan on sourcing CBD from only hemp stalk and seed.
The release explains that the breach was discovered internally following a recent review of the operations of each of its global business units.
Elixinol Global stressed that it takes its compliance with all legislation and regulations seriously. It is now conducting an investigation into the circumstances of the non-compliance by Elixinol Japan. It expects the investigation, which involves an independent legal expert, to complete by the middle of November.
In addition to this, management will now assess the commercial viability of the hemp-derived CBD business unit within Elixinol Japan. In the meantime, it will continue to focus on expanding its distribution in other markets.
What now?
This certainly is not a good look for the company and appears to be an amateurish and potentially costly mistake.
Japan is known to have some of the strictest laws in the world and selling CBD formulas with more THC than allowed (if that is what it has done) can be punishable with jail time and fines.
Not only that, but when it comes to applying for licences, negative instances such as this could go against a company. The Elixinol Japan business represented 8.7% of group pro forma revenue in the first half of FY 2019.
Elsewhere in the industry today, the Althea Group Holdings Ltd (ASX: AGH) share price is in a trading halt pending an announcement relating to a major supply agreement. And the Botanix Pharmaceuticals Ltd (ASX: BOT) share price has crashed 50% lower after disappointing results from its acne study.
