Elixinol Global (ASX:EXL,OTCQX:ELLXF) has discovered that non-compliant hemp-derived cannabidiol (CBD) products were being sold by its subsidiary Elixinol Japan.

Last Wednesday (October 23), the New South Wales-based cannabis company informed investors that the breach was found during a recent review of the company’s individual business units.

“The non-compliance relates to the strict requirements in Japan on sourcing CBD from only hemp stalk and seed,” the company said in a statement.

The company has now launched an investigation, aided by an undisclosed independent legal expert, to reveal how the non-compliant products got into the facility. Elixinol Global said that it hopes to complete the review by mid-November.

In an email statement to the Investing News Network, Ron Dufficy, CFO at Elixinol Global, declined to comment on the situation until the case is complete.

As a part of the investigation, Elixinol Global plans on assessing the commercial viability of the CBD business at its operation in Japan, telling investors they should expect a market update once the firm completes its evaluation.

During H1 of the 2019 fiscal year, Elixinol Japan brought in AU$1.6 million in revenue, representing 8.7 percent of Elixinol Group’s AU$18.3 million in group pro forma revenue.

Elixinol Global slumps on Q3 results

Shares of Elixinol Global took a hit during the trading day on Wednesday (October 30) after the company released its results for the third fiscal quarter on Tuesday (October 29).

The firm fell 5.7 percent early in the trading day to AU$1.53. The company has experienced a drop year-to-date of 43 percent from a price of AU$2.69.

During the third quarter, Elixinol Global’s group revenue dropped 3 percent from the previous quarter to AU$9.6 million.

The next quarter could see cash outflows of AU$24.2 million, the company estimates.

In Q2, the company boasted a cash balance of AU$48.1 million, which has since dropped to AU$34.3 million due in part to operating costs of AU$11.4 million.

In a statement, Stratos Karousos, CEO of Elixinol Global, said the company plans to continue focusing on diversifying its business and making further investments in the global cannabis market.

“We remain very confident in our future growth strategy as we continue to diversify our branded product mix through a multi-channel sales approach,” the executive said.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

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