It said the ad went beyond the acceptable use of stereotypes and satire, and encouraged the discrimination and ridicule of red-headed people.
The ASA's ruling follows a number of complaints, including that it was "likely to cause ridicule for people with red hair by stating they are not wanted".
The complaints noted the ad singled out red-headed children in particular.
Advertising agency M&C Saatchi responded that the ad had to "dial up the ridiculous message" to ensure the hyperbole was not construed as a serious or realistic situation.
"It was always supposed to be a joke."
The agency noted Hakanoa had apologised to the people it offended and had pulled the campaign.
It said Hakanoa was a small brand with a small budget, and the ad was meant to generate "significant PR" - which it did.
But that did not impress the ASA, which noted the ad had not been prepared "with a due sense of social responsibility to consumers and to society".