Cannabis Weekly Round-Up: HEXO Quarterly Loss Reaches C$146.6 Million

HEXO shareholders face week of struggles

As part of the financial report for its third fiscal quarter, HEXO announced a net loss of C$146.6 million for the period. The loss came despite a near doubling of revenue from the same time last year.

CEO Charlie Bowman said the company is “committed to streamlining” its operations in order to become cash flow positive and drive growth. According to a report from BNN Bloomberg, the cannabis producer will save C$30.6 million by letting go of 450 employees.

Given its recent performance, HEXO has elected to take back its previous financial guidance for 2022 and 2023.

Also this week, HEXO revised its previously announced agreement with Tilray Brands (NASDAQ:TLRY,TSX:TLRY). The deal, which will give Tilray the ability to acquire a stake in HEXO, will now let Tilray do so at a lower price.

“The partnership is an essential next step in improving our capital structure, and we’re confident that the synergies realized will reset the industry,” Bowman said.

On top of its own challenges this week, HEXO recognized the struggles its Zenabis Global subsidiary is undergoing at the moment. Zenabis has filed a petition with a Quebec court for protection under the Companies’ Creditors Arrangement Act; its goal is to restructure its business and financial affairs.

In its filing, Zenabis said the following about its current situation:

Due to, among other things, margin pressures caused by the fragmentation of the overall cannabis industry, general operational and financial underperformance, and financial pressures resulting from obligations owing to creditors, the Zenabis Group has been unable to generate positive cash flows and it has consistently incurred cumulative losses.

The news reflects the struggles cannabis investment experts see in the Canadian space — for quite some time, market watchers have emphasized that there’s no more room for error for some players, suggesting that the path to turning things around is starting to disappear. Amid increasing losses at home, Canada's cannabis companies are also not finding it easy to access the US market.

Canadian retailer shares financial results

Cannabis retailer Fire & Flower Holdings (TSX:FAF,OTCQX:FFLWF) offered investors a closer look at its latest financial numbers as the company presented results for its first fiscal quarter.

The firm reported a net loss of C$9.9 million, resulting in a loss per share of C$0.27 for the period, thanks in part to a decrease in revenue. The loss this quarter, however, was an improvement compared to the same period last year, when the company posted a C$16.5 million loss.

The lower revenue line for the firm, C$40.9 million for the quarter, was blamed on “increasing competition from new licenses issued and pricing pressures in the cannabis retail market.”

Stéphane Trudel, CEO of Fire & Flower, said the firm is aiming to achieve positive adjusted EBITDA and free cash flow. In response to the increasing challenges eating away at the company’s revenue, he said the firm will look to optimize its retail network.

“We remain focused on improving near term financial performance and remain steadfastly focused on our ultimate goal of financial sustainability through driving towards positive free cash flow," the executive said.

Cannabis company news

• Ayr Wellness (CSE:AYR.A,OTCQX:AYRWF)began selling adult-use cannabis products through its three New Jersey dispensaries. Jonathan Sandelman, CEO of Ayr, said the state produced US$24 million during its first month of adult-use sales, and called the launch “monumental.”

• Delta 9 Cannabis (TSX:DN,OTCQX:DLTNF)closed its most recent public offering worth nearly C$2 million by selling shares at a price of C$0.22 each.

• The Valens Company (TSX:VLNS,NASDAQ:VLNS)confirmed it is not in compliance with the NASDAQ's minimum bid price requirement. The firm now faces a deadline of December 12, 2022, to fall back within the pricing rule.

• RIV Capital (CSE:RIV,OTC Pink:CNPOF)shared financial results for its fourth fiscal quarter of 2022 and the full year. Mark Sims, president and CEO, said the firm will invest in four dispensaries as well as a facility in New York in order to target the premium market in the state. The company reported a net loss on both a quarterly and yearly scale.