HEXO Shares Plummet to Year-to-Date Low on Quarterly Results

- October 29th, 2019

The beleaguered Quebec-based firm has had to contend with a series of impacts to its market value, including having to withdraw its fiscal 2020 outlook earlier this month.

The share price of cannabis producer HEXO (NYSE:HEXO,TSX:HEXO) tumbled to a year-to-date low after the company’s fiscal Q4 2019 results revealed a widening net loss gap.

As of 9:41 a.m. EDT on Tuesday (October 29), the company sat at C$2.86 in Toronto, a drop of almost 7 percent from its closing price of C$3.03 on Monday (October 28). Eventually HEXO closed the day at a price of C$2.94, representing a one day drop of 2.97 percent in value.

In its quarterly results, released on Tuesday, HEXO reported a net loss of C$56.7 million, up significantly from the C$10.5 million loss reported in the same quarter last year and the C$7.8 million loss reported in 2019’s third fiscal quarter. Gross revenue was at C$20.5 million for the period.

During an earnings call, HEXO CEO Sebastien St-Louis said the company had originally set out to double revenues in Q4, but was unable to hit the mark due to a slow store rollout in key provinces, including Ontario and Quebec, as well as a decision to set up a reserve provision to address possible returns from provincial retailers at an estimated C$3.8 million.

St-Louis added that the company saw a wholesale return worth C$2.9 million during the quarter as well, which also ate into overall revenue.

The beleaguered Quebec-based firm has had to contend with a series of impacts to its market value, including having to withdraw its outlook for the 2020 fiscal year earlier this month.

As a result, St-Louis told investors, the company is going to hold off on releasing projections.

“Until the market matures and the retail channels are built out, we’ll refrain from providing guidance,” St-Louis said. He added that HEXO is still optimistic about achieving its near- and long-term objectives.

The results come after the company announced the termination of about 200 positions across its operations last week. The streamlining saw the resignation of former Chief Manufacturing Officer Arno Groll and former Chief Marketing Officer Nick Davies.

HEXO said shifting market and regulatory factors led to the move to cut down on staff.

To try to maximize efficiency when it comes to operational expenses, the company has temporarily suspended activities at its facility in Niagara, Ontario, and 200,000 square feet of its facility in Gatineau, Quebec, with plans to bring them back online once market conditions improve, St-Louis said.

The Gatineau facility was obtained by way of the C$263 million acquisition HEXO made of fellow producer Newstrike Brands.

HEXO’s operational losses totaled C$60.7 million in Q4, a significant increase from the C$2.2 million figure from the previous quarter. It’s an increase company CFO Stephen Burwash told investors was driven by expanding operations, the return provisions and impairment losses on purchased inventory.

Burwash added that the company is looking to become earnings before interest, taxes, depreciation and amortization positive in the 2020 calendar year with the reductions to operational costs. The executive said Q1 2020 is estimated to bring in between C$14 million and C$18 million in net revenues as HEXO reevaluates its national pricing strategy.

St-Louis noted that, while HEXO is well positioned on the beverage front in Quebec as a result of its partnership with Molson Coors Brewing Company (NYSE:TAP,TSX:TAP), the company has downscaled its planned operations for gummies.

The executive remains confident about HEXO’s longevity, telling investors that its market share of 33 percent in its home province and its recent moves to streamline operations paint a different picture of the company than the quarterly results.

Editor’s note: The title and lead of this story originally used the term “all-time low.” It has now been updated to “year-to-date low” to accurately reflect HEXO’s current market value.

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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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