HEXO Sales Fall In Third Quarter For Both Adult Use, Medical Cannabis

HEXO Corp (TSX:HEXO) ( NYSE-A:HEXO)  reported its financial results for the third quarter of the 2019 fiscal year with $15.9 million in gross revenues and a net loss of $7.7 million. The company claims it is on track to reach $400 million in net revenue in 2020 and says it will double net revenue in the fourth fiscal quarter.

HEXO CEO and co-founder Sebastien St-Louis said, “This quarter saw HEXO remain on-track as it continues ramping up to $400 million in revenue in fiscal 2020, including completing the first harvest in our 1 million sq. ft. Expansion and preparing to fund our ongoing expansion projects and innovation initiatives by entering a $65 million syndicated credit facility.”

This ambitious plan is based on the company entering into a syndicated credit facility with CIBC and BMO for up to $65 million available credit to fund continuing expansion and innovation initiatives.

Unfortunately, the company’s average gross selling price for adult use fell from $5.83 a gram in the second fiscal quarter to $5.29. The company said, “This is reflective of increased dry flower sales in the sales product mix during the quarter which commands lower market sales prices per gram. The adult-use net revenue per gram equivalent decreased to $4.30 from $4.81 in the previous quarter reflecting the consistent approximate ($1.00) impact to revenue per gram due to excise taxes. In future periods as the sales mix shifts towards oil and other value-added products from lower valued dry flower products the impact of these excise taxes on revenue per gram is expected to decrease.” Medical prices fell from $9.15 to $911 for the same time period.

Adult use cannabis gross revenue also fell from $14.7 million in the second fiscal quarter to $14.6 million. The company said the drop was due to, “A result of the Company’s additional production capacity still in the ramp-up stage as the new 1 million sq. ft. greenhouse realized its first harvest in April 2019.

Medical cannabis gross revenue also fell sequentially from $1.387 in the fiscal second quarter to $1.323. Total net sales fell from $13.4 million to $13.9. The company said, “Net medical revenues decreased during the quarter by 7% to $1,090 as compared to the second quarter of fiscal 2019 due to the overall decrease in medical sales during the period.”

HEXO most recently announced the closing of the agreement to acquire Newstrike. The acquisition will provide HEXO Corp capacity to produce approximately 150,000 kg of high-quality cannabis annually with access to four additional production campuses. It also provides the company diversified domestic market penetration with combined distribution agreements in eight provinces.

Subsequent to quarter end, HEXO bolstered its senior management team through the appointment of Michael Monahan as Chief Financial Officer and Donald Courtney as Chief Operating Officer.


Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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