Hexo Shares Slide As Revenues Decline In Third Quarter

HEXO Corp. (NYSE: HEXO)  reported its financial results for the third quarter fiscal 2021 ended April 30, 2021, with total revenue sliding by $10.2 million sequentially to $22.6 million. It was a 2% improvement over last year’s $22 million for the same time period. Hexo shares were sliding over 5% in early trading to lately sell at $6.24.

On a positive note, total net losses were trimmed slightly from the previous quarter from $20.8 million to $20.7 million. However, the losses were slightly higher over the same time period in 2020. All amounts are in Canadian dollars.

“At the advent of legalization, we articulated a plan to become a top-three cannabis player in the Canadian adult-use market. With the acquisition of Zenabis and the announcements of intent to acquire 48North and Redecan, we are on the verge of surpassing that objective to become the no.1 licensed producer by recreational market share,” said HEXO CEO and co-founder Sebastien St-Louis. “While this was a challenging quarter, we maintained our number one position in the beverage category and increased our net sales outside of Quebec by 169% over last year, including 14% sequential quarterly growth in Ontario, while continuing to maintain our number one position as the preferred supplier to Quebec. Moving forward, we are committed to rebuilding our strain strategy and brand mix in the province of Quebec to ensure we meet consumer needs and maintain our dominant position in the province.”

Revenue Declines

Hexo attributed the drop in revenues to a decline in adult-use non-beverage sales of $5.2 million in Quebec related to strain cultivation decisions made by the company and production issues relating to hash. Hexo’s sales in Alberta dropped $2.7 million during the quarter because of a 32% decrease in the provincial UP brand sales because of temporary stock limitations as the company continues to roll out the relaunched brand. Hexo said that despite the impact of the COVID-19 third wave in Ontario during the period, in which most private retailers were limited to curb side pickup only, the company’s sales in Ontario increased 14% or $0.6 million. The increase was led by the strength of the UP brand and its 20%+ THC small format premium dry cannabis which grew 67% quarter over quarter.

In addition to the Canadian issues, Hexo had no international medical cannabis sales due to revised prerequisite testing and an additional certification by the Israeli government which caused a delay in its ability to export. Hexo said that it has since received clearance and is now in compliance to resume these international sales.

Expenses/Balance Sheet

The company was able to cut its selling, general and administrative costs, (SG&A) by 8% sequentially, coming in at $14.4 million, down from $15.6 million. Operating expenses decreased 17% from the second quarter when adjusted for Health Canada recovery fees of $3.6 million.

The company said it elected to repay its outstanding credit facility of $28,875 early, mitigating future interest and administrative costs.

 

Debra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief 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 Masters degree in Business Journalism from New York University.


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