HEXO Corp. (NYSE: HEXO) reported its financial results for the second quarter fiscal 2021 ended January 31, 2021. Hexo said that the total net revenue in the quarter increased $3.4 million to $32.8 million from $29.4 million in the first quarter due primarily to 11% growth in non-beverage adult-use cannabis sales and 11% growth in the adult-use beverage category. All amounts are expressed in Canadian dollars unless otherwise noted.
The total net loss for the quarter was $20 million versus last year’s $298 million for the same time period. The stock was rising by over 7% in early trading to sell at $8.35.
“I am so proud of the entire HEXO team for the role they played in helping us achieve positive adjusted EBITDA this quarter, along with our seventh consecutive quarter of adjusted EBITDA improvement,” said HEXO CEO and co-founder Sebastien St-Louis. “Our continued focus on delighting consumers has seen us increase our market share across Canada while maintaining the number one position in Quebec. We’re also very excited to have launched “powered by HEXO” CBD beverages in Colorado. Our net revenues and gross margin have continued to improve year over year, bolstered by our premium product mix with the relaunch of UP Cannabis.”
Hexo said it had strengthened its positions in several key Canadian markets outside of Quebec while maintaining its top competitive position within Quebec. According to Stifel research reports, Hexo was second only to TerrAscend for the trailing three months of sales growth in Alberta, British Columbia, Ontario
Physical Stores, Saskatchewan at 32.7%
The company was able to reduce the total operating expenses by 91% in the second quarter of 2021 from the same time period in 2020, as Hexo had no material impairments in the period. SG&A, marketing and promotion and R&D expenses also improved by 3% from the second quarter as the company has actively sought to reduce operating expenses and drive toward EPS. These expenses were reduced 23% for the six months ended January 31, 2021 as compared to the same period of fiscal 2020.
“We are especially excited about our recently announced agreement to acquire Zenabis. We believe this transaction will be accretive for our shareholders and will position HEXO for accelerated domestic and international growth. The acquisition would place HEXO solidly in the top three position among licensed producers for Canadian adult-use cannabis sales, based on the most recent interim quarterly financial statements,” continued St-Louis.
In February Hexo said it was buying Zenabis Global Inc. (TSX: ZENA) in an all-stock deal valued at approximately $235 million. HEXO estimates that the combined entity may realize annual synergies of approximately $20 million within one year of close, through the cost of goods reductions, additional capacity utilization in HEXO’s Belleville Centre of Excellence, and selling, general, and administrative savings, which, if realized, should allow HEXO to continue its path towards positive earnings. The combination would give HEXO access to licensed capacity to produce approximately 111,200 kg of additional high-quality cannabis annually. It would result in HEXO acquiring two indoor facilities (approximately 635,000 sq. ft.) and access to a 2.1 million sq. ft. greenhouse facility, totaling approximately 2.735 million sq. ft. of near-term cultivation space offering diversified growing and production techniques.
Recently the company announced it had won a complete dismissal (subject to plaintiffs’ appeal right) in the federal US securities class action pending in the United States District Court for the Southern District of New York