HEXO Archives - Green Market Report

Debra BorchardtDebra BorchardtMarch 30, 2020
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6min970

HEXO Corp. (NYSE: HEXO)  reported a staggering net loss of C$289 million for fiscal 2020 second-quarter ending January 31, 2020. The net revenue for Hexo increased 17% to $17 million from $14.5 million in the first quarter. The earnings are reported in Canadian dollars.

The loss from operations for the quarter was $289.4 million, compared with a loss of $60.6M in the prior period. The company said that excluding non-cash write-downs and impairment charges in the quarter, the adjusted net loss was ($23.2M) compared with ($34.0M) in Q1’20. This was basically one of those kitchen sink quarters. The company just tossed everything but the kitchen sink into the loss column and just ripped the bandaid off.

“We have continued our focus on improving our operations and expanding distribution across Canada.  Our strategy with Original Stash has demonstrated that we can directly compete with the black market,” said Sebastien St-Louis, CEO, and co-founder of HEXO Corp. “The industry continues to see challenges ahead, and following a strategic review of the Company’s core and non-core assets we believe we have positioned HEXO to meet these challenges head-on.”

Impairment Charges

The bulk of the net loss was due to impairment charges that the company took with the first being its Niagara facility. Hexo said, “After completing a strategic review of its cultivation capacity, the company made the decision to list the Niagara facility for sale.  As a result of the decision to sell, the company undertook impairment testing of the facility, its property, plant and equipment, and the intangible assets acquired from Newstrike Brands Ltd.  The company determined that an impairment loss of $138.3M was required.

The next big chunk came from a charge on impairment of goodwill. In a statement, Hexo said, “In addition, slower than expected retail store rollouts in Canada and delays in government approval for cannabis derivative products resulted in constrained distribution channels which have adversely affected overall market sales and profitability. As a result of these factors, management performed an indicator-based impairment test of goodwill as of January 31, 2020.  As a result of this assessment, the company recorded an impairment in goodwill of $111.9M.”

Inventory Write-Down

In addition to the impairment charges, Hexo also wrote down inventory to the tune of $16.1 million in the quarter versus $23 million during the first quarter. The write-downs included surplus cannabis trim (trim is primarily used for extraction purposes) and milled products in the amount of $3.1 million due to an excess of stock relative to the company’s short-term demand for cannabis distillate production. There was also a discounting of a concentrated bulk purchase of $11.8 million, in part to an oversupply in the bulk product market, which lowered the value when compared to the contracted price.  Hexo did note that the bulk product was acquired through a supply agreement, which is currently the subject of litigation and is alleged to be void as it was negotiated in bad faith at prices well in excess of the current market.

In addition to those markdowns, another $1.2 million was recognized due to sunk costs related to packaging reconfiguration.

Revenue Increases

While the quarter just seemed completely ugly, there was some slim good news for the company. The gross revenue increased 23% sequentially to $23.8 million.  Adult-use cannabis shipped revenue increased 21% sequentially to $24.4 million.  Net adult-use revenue increased 20% to $16.3 million from $13.6 million in Q1’20. The primary driver of the increase in sales during the quarter was the launch of Original Stash in Ontario, British Columbia, and Alberta during the quarter, and the increased volume sold in Quebec.  Adult-use sales volume in Q2’20 increased by 57% to 6,579 kg from 4,196 kg sold in the prior quarter.

Cannabis consumers have been bargain hunting. Gross adult-use revenue per gram equivalent decreased to $3.49 in Q2’20 from $4.35 as the company’s value brand Original Stash has become more popular. The adult-use net revenue per gram equivalent decreased to $2.47 in Q2’20 from $3.24 in Q1’20.

The company has also managed to cut costs. A 21% decrease in operating expenses for the quarter came as a result of a decrease in marketing expenditures and headcount.

The stock was dropping over 15% in early trading to lately sell at 92 cents, still higher than the year low of 34 cents.


Debra BorchardtDebra BorchardtDecember 26, 2019
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3min8780

HEXO Corp. (NYSE: HEXO) has entered into a definitive agreement with institutional investors for the purchase and sale of 14,970,062 common shares at an offering price of $1.67 per share for gross proceeds of $25 million. Hexo said it plans to use the proceeds from the offering for working capital and other general corporate purposes, including funding its research and development programs. It is expected to close the offering by December 30.

The stock plunged by over 16% in early trading to lately sell at $1.64. Prior to the announcement, the stock closed at $1.96. HEXO has also agreed to issue to the investor’s common share purchase warrants to purchase 7,485,032 common shares of the Company. The warrants will have a five-year term and an exercise price of $2.45 per share.

Hexo has had a pretty difficult couple of months as 2019 closed down. The company reported last month that the net revenue in the first quarter decreased sequentially to $14.5 million versus $15.4 million in the fourth quarter of 2019.

The net loss for the quarter was an eye-popping $62.4 million. The company attributed the increase in loss to “The larger magnitude of the company’s operations, the expanding scale production and sales in the period, and an impairment loss.” Operating expenses increased from $22 million in the first quarter of 2019 to $35.1 million for the first quarter of 2020.

In addition to the declining sales, Hexo disclosed on November 15, 2019, that there was a licensing issue in Block B of its Niagara facility, inventory from Block B was quarantined and held back from sales. The inventory was kept on the books and although destruction was a possible outcome, Hexo has said it has reassessed any risks related to such inventory and concluded that it is cleared for sale and will not be subject to destruction. Block B is now fully Licensed by Health Canada.

Securities lawyers smelling blood have begun looking for investors wanting to sue the company.


Debra BorchardtDebra BorchardtNovember 25, 2019
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8min7970

The Facilities Are Fully Funded

On Oct. 9, 2019, The Green Organic Dutchman (OTC: TGOD) said in a press release that it was updating the market on credit financing. In the statement, it noted that “The Company may revise the construction schedule for its Ancaster and Valleyfield projects if it is unable to obtain sufficient financing on reasonable terms, within the required timeframe. There can be no assurance that this review will result in the completion of any financing transaction.” Basically, TGOD said it needed money to finish the projects as planned.

However, TGOD had previously issued an investor presentation in which it stated its Ontario projects were fully funded. This did not go unnoticed by shareholders who were surprised to learn that TGOD needed more money to complete its facilities. Then on October 18, just 10 days later,  the company said, “The Ancaster greenhouse is complete, and the Ancaster processing facility is approximately five weeks from material completion.”

On November 13, the company was able to secure financing and said, “A term sheet with an investment fund for a $40 million construction mortgage loan has also been signed, secured on the facilities at Ancaster and Valleyfield.” TGOD said that now it had this money secured, it could complete construction of the processing facility at Ancaster and complete construction of six zones in the Valleyfield hybrid greenhouse and enclose the balance of the facility with the ability to quickly expand production as the market develops.

Can’t Trust

CannTrust (NYSE: CTST) earned the social media moniker “can’t trust” after the company was caught growing plants in unlicensed rooms. This past summer in July, the company conceded that it had plants seized by regulators from five unlicensed rooms. The scandal resulted in a death spiral for the company as it lost its license, saw the CEO resign and at least a hundred workers have been laid off.

Backing up a bit, roughly around May 19 CEO Peter Aceto said the company was on track to meet its production goals. Within six weeks, the company announced that it received a report of non-compliance from Health Canada. Aceto said, “Our team has focused on building a culture of transparency, trust and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgement, but the lessons we have learned here will serve us well moving forward.”

Last month, CannTrust said it planned to destroy about $12 million worth of plants and about $65 million worth of inventory. The company has seemed to clean house and may be able to move one from this “error in judgment,” but so far the market isn’t convinced and the stock is still near its year low of 77 cents.

It’s Worth More

It’s hard to convince investors to buy company stock when the company devalues the price of said stock. Zenabis Global Inc. (TSX:ZENA) (OTC: ZBISF) destroyed the value of its stock after announcing it was going to raise $20.8 million through a rights offering to holders of its common shares of record at the close of business on October 31, 2019. The stock was lately trading at 16 cents, down from its year high of $3.03. At one point in this debacle, the stock traded at one cent.

The company said that part of the strategy was to fend off a hostile takeover, but there didn’t seem to be anyone bidding on the company. Director of Corporate Communications Jonathan Anthony said that the decline in Zenabis stock is “outside our control,” yet the company absolutely trashed the value by pricing the rights at a 70% discount.
The Twitter universe though had another opinion regarding the stock. There are accusations of Zenabis insiders shorting the stock while covering themselves with the rights offering.

Stock jocks were specifically pointing to the Twitter account of @rubiconcapital for talking up Zenabis ahead of the offering that prices the rights at 15 cents. Then, the former CEO and current Chief Facilities Officer, Kevin Coft sold 2.6 million shares right before the rights offering. The company reported its earnings on November 14 but opted to not host a conference call to discuss the earnings with investors.

Our Bad. We Thought It Was Licensed

After acquiring Newstrike Brands, HEXO Corp. learned that there were plants growing in a room called Block B. The room passed inspection by Health Canada and Hexo said Health Canada said nothing in the report gave them cause for concern. However, within days of the closing of its acquisition the company said it became aware of the illegal plants and notified Health Canada. The mistake was blamed on a new software program run by the federal regulator. Still, the plants were destroyed as a result of the snafu.

While market watchers didn’t seem to criticize Hexo in the same manner that CannTrust was criticized, it certainly didn’t help the company. The facility is no longer being used for growing cannabis.

In addition to the bogus Block B plants, in June, Hexo had said it would do $400 million in revenue in 2020 and double net revenue in the fiscal fourth quarter. Just four months later the company instead reported that revenue was $15.4 million a drop from the third-quarter revenue of $15.9 million, so it wasn’t even an increase. The net revenue for 2019 was $59 million making it abundantly clear that $400 million in 2020 is never going to happen and so that number was retracted but not replaced with a new one.


Kaitlin DomangueKaitlin DomangueNovember 19, 2019
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3min7370

Canadian cannabis producer Hexo Corp. (HEXO) has admitted to unknowingly growing cannabis in an unlicensed area of its Niagra facility. 

The company put out a press release on Friday saying that a section of the facility found to be growing cannabis was not properly licensed to do so. The unlicensed section is referred to as “Block B” and was acquired from Newstrike Brands earlier this year. 

On July 30th, shortly after the acquisition closed, is when Hexo said they discovered the unlicensed growing taking place. Hexo explained that when UP Cannabis received its cultivation license for Niagra, it was under the impression that Block B was included in the license. Hexo’s facility, including Block B, was even inspected by Health Canada in February 2019 and no concerns were raised about unlicensed growing within the facility. Only upon acquisition did Hexo learn that Block B was not licensed to grow cannabis. 

Hexo CEO and co-founder, Sebastien St-Louis, said “Upon discovering that cannabis was being grown in an inadequately licensed area of the Niagara facility we immediately ceased all activities and notified Health Canada. While we are disappointed with what we uncovered, we assume responsibility for any issues with UP products prior to the acquisition.” Health Canada says they are satisfied with how the company handled the situation. 

Earlier this year another Canadian cannabis company, CannTrust, came under fire for unlicensed growing operations. However, these two situations are vastly different as evidence shows that CannTrust knew about their unlicensed growing, yet did nothing to stop it. In fact, emails showed the company’s compliance officer saying they “dodged some bullets” after an inspection at the facility failed to uncover the unlicensed growing taking place. CannTrust also had to destroy $77 million worth of unregulated plants and they fired its CEO. On the other hand, Hexo seems to be handling the entire situation honorably. 

The market is also seeming to make this distinction, while the stock fell on Friday and Monday, it was trading higher on Tuesday. The stock was lately trading at $1.74.

Sebastien St-Louis says that “Hexo is keenly focused on producing high-quality products that Canadians can trust.” The company says there are no current operations happening at the Niagara facility and UP Cannabis cultivation has been moved to their other locations. This is not due to the recent events. but an overall operations move. 


Debra BorchardtDebra BorchardtOctober 25, 2019
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HEXO Corp. (TSX: HEXO) (NYSE: HEXO) has become the latest cannabis casualty as the company said it was laying off 200 employees following an announcement that it was delaying the release of its earnings results.

“This has been my hardest day at HEXO Corp,” said Sebastien St-Louis, CEO, and co-founder of the Company. “While it is extremely difficult to say goodbye to trusted colleagues, I am confident that we have made sound decisions to ensure the long-term viability of HEXO Corp. The actions taken this week are about rightsizing the organization to the revenue we expect to achieve in 2020.”

The company characterized the layoffs as ‘rightsizing its operations to adjust to a changing market and regulatory environment with a view towards profitability and long-term stability.’ The cuts include the elimination of some executive positions and the departures of Arno Groll, Chief Manufacturing Officer and Nick Davies, Chief Marketing Officer.

This information followed an earlier announcement that Hexo had entered into subscription agreements with a group of investors for a C$70 million private placement basis, for an 8.0% unsecured convertible debentures of Hexo. The company blamed the new financing for the reason it had to reschedule the release of its fourth quarter and full year financial results to October 28, 2019.

The group of investors included Sebastien St-Louis, CEO, and co-founder of HEXO Corp, as well as Board members Dr. Michael Munzar, Vincent Chiara, Nathalie Bourque, and Adam Miron.

“The confidence in HEXO Corp that this $70 million private placement demonstrates is a testament to the value the Company is expected to bring to shareholders,” said Sebastien St-Louis, CEO, and co-founder of HEXO Corp. “We remain focused on garnering significant market share, driving growth, and in shaping this company into a mature, resilient and valued leader in our industry.”

“It is important to note the one-year anti-dilution feature in this arrangement, meaning that the financing does not dilute current shareowners’ ownership of the Company in the short term,” added St-Louis.

The company blamed its troubles on “slower than expected store rollouts, a delay in government approval for cannabis derivative products and early signs of pricing pressure are being felt nationally. The delay in retail store openings in our major markets has meant that the access to a majority of the target customers has been limited. Additionally, regulatory uncertainty across the pan-Canadian system and jurisdictional decisions to limit the availability and types of cannabis derivative products have contributed to an increased level of unpredictability.”


Video StaffVideo StaffOctober 11, 2019

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This is your marijuana money minute for the week ending October 11 from the New West Media in San Francisco. Wow, what a crazy week to see things blow up and more carnage in the cannabis industry. 

Where to start?

MedMen announced it decided to terminate the deal with PharmaCann that had been valued at $684 million. MedMen said it wants to focus more on its California market and go deeper into its strengths. As a consolation prize, Medmen gets PharmaCann’s Illinois licenses as part of the termination fee. Of course, MedMen has been touting its proforma numbers with Pharmacann and so now those have to be dialed back.

Speaking of dialing back, HEXO Corp said that its previously projected revenues were a bit lofty. The company said it had to reduce its revenue estimates to a range of $46-$48 million for the year, significantly lower than the $400 million it said it would do in 2020. That stock got spanked hard.

The Green Organic Dutchman said that it was considering new financing to complete the construction of two of its facilities. The only problem with that is that on previous investment decks, TGOD claimed that their projects were fully funded. The company also says it has $50 million in cash. How much money d they possibly need if they are only weeks away from completion. The stock lost 40% of its value in 2 days. 

More divorce news.

Aleafia said it was no longer going to buy cannabis from Aphria saying Aphria failed to meet its supply obligations. Aphria seemed to toss it off and said they would still achieve net positive income for this past quarter. To make things more awkward, Aphria owns a lot of Aleafia stock.

And then finally, two Russian nationals were arrested for campaign finance violations this week and it turns out that they had applied for marijuana licenses in Nevada. They didn’t get them because they were late by 2 months.


Debra BorchardtDebra BorchardtOctober 10, 2019
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HEXO Corp. (TSX: HEXO)(NYSE: HEXO) stock was plunging almost 20% as the company told Wall Street that its revenues would be lower than expected. The company said in a statement that it now expects net revenue for the fourth quarter to be approximately $14.5 million to $16.5 million and net revenue for the year to be approximately $46.5 million to $48.5 million.”

This is a far cry from the company’s claim in June that it was on track to reach $400 million in net revenue in 2020 and said it would double net revenue in the fourth fiscal quarter.

This follows the recent departure of the HEXO’s Chief Financial Officer Michael Monahan, who said last week he was leaving for family reasons. Hexo’s current vice-president of strategic finance, Stephen Burwash is now the company’s Chief Executive Officer. On the news of the departure of the CFO, Bank of America Merril Lynch analyst Christopher Carey downgraded Hexo from Underperform from Buy and lowered his price target to CA$9 ($6.76) to CA$4 ($3.01).

“Fourth-quarter revenue is below our expectation and guidance, primarily due to lower than expected product sell-through,” commented Sebastien St-Louis, CEO and co-founder of HEXO Corp. “While we are disappointed with these results, we are making significant changes to our sales and operations strategy to drive future results. Over the past quarter, we began re-configuring our operations to focus on high-selling strains and initiated a new sales strategy that we believe will meaningfully improve performance.  We plan to discuss these in more detail on our upcoming earnings call.”

The company went on to say that slower than expected store rollouts, a delay in government approval for cannabis derivative products and early signs of pricing pressure are being felt nationally. “The delay in retail store openings in our major markets has meant that the access to a majority of the target customers has been limited.  Additionally, regulatory uncertainty across the pan-Canadian system and jurisdictional decisions to limit the availability and types of cannabis derivative products have contributed to an increased level of unpredictability. As a result, HEXO is withdrawing its previously issued financial outlook for fiscal year 2020.”

Withdrawing our outlook for fiscal year 2020 has been a difficult decision,” added St-Louis. “However, given the uncertainties in the marketplace, we have determined that it is the appropriate course of action. We are also placing a greater focus on profitability. We are evaluating our plans and operations to see where we can be even more efficient. We are at our best when we are highly focused on our strategic priorities, always with a view to drive long-term value for shareholders. Growing low-cost, quality cannabis and developing innovative products is our priority and we are renewing our commitment to do so.”

Analyst Comments

Big picture: while there were already risks for Hexo, we felt they were balanced by a sound core operation and a new CFO who had a chance to regain Street credibility on forecasts/guidance by resetting the bar, with the potential that momentum regained in CQ120 with the launch of value-add formats,” Carey said.

The stock was lately trading at $2.98, down from its 52-week high of $8.40.


StaffStaffSeptember 5, 2019
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9min7460

Editors note: Guest post bThomas Niel Aug 30, 2019, 2:24 pm EDT

Smoke-free cannabis products could be Hexo’s ticket to success

Hexo (NYSE: HEXO) stock has traded sideways this month. Shares rose from $3.98 on July 29 to as high as $4.95 on Aug. 13. But since mid-August, shares have fallen back, closing at $3.94 per share on Aug. 29. Compared to its larger peers, shares have held steady.

Shares in Canopy Growth (NYSE: CGC) are down more than 28% for the month. Aurora Cannabis (NYSE: ACB) stock has fallen roughly 12.7% since late July. Hexo is becoming increasingly focused on “smoke-free” uses (beverages, edibles, etc.) than its peers. Focusing on this niche could be its key to success.

With infused beverages hitting the market later this year, should investors take a position in HEXO ahead of this product launch? Or should investors take heed, given shares continue to trade at a high valuation? Let’s take a closer look at Hexo stock.

TAP Partnership Provides Scale with Minimal Dilution

As I discussed in my prior article, expectations for cannabis-infused products drive the Hexo stock price. The company has partnered with Molson Coors (NYSE: TAP) to launch Truss. Truss is Hexo’s line of non-alcoholic, cannabis-infused beverages. This strategic partnership gives the company a greater chance of success in this space. With Molson Coors’s scale and infrastructure, Truss can be rolled out more efficiently.

Another positive of this partnership is the structure. So far, strategic partnership deals have been highly dilutive to cannabis company investors. With Canopy Growth, Constellation Brands (NYSE: STZ) has quietly taken over the company. This also happened with Cronos (NASDAQ: CRON) and its partner Altria (NYSE: MO).

Molson Coors received warrants as part of the deal, but the partnership is structured as a joint venture. Molson Coors owns 57.5%, with Hexo owning the remainder. This may limit upside if infused beverages are a success. But it limits Molson Coors’s control over the entire company. Molson Coors’s warrants only give it the right to buy 11.5 million shares at a strike price of $6 a share. With 256.9 million shares outstanding, and 50.9 million warrants outstanding, this hardly gives Molson Coors control over Hexo’s destiny.

Other catalysts could move the Hexo stock price. The company’s strategy focuses on “smoke-free” cannabis products. This includes edibles, vapes, wellness products, and cosmetics. Selling plain old pot is a commodity business. The opportunity to develop high-margin brands is the key to long-term profitability.

Hexo is no slouch when it comes to selling pot. The company remains Quebec’s biggest supplier. The recent acquisition of Newstrike Brands helps scale up their cultivation infrastructure. But is all of this reflected in the Hexo stock price? Let’s take a look at how the stock’s valuation stacks up to peers.

COMPARE BROKERS

Hexo’s Valuation in Line With Peers

Using the Enterprise Value/Sales (EV/Sales) ratio, the company trades in line with peers. The company’s current EV/Sales ratio is 36.4. Compare this to Aurora Cannabis (EV/Sales of 45.6), Canopy Growth (EV/Sales of 35.3), and Cronos (EV/Sales of 98.5). An EV/Sales ratio of over 30 is still a rich valuation.

The expectations of Truss and other products inflate the Hexo stock price. Investor enthusiasm has tapered off, as seen from the 53% drop from its all-time high in April. If Truss is a success, Hexo stock should see a massive boost. But with the current rich valuation, additional declines are a risk. If investors lose faith in Hexo shares could fall much further.

So what does this mean for investors entering the stock today? Cannabis shares have been beaten down. But marijuana stocks have yet to trade at fire-sale prices. It’s impossible to predict the unpredictable. Only time will tell if we have reached a bottom in cannabis stock valuation. But long term, investors may be getting a bargain entering Hexo stock at the current trading price.

Hexo Has Potential, but Tread Carefully

Hexo stock offers a unique opportunity for cannabis investors. While its competitors try to dominate the smoked marijuana space, Hexo is going “smoke-free.” Focusing on beverages, edibles, and other cannabis-infused products, the company could find riches in niches. Their partnership with Molson Coors is a conservative way to get scale without sacrificing much equity. Unlike its larger peers, Molson Coors is in no position to quietly take over the company.

The Hexo stock price remains inflated. Investors are betting on the company’s future potential. Long-term, shares could see big gains. Short-term volatility is a risk. Keep HEXO on your radar, but tread carefully before entering a position.

As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.

 


Debra BorchardtDebra BorchardtJune 13, 2019
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4min8900

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.

 


StaffStaffMay 24, 2019
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Although an unconvincing earnings season has clouded the picture, marijuana stocks still enjoy strong fundamental catalysts

By Josh Enomoto, InvestorPlace Contributor May 16, 2019, 1:00 pm EDT

Since their inception, marijuana stocks attracted significant attention. Due to both investment sentiment – and let’s face it, raw emotions – the cannabis sector absolutely skyrocketed. But now, the segment is attracting attention for failing to live up to analysts’ expectations. Is the honeymoon phase over for weed?

Hardly! While cannabis firms have produced some disappointing results during earnings season, that’s no reason to abandon them. For one thing, the resurgent U.S.-China trade war is incredibly favorable for marijuana stocks to buy. Prolonged tensions will almost surely cause us economic damage. An easy fix here is to legalize weed and fully open the door to a multi-billion dollar industry.

Another reason to stay the course with marijuana stocks to buy is the medicinal-cannabis market. Currently, 33 states have legalized medical marijuana, which is indirectly an indictment against the pharmaceutical industry. As I’ve argued many times before, pharmaceuticals must take at least some responsibility for the opioid crisis. This story alone has converted many people who have realized the benefits of all-natural treatments.

Moreover, medical marijuana is becoming a popular and potentially profitable exported good. We all know that progressive Europe is receptive to cannabis-based therapies. But more shocking is that conservative Asian countries notorious for their draconian anti-drug policies have demonstrated tolerance. Thailand became the first Southeast Asian country to legalize medical marijuana, while South Korea is the first East Asian country to jump onboard.

No matter how you look at it, this development strongly benefits the “botanical” industry. Here are the best three marijuana stocks to buy right now:

Aurora Cannabis (ACB)

Aurora Cannabis (NYSE:ACB) recently issued its earnings results for the first quarter of 2019. Let’s just say the print wasn’t exactly great for ACB stock. Although Aurora Cannabis’ net-revenue haul of 65.2 million CAD exceeded the year-ago quarter’s tally by a country mile, it missed analysts’ consensus target of 67.6 million CAD.

Also, a miss was earnings per share. Wall Street expected a loss of 4 cents per share, but Aurora instead delivered a loss of 16 cents. With such a wide gap, conventional wisdom dictates that you should avoid ACB stock.

Actually, though, even if Aurora Cannabis hit its metrics with flying colors, I wouldn’t pay much attention. Why? Because this is a marathon investment toward an unprecedented sector. As such, you’ll find nearer-term noise. Ignore it.

The key here is that the management is positioning itself for dominance in the lucrative medical-marijuana market. Its acquisition of Whistler Medical Marijuana indicates that the focus is on quality, not quantity. When weak marijuana stocks get flushed out, ACB will remain standing.

Canopy Growth (CGC)

Undeniably, a motivating factor to buy shares of Canopy Growth (NYSE:CGC) is the company’s international presence. Primarily, it puts up a strong showing in the European mainland. Currently, Canopy is pushing both westward and eastward in the region. However, the ultimate prize for CGC stock and others is the U.S. market.

Of course, this is seemingly a pipe dream due to our country’s (misguided) Schedule I classification of marijuana. Still, CGC stock jumped mid-April when Canopy announced a contingent offer to buy out Acreage Holdings (OTCMKTS:ACRGF). Canopy will pay $300 million upfront if the U.S. legalizes marijuana.

Many botanical advocates argue that Schedule I is a relic of the ignorant and racist past. However, it’s still federal law, which means cannabis firms in green-friendly states are still technically at risk.

But thanks to the U.S.-China trade war, I genuinely believe that full legalization is nearing reality. A prolonged conflict with the world’s second-biggest economy will invariably hurt our own fiscal health. That’s why the U.S. has to explore marijuana if they insist on playing hardball with China. If so, look for CGC stock to soar.

Hexo (HEXO)

If you’re like most folks who learned about marijuana stocks to buy late in the game, you’re probably hesitant on exposing yourself to the top-tier names. After all, we see them splattered on investment headlines all over the internet. If that’s you, you might want to check out Hexo (NYSE:HEXO).

For starters, Hexo is an understated name. It generates interest, of course, but not nearly as much as the top dogs. I believe that benefits HEXO stock and is partially the reason why shares have steadily made robust gains. Year-to-date, the cannabis firm’s equity is up over 113%.

That said, HEXO stock has much more upside remaining over the long term. Renowned alcoholic beverage-maker Molson Coors Brewing (NYSE:TAP) has a partnership with Hexo to develop cannabidiol (CBD) infused, non-alcoholic drinks.

CBD recently gained mainstream recognition because it offers the cannabis plant’s health benefits but without levering a negative psychoactive effect. In other words, the compound is a perfect gateway for consumers to try other cannabis-based products.

This is a partnership that provides multiple natural synergies. Even though it’s not quite a household name, you should put Hexo on your list of marijuana stocks to buy.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

 



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