HEXO Archives - Green Market Report

Debra BorchardtJune 14, 2021
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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 BorchardtMay 17, 2021
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Curaleaf

Curaleaf Holdings, Inc. (OTCQX: CURLF) is buying the largest outdoor grow in Colorado known as Los Sueños Farms in a deal valued at $67 million. The transaction is a mix of cash and stock. Curaleaf said this will significantly expand its Colorado presence, vertically integrating within the state. The proposed acquisition includes three Pueblo, Colorado outdoor cannabis grow facilities covering 66 acres of cultivation capacity, including land, equipment, and licensed operating entities, 1,800 plant indoor grow and two retail cannabis dispensary locations serving adult-use customers. An additional contingent consideration of up to $8 million in stock will be paid based upon operating cash flow-based targets for 2022.

Boris Jordan, Executive Chairman of Curaleaf, stated, “The acquisition of Los Sueños provides Curaleaf with outdoor cannabis cultivation expertise at commercial scale and establishes our foothold in the $2.2 billion Colorado market. This deal furthers our strategy of constructing low-cost supply chains that will secure healthy margins and position us for interstate commerce when it comes. Ultimately, our goal is to cultivate cannabis at less than $100 per pound, and this acquisition is a significant step in the right direction.”

The acquisition will complement Curaleaf’s existing Colorado presence through its Select brand. Joseph Bayern, CEO of Curaleaf added, “The acquisition of Los Sueños will add over 50,000 pounds per year of low-cost wholesale capacity to Curaleaf’s footprint in Colorado , which we intend to double to over 100,000 pounds, representing a significant market share. As the largest producer of biomass in the state, this facility will also fuel the further deployment of our Select product line, which can already be found in 230 independent dispensaries in the state.”

Hexo

HEXO Corp. (NYSE: HEXO) announced it is buying 48North Cannabis Corp  (TSX-V: NRTH) in an all-stock deal valued at approximately $50 million on an enterprise value basis. 48North is a brand-led, consumer-centric licensed cannabis producer with an expansive portfolio of high-quality, accessibly-priced products available across the country. The company brands include Trail Mix, an accessibly priced brand formulated with taste and aroma-first flavor profiles and Latitude, a next-generation lifestyle platform and premium, natural cannabis collection focused on wellness, beauty, and beyond. 48North operates two indoor-licensed cannabis production sites in Ontario.

“As we continue down our path towards achieving a top two position in Canada by adult-use sales, we are looking forward to welcoming the 48North team into the HEXO family.” said Sebastien St-Louis, CEO and co-founder of HEXO Corp. “48North’s innovative product portfolio complements HEXO’s existing brands which, combined with their additional market penetration, will further strengthen HEXO’s position in the Canadian market. We expect the deal could offer up to $12 million worth of accretive synergies within one year following the close and ideally position HEXO to continue executing on our domestic and international growth strategy.”

Assuming this deal closes and the previously announced transaction with Zenabis Global Inc., which is expected to close on June 1, 2021, the combined organization would be among the leading licensed producers in terms of combined Canadian recreational sales, based on their most recent financial statements and results.

 


Debra BorchardtMarch 18, 2021
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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


Debra BorchardtDecember 14, 2020
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HEXO Corp. (NYSE: HEXO) reported first-quarter fiscal 2021 financial results with gross revenue of $41.3 million, a sequential increase of 14% and 114% from the prior-year period first-quarter. Total net revenue increased $2.3 million to $29.4 million from the fourth quarter due mostly to an 8% growth in adult-use cannabis sales and a 54% growth in the adult-use beverage category. Total net revenue increased 103% from the fiscal first-quarter of 2020. All amounts are expressed in Canadian dollars.

Operating expenses for Hexo were trimmed to $20.8 million from $71 million in the fourth quarter as the company said it continued to streamline costs across the organization, primarily in SG&A, offset by marketing costs related to product launches. Loss from operations improved to $2.6 million in the first quarter versus a loss of $60.5 million in the fourth quarter, which the company said was driven by a clean balance sheet and absence of material, non-recurring charges.

HEXO CEO and co-founder Sebastien St-Louis said, “Today’s record revenue performance reflects our commitment to providing consumers with high-quality products, at reasonable prices, for all occasions. We continue to hold the number one market share position in Quebec while continuing to aggressively expand into other markets. HEXO is now top four in adult-use market share by net sales dollars in Canada. We have also moved into the top beverage spot through Truss, our joint venture with Molson Coors, and have reached the number one market share position for hash, which we believe will continue to be an important category for the industry.”

The company reported that its consolidated gross margin for the first quarter improved to 35% from 30% in the fourth quarter. Hexo attributed the increase to an improved gross profit in adult-use beverage during the period, where Truss Beverage achieved positive gross profit in only its second quarter of being in the market

“We made extraordinary gains toward profitability this quarter, as we continue to optimize production, persist in our war on COGS, and focus on reducing our SG&A. This was the sixth sequential quarter of Adjusted EBITDA improvement, as we march towards being Adjusted EBITDA positive. We believe the strength of our balance sheet, along with our low depreciable capital base, have put us on a path where we are looking beyond positive Adjusted EBITDA and striving towards positive EPS,” continued St-Louis. “As discussed on our fiscal year-end earnings call, we purposely took time this quarter to focus on better matching supply to forecasted demand, leading to tough decisions, such as delaying the relaunch of our UP brand until Q2. Despite this, we were able to achieve record sales and I am delighted at the progress we have made to date. UP has been successful thus far, which gives us confidence in our approach moving forward.”


Debra BorchardtJune 11, 2020
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HEXO Corp. (NYSE: HEXO) reported that its revenue increased 30% sequentially to $30.9 million in the third quarter fiscal 2020 ending April 30, 2020. A big jump over Hexo’s last year’s revenue of $15 million for the same time period. The strong showing caused the shares to pop over 16% in early trading. All figures in Canadian dollars.

The net losses fell to $19.5 million from the second quarter’s kitchen sink net losses of $298 million. The earnings per share were ($0.07), which missed analyst expectations by two cents. The Zacks Consensus Estimate had the cannabis producer for a quarterly loss of $0.05 per share. The revenue beat estimates by $1.68 million.

The operating expenses also dropped to $26.8 million versus the second quarter’s $281 million and from $46.9 million in the 2019 fourth-quarter.  The company attributed the change to a decrease in legal and professional fees, travel, and share-based compensation, as it keeps working to cut previous spending levels in an attempt to become adjusted EBITDA positive.  The company also said in a statement that the significant reduction since its peak in Q4’19 is also due to a reduction and refocusing of marketing-related expenditures.

“I’d like to take this opportunity to thank the HEXO team who has worked tirelessly during the COVID 19 pandemic to keep the doors open and ensure the safety of our employees and our customers.  We could not do this without you, we recognize and appreciate your efforts.  It’s thanks to your hard work that we closed the third quarter delivering on our financial goals, even in the face of adversity,” said Sebastien St-Louis, CEO, and co-founder of HEXO.

Despite the strong showing, Hexo gave itself some wiggle with regards to hitting its targets in its quest to become profitable. The company said in a statement, “While we continue to operate during a pandemic, we continue to be cautious about future expectations.  Our plans to achieve Adj. EBITDA positive in the first half of fiscal 2021 will depend on the growth of retail stores in our two largest markets, Ontario and Quebec.  It is difficult to determine the timing of new licenses for new retails stores in Ontario and the build out of additional stores in Quebec.  We await additional information from the authorities of each Province and Territory.”

The company did mention that it recorded a “$3 million realization as the result of an onerous contract which is currently the subject of litigation in Q2’20, nil in Q3’20.”

In addition to the earnings, Hexo announced an initial closing of its previously announced early conversion option in respect of $29.86 million aggregate principal amount of its outstanding $70 million aggregate principal amount of 8% unsecured convertible debentures maturing December 5, 2022. Under the initial closing, $23.595 million aggregate principal amount of Debentures was converted into ‎29,493,750 units of the company at a price of $0.80 per Conversion Unit.

 


Debra BorchardtMarch 30, 2020
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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 BorchardtDecember 26, 2019
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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 BorchardtNovember 25, 2019
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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 DomangueNovember 19, 2019
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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 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.”


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