Canadian cannabis company Entourage Health Corp. is laying off roughly 35% of its staff as it ends its cultivation operations and sources adult-use and medical marijuana from Hexo Corp via a new supply agreement.
Entourage, formerly known as WeedMD, posted a loss of 17.4 million Canadian dollars ($12.9 million) for the quarter ended September 30, with revenue of CA$13.4 million, according to a joint news release.
About 90 employees will be affected as the Toronto-based company phases out cultivation over five months at its Ontario facilities in Strathroy and Guelph, according to a company spokesperson.
The Strathroy greenhouse facility is used for “propagation, cultivation and post-harvest activities such as drying, curing, (and) trimming,” the spokesperson noted, while the Guelph facility performs “tissue culture” and “genetic remediation.”
“We regret having to make this decision but the costs to maintain our Strathroy facility are no longer viable,” the spokesperson wrote in answer to questions from MJBizDaily.
“Our focus continues to be on producing premium branded products and building our medical and retail distribution networks.”
In a statement, Entourage CEO George Scorsis said the shift away from cultivation came after “a careful review of our operations.”
“Regretfully, we realized that given the current cannabis market dynamics of rising costs, and price compression, it is no longer viable for us to grow product we can procure at a fraction of the cost, at scale and with consistent quality,” Scorsis said.
Entourage also announced a supply agreement with Ottawa-based Hexo in which the latter will provide “bulk dried cannabis and soft gel capsules, to be marketed to patients and consumers under Entourage’s family of brands.”
The supply deal will last three years, and Entourage has the option to renew it for another three years.
The arrangement includes “minimum annual purchase commitments by Entourage, with year-over-year increases,” the companies said in the release.
The Entourage spokesperson said Hexo would also take over production of Entourage’s proprietary cannabis cultivars as Entourage ends cultivation.
Finished products such as packaged cannabis flower, pre-rolls and vapes will still be produced and shipped from Entourage’s facility in Aylmer, Ontario, according to the spokesperson.
Product prices under the supply deal with Hexo will be fixed “but subject to limited and periodical adjustments depending on prevailing production costs and market pricing.”
Hexo has exclusivity in supplying Entourage, although Entourage is also allowed to supply itself.
Entourage recently announced an additional CA$30 million in financing under its credit facility with a major union pension fund.
Entourage shares trade as ENTG on the TSX Venture Exchange.