Cannabis producer Hexo loses CA$146 million in quarter, sees executive exodus

Hexo Corp. reported a net loss of 146 million Canadian dollars ($112 million) for its February-April quarter, bringing the Canadian cannabis producer’s loss for the first nine months of its 2022 financial year to CA$953.8 million.

The Quebec-based company’s sales fell 14% sequentially to CA$45.6 million in the third quarter.

By stream, compared to the previous quarter:

  • Adult-use cannabis net revenue fell 11% to CA$31 million.
  • Beverage revenue slipped 5% to CA$4 million.
  • Medical sales declined 15% to CA$813,000.
  • Wholesale sales fell 13% to CA$3.3 million.
  • International revenue declined 22% to CA$6.4 million.

Hexo withdrew its financial guidance, citing deteriorating market and economic conditions, recent changes to senior management and a pending transaction with Tilray Brands.

“The company now believes that it will not achieve the synergies and incremental cash flow increases to the level estimated in its previous guidance and it expects such figures and measures to be lower than previously guided,” Hexo noted in a news release.

Hexo previously pledged to become the first among its competitors to be cash-flow positive from operations.

The Quebec-headquartered company said it is reducing its workforce by 450 positions, which are expected to result in cost savings of CA$30.6 million.

Hexo spent CA$7.8 million on termination benefits for key executives so far this year, according to the quarterly filing.

The company provided the following statement after MJBizDaily inquired about the layoffs and departures of some key executives:

“HEXO is committed to streamlining our operations across all functions. This enables our top selling brands to remain competitive in the marketplace whilst aligning to our long-term financial objectives. We look forward to sharing additional details in our Q3 earnings.”

The company has seen an exodus of executives in recent months, including:

  • Peter Kirkwood, head of sales.
  • Valerie Malone, chief commercial officer.
  • Marlon Boyington, director of brand management.
  • Nancy Neil, medical sales director.
  • Roch Vaillancourt, general counsel.
  • Curt Solsvig, acting chief financial officer.
  • Scott Cooper, CEO.

Stay informed with MJBiz Newsletters

MJBiz’s family of newsletters gives cannabis professionals an edge in this rapidly changing industry.

Featured newsletters:
  • MJBiz Daily: Business news for cannabis leaders in your inbox each morning
  • MJBiz Cultivator: Insights for wholesale cannabis growers & vertically integrated businesses
  • MJBizCon Buzz: Behind-the-scenes buzz on everything MJBizCon
  • MJBiz Finance: Financial reports & funding strategies for entrepreneurs + investors
  • Hemp Industry Week: Roundup of news from hemp farming to CBD product manufacturing
  • And more!

 

Meanwhile, Hexo on Tuesday made amendments to its previously announced transaction with Tilray.

The biggest change in the deal is that Hexo debt will now be converted at a price of CA$0.40 per Hexo share, about half the $0.85 per share that was previously agreed to.

The company’s shares were trading at about CA$0.25 on the Toronto Stock Exchange.

Hexo is expected to seek shareholder approval by July 15, a slight delay from June.

The amendments could eventually give Tilray as much as 50% of Hexo, up from an estimated 35%.

“The strategic partnership with Tilray Brands significantly improves HEXO’s capital structure and provides the opportunity to accelerate our growth in global markets,” Hexo president and CEO Charlie Bowman said in a statement.

“Challenging stock market conditions have necessitated amendments to the agreement, but this is a critical step in unlocking the shareholder value held within the Company.”

The company’s shares trade as HEXO on the Nasdaq and TSX.

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.