Hexo doubles down on cannabis beverages, cuts loss to CA$4.2 million

Canadian cannabis producer Hexo Corp. reported a net loss of 4.2 million Canadian dollars ($3.2 million) for the quarter ended Oct. 31, 2020, a significant improvement over the company’s CA$170 million loss in the previous three-month period.

The Ottawa, Ontario-based company saw net revenue rise 8.8% quarter-over-quarter to CA$29.5 million, the company announced Monday.

Adjusted EBITDA, a measure of profitability, improved for the sixth consecutive quarter to a loss of CA$420,000.

The company previously reported a CA$546 million net loss for its 2020 fiscal year ended July 31, mostly attributed to write-downs.

Addressing those losses in a conference call with analysts, CEO Sebastien St. Louis said the company has been working to match “timely supply and demand.”

“We’re really moving beyond talking about tonnes and kilos at Hexo, and really starting to talk about discrete SKUs, velocity, sell-through in retail.”

St. Louis discussed at length the company’s ambition to capitalize on the niche cannabis beverage category.

Hexo has taken the No. 1 position in beverages in Canada, according to a regulatory filing.

The company holds a 42.5% stake in Truss, its Canadian beverage venture with Molson Coors Canada.

“This will be a highly fought-for category,” St. Louis said on the call. “It will be much more important to the industry than anyone realizes so far.”

Sales of cannabis beverages account for 1.9% of the total market, the company said.

St. Louis said that figure compares to 1%-1.4% of the market in the United States.

That higher market share for beverages in Canada “proves how important this category is,” he said.

St. Louis expects regulations governing cannabis beverage sales will be loosened up.

He said current rules governing beverage sales “are not aligned with consumer or public safety.”

“I think we will see that change. As that changes in the next while, that will really allow (not only) a six-pack at the point of purchase but case quantity,” he told analysts.

The country’s cannabis regulator, Health Canada, on Dec. 11 announced a consultation that could lead to higher individual possession limits for cannabis beverages.

Hexo also unveiled its Truss bottling facility last week.

CEO St. Louis said the facility “can produce 400 units a minute. If you do the math, if you start to annualize that, that’s a tremendous amount of beverages.

“We’ve built that facility for what we believe the market will be in the future, and I believe beverages could be as high as 15% of the total category – a massive part of the market,” he said.

However, producers of edible cannabis products in Canada, including beverages, continue to stock significantly more inventory than they’re able to sell.

According to the latest data from Canada’s cannabis regulator, sales of edibles in August were 1.4 million units, compared with almost 10 million units in inventory.

Hexo ended the quarter with working capital of CA$250 million, including CA$149.8 million of cash.

The company’s shares trade as HEXO on the New York Stock Exchange and Toronto Stock Exchange.