Hexo posts improved third quarter with CA$19.5 million loss

Canadian cannabis cultivator Hexo Corp. posted a net loss of 19.5 million Canadian dollars ($14.5 million) for the quarter ended April 30 as recreational sales grew and operating expenses shrank from the previous quarter.

Hexo’s net loss decreased by 93% from the second quarter, which was marked by a major impairment charge for disposing of its  former Newstrike facility.

Net revenue increased by 30% on a quarterly basis to CA$22.1 million as recreational grams sold increased by 42% over the previous quarter.

Hexo’s adjusted EBITDA loss for the third quarter was CA$4.3 million.

On an earnings call, Hexo CEO Sebastien St. Louis said his goal of achieving positive adjusted EBITDA by the end of the calendar year “will depend on the growth of retail stores in our two largest markets, Ontario and Quebec.”

More than 80% of Hexo’s sales in the third quarter were in Quebec, according to information disclosed on the call.

St. Louis said Hexo’s preferred supplier agreement with Quebec’s government-owned Société québécoise du cannabis (SQDC) retailer has seen the company achieve more than 30% market share in that province.

“And, at this point, with the new success we’ve had operationally, we’re poised to expand nationally and to start to provide that same level of service in other markets,” he said.

St. Louis said Hexo is in fourth place in terms of national adult-use cannabis market share in Canada.

Hexo Chief Financial Officer Steve Burwash said third-quarter sales were driven by Original Stash, the company’s bulk-value brand, which contributed to a decrease in price per gram for the quarter.

Asked about increased competition for value brands such as Original Stash, St. Louis said the brand was originally positioned as a “black-market killer,” not a value brand.

“What happened is, from a legal-market perspective, the positioning and pricing were just so aggressive … so it really forced a (price) shift of the entire legal market down,” he said.

St. Louis said he believes there’s room in the market for value products priced below Original Stash.

“I think the whole market is going to shift down, Original Stash is going to take its place as a mid-market, black market-killer with the kind of value – ‘bargain-basement,’ call it – 10% to 15% THC products below that at a better pricing.”

The Ontario-based company trades as HEXO on the New York Stock Exchange and Toronto Stock Exchange.