Cannabis producer Hexo promises consumer focus after CA$117M loss

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Canadian cannabis producer Hexo is shaking up its board and promising a renewed focus on consumers after the struggling Quebec-based company lost 117 million Canadian dollars ($91 million) in its first quarter of fiscal 2022.

Hexo has now lost CA$885.8 million since 2016.

In the quarter ended Oct. 31, 2021, Hexo said in a news release, its acquisitions of rival cannabis producers Redecan and 48North added CA$14.7 million in sales.

But the company said the acquisitions of Redecan, 48North and Zenabis – which all closed this year – came with transaction costs amounting to CA$24.4 million.

Additionally, impairment charges for redundant assets and investments reached CA$50.7 million and executive-restructuring costs were CA$4 million.

Despite the headwinds, CEO Scott Cooper told analysts he expects Hexo to reach profitability in the near future.

“The days of unprofitable cannabis companies are numbered,” Cooper said on a call with analysts.

“We believe we will get to EBITDA-positive in this current quarter.”

Adjusted EBITDA, a measure of profitability, for the August-October quarter was minus-CA$11.6 million.

Hexo reiterated its expectation of being cash-flow positive within the next four quarters.

“We will put the customer and consumer at the center of everything we do,” Cooper said.

Hexo’s sales by category in the quarter, compared to the previous quarter, were:

  • Adult-use cannabis: CA$35.9 million (+47%).
  • Beverages: CA$3.2 million (-40%).
  • Canada medical: CA$668,000 (+210%).
  • Wholesale: CA$4.1 million (+116%).
  • International: CA$6 million (-11%).

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Hexo announced major changes to its C-suite approximately two months after longtime CEO Sébastien St. Louis stepped down in October.

The company is again changing chief financial officers, which will be the fifth time in three years a fresh executive will fill the CFO role.

The current CFO, Trent MacDonald, is stepping down, effective March 11, 2022.

MacDonald will continue in his role while the company completes its search for a new CFO, per Hexo’s announcement.

Also shuffled out was board Chair Michael Munzar.

Hexo appointed John Bell as Munzar’s replacement, effective immediately.

Bell served on Canopy Growth’s board from 2014 to 2020.

Hexo also added Jackie Fletcher, vice president of science and technology, to the executive team.

The executive shake-up is part of Hexo’s “transformative plan,” which was announced concurrently with the first quarter loss.

The plan, according to the release, involves solidifying its position as the No. 1 cannabis producer in Canada by market share, “with the goal of becoming the first amongst its peers to be cash flow positive from operations.”

Hexo expects to generate CA$37.5 million in incremental cash flow this fiscal year and CA$135 million in 2023 via cost reductions and revenue growth.

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

– Matt Lamers