Amid transformation push, marijuana producer Hexo posts CA$690.3M Q2 loss

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Major Canadian marijuana producer Hexo Corp. posted a net loss of nearly 690.3 million Canadian dollars ($547 million) for the quarter ended Jan. 31, including write-downs worth CA$616 million.

During a Friday earnings call, CEO Scott Cooper said the company plans to become cash-flow positive in the next four quarters on the heels of Hexo’s recent debt purchase deal with rival Tilray Brands.

The CA$616 million quarterly write-down included:

  • Impairment losses on property, plant and equipment worth CA$100 million.
  • Intangible asset impairments worth CA$141 million,
  • Goodwill impairment charges worth CA375 million related to its 2021 acquisitions of producers 48North, Redecan and Zenabis.

Hexo earned CA$52.8 million in net revenue for the quarter. That compares with CA$50.2 million in the previous quarter, when the company posted a net loss of CA$117 million.

Since then, Hexo has launched a transformation strategy to cut costs, including job cuts, as well as plans to realize cost synergies and achieve “more disciplined pricing.”

Hexo’s board has also been reconstituted after a deal with an unhappy activist shareholder and the debt purchase deal with Tilray was announced earlier this month.

“We are making substantial progress on our plan in only one quarter, and it is yielding results,” Cooper said on Friday.

Hexo’s chief commercial officer, Valerie Malone, said the company retains its leading market share position in Canadian adult-use cannabis and plans organic growth.

She said the company has conducted Canadian market research that will lead to new products hitting the market this spring, including higher-potency, infused pre-rolls under Redecan’s popular Redee brand.

Cooper said Hexo is still considering the U.S. market “with interest around operating within the legal framework.”

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“In the short term, we continue to progress the action plan around extracts of hemp-derived CBD and other minor cannabinoids as an ingredient, and as we get through the balance-sheet transformation (and) free up cash within that framework, we will absolutely be looking to the U.S. in the right sequencing and time frame for growth and expansion.”

Hexo’s adjusted EBITDA, a measure of profitability, was a loss of CA$5.6 million for the second quarter, compared with a CA$11.6 million adjusted EBITDA loss in the previous quarter.

Solomon Israel can be reached at