As Cannabis Sector Struggles, Hexo Offers One View That’s Far From Hopeful

Jun 21, 2022

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What does it say when Hexo Corp (NASDAQ:) (TSX:), the biggest Canadian marijuana grower by market share and one of many main names within the North American hashish sector, sees its shares drop to a brand new all-time low within the wake of its newest quarterly when the precise figures are only a small a part of the explanation?

Hexo Weekly Chart

Maybe it’s yet one more indication that the highway resulting in US federal legalization of the hashish market, which might swing open the doorways to the biggest pot market on this planet to worldwide gamers, might quickly be strewn with company carnage.

Among the gamers could very properly not have the monetary stamina to attend out the federal directive.

Hexo shares plummeted to a never-before-seen low of US$0.1959 on the NASDAQ final Wednesday after reporting third-quarter earnings that severely missed analysts’ expectations.

The Quebec-based firm’s quarterly income hit C$45.6 million (US$35.2 million), which represents a 101% achieve over the identical quarter within the earlier 12 months, however 14% under the final quarter. The drop was attributed, partially, to robust competitors throughout the Canadian market.

Among the many highlights of the earnings report was a C$146.6 million (US$113.2 million) loss for the quarter, which included an C$83.1 million (US$64.2 million) impairment cost associated to a closure of a manufacturing facility and a C$14.6 million (US$11.3 million) stock write-down.

The underside line was an C$18.4 million (US$14.2 million) adjusted-EBITDA loss, which was considerably bigger than the C$10.8 million (US$8.3 million) loss reported in the identical quarter one 12 months earlier.

Nevertheless it wasn’t simply the financials that contributed to the drop in share worth.

Hexo additionally introduced that it was withdrawing its earlier steering in its entirety with respect to what it known as “operational synergies and incremental will increase to money flows for the 2022 and 2023 monetary years.”

The assertion added:

“… there could be no assurance that the corporate will sooner or later determine to offer any steering in any way with respect to any operational, monetary or different measure.”

Then, two days after unveiling its newest earnings, Hexo introduced, {that a} wholly-owned subsidiary, Zenabis International, had filed for creditor safety.

In line with Hexo’s assertion, the safety petition filed in Quebec Superior Courtroom is proscribed to the Zenabis Group.

Hexo purchased Zenabis in 2021 for C$235 million (US$181.5 million).

If that wasn’t sufficient upheaval, buyers are additionally conscious that, in April, Hexo named a brand new CEO—its third in six months.

Charlie Bowman was appointed performing president and CEO, changing Scott Cooper, who had been named to the publish final October. Cooper had changed Hexo co-founder Sebastien St-Louis who left the corporate in a significant strategic reorganization of the corporate.

Earlier to his appointment in April, Bowman held the title of performing chief working officer of Hexo USA.

Shares of Hexo regained a little bit of their latest slippage by the top of final week, closing final Friday earlier than the lengthy weekend within the US at US$0.205.

Within the final 12 months, Hexo inventory has misplaced greater than 96% of its worth.

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