HIGHLIGHTS
- Hexo Q4 2019 revenue at $15.4-million, full year at $47.3-million
- Hexo reports net loss of $56.7-million in Q4, $81.6-million net loss in 2019
- Hexo sold a third of the cannabis it produced in the fourth quarter
Licensed cannabis producer Hexo Corp. reported fourth quarter and 2019 fiscal year revenue in line with analysts’ expectations, after the grower lowered its guidance and postponed its financial report to late Monday, when it reported a net loss amid a sluggish industry-wide environment for Canada’s growers.
The Gatineau, Que.-based company said late Monday that its net revenue for the fourth quarter reached $15.4-million, versus $13-million in the third quarter, and the 2019 fiscal year ended July 31 brought in $47.3-million. It reported a net loss of $56.7-million for the three-months ended July 31, or 28 cents per share, compared with a net loss of $7.8-million the previous quarter, or 4 cents per share. For the full year, Hexo saw a net loss of $81.6-million.
Looking toward its fiscal 2020, Hexo said it expects net revenue for the first quarter to be $14-million to $18-million.
Hexo produced 16,824 kilograms of dried flower equivalent, up 72 per cent from 9,804 kg in the third quarter, due to higher yields, additional harvests and its Newstrike acquisition that included greenhouses. The LP sold roughly a quarter of this during the fourth quarter, with the bulk going to the adult-use market. Hexo sold 4,009 kg for adult-use in the fourth quarter, versus 2,759 kg in the prior three-month period, with 137 for medical and 672 kg for wholesale.
Hexo’s average net revenue per gram equivalent fell to $3.51 for adult-use cannabis in its last quarter, compared with $4.30 in the third quarter and $4.81 in the second quarter. The LP reported an average gross selling price of adult-use dried gram and gram equivalents eased to $4.74 in the quarter ended July 31, compared with $5.29 in the third quarter and $5.83 in the second quarter.
Net revenue per gram equivalent also fell for medical pot sales, though the value of this small segment was double at $6.99 in the fourth quarter, which was down from $7.52 in the third quarter. The average selling price of this category was $8.34 in the third quarter, down from $9.11 in the prior reporting period.
The fourth-quarter and full-year financial report came after a flurry of announcements this month that raised concern among investors. Its shares extended losses to the lowest in nearly two years at $3.02 on Monday.
Hexo had postponed its financial report, citing the need for additional time to finalize its year-end filings. The LP also reduced its net revenue forecast for the fourth quarter to between $14.5-million to $16.5-million, down from roughly $26-million that it had previously signalled, and withdrew its 2020 outlook. In June, Hexo issued guidance of up to $400-million in net revenue for its fiscal 2020 year.
Earlier in October, the licensed pot grower said its chief financial officer abruptly resigned roughly five months after starting with the company. Hexo later said a group of investors, including its chief executive and four board members, was leading a $70-million private placement of convertible debentures for working capital and general corporate purposes.
The company then said it was cutting its work force by roughly 200 jobs across the board, which included the departures of the company’s chief manufacturing and marketing officers. Then to cut costs, Hexo said it was winding down operations at its greenhouse in Beamsville, Ont., part of its Newstrike Brands Ltd. acquisition in May.
Hexo is not the only Canadian LP to disappoint investors in recent months. In August, Canopy Growth Corp. reported a significantly bigger loss than expected in its latest quarter while Aurora Cannabis Inc. missed the Street’s sales estimates in its latest quarter, even after paring back its forecast.
CIBC’s Institutional Equity Research downgraded Hexo to “underperformer” from “neutral” late last week with a new price target of $3 from $4, following the company’s job cutting announcement as this was seen to reveal a situation that was more challenging than previously believed.
“Compressed margins, lower Quebec market share (and a less attractive Quebec contract), management credibility issues, and a capital raise all serve as reasons to believe that both operations and sentiment could worsen from here,” CIBC said in an Oct. 24 report.
CIBC pegged Hexo’s 2019 revenue at $47.6-million and sharply lowered expectations for 2020 to $109.1-million from $138.4-million, and for 2021 to $201.9-million from a previous estimate of $289.5-million.
Meanwhile Jefferies Equity Research kept its rating at “hold” with a target price of $3.80, and “applauded” Hexo’s move to cut 200 jobs, suggesting many of the lay-offs are due to its Newstrike acquisition that gave the company an additional 250 workers: “Delivering cost saves from a deal to drive value for shareholders is what would be expected in most other industries.”
Hexo continues to move forward with new products. It just launched a low-price bulk cannabis product in Quebec, while its joint venture with Molson Coors plans to sell newly legalized pot-based drink products later this year.