David George-Cosh

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Quebec-based cannabis producer Hexo Corp. withdrew its forecast for fiscal 2020 results while providing investors with a fourth-quarter revenue warning the company attributes to a lack of retail stores and regulatory uncertainty.

Hexo now sees its fourth-quarter revenue coming in between approximately $14.5 million and $16.5 million, while projecting full-year 2019 revenue between $46.5 million and $48.5 million. During a conference call with analysts in June, Hexo Chief Executive Officer Sebastien St-Louis said the company’s fourth-quarter revenue would be double what it reported in third-quarter, which was $13.0 million.

Hexo shares tumbled on Thursday, finishing trading down $1.12 (22.95 per cent) at $3.76 on the Toronto Stock Exchange.  

Analysts, on average, were anticipating $24.5 million for the fourth quarter and $57.9 million in full-year revenue.

“Fourth-quarter revenue is below our expectation and guidance, primarily due to lower than expected product sell through,” said St-Louis in a statement early Thursday. “While we are disappointed with these results, we are making significant changes to our sales and operations strategy to drive future results. Over the past quarter, we began re-configuring our operations to focus on high-selling strains and initiated a new sales strategy that we believe will meaningfully improve performance.”

Hexo previously said it expected to reach $400 million in net revenue for fiscal 2020. In his statement, St-Louis said withdrawing the company’s earlier outlook was a “difficult decision.”

“Given the uncertainties in the marketplace, we have determined that it is the appropriate course of action. We are also placing a greater focus on profitability. We are evaluating our plans and operations to see where we can be even more efficient,” St-Louis said.

A slow rollout of physical brick-and-mortar retail stores, a vaping-related health crisis, regulatory woes led by issues emanating from CannTrust Holdings Inc., and a still-flourishing black market have all contributed to a challenging year for Canadian cannabis producers. Over the past week, these market dynamics led The Green Organic Dutchman to announce it is seeking financing alternatives after it was unable to find conventional sources of new capital, while a major U.S. M&A transaction between MedMen Enterprises Inc. and PharmaCann Inc. was scuttled.

The announcement also comes less than a week after Hexo said chief financial officer Michael Monahan had resigned. Monahan, the former CFO of Nutrisystem Inc., left his post at the pot company after just four months on the job, attributing his departure to family reasons.

Hexo has said it will enter the U.S. cannabidiol market after securing 200,000 kilograms of hemp-based cannabis but hasn’t provided any firm details on those plans. Hexo also has a joint venture with Molson Coors Brewing Co. to manufacture and sell cannabis-infused beverages in Canada later this year.

Hexo will report its year-end financial results on Oct. 24.

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