David George-Cosh

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Hexo Corp. has a plan to become profitable, but getting there will require an influx of newly-licensed pot shops to open in Canada's biggest consumer markets, the company's chief executive officer said Thursday. 

"Our plan to achieve adjusted positive EBITDA by the end of the calendar year will depend on the growth of retail stores in our two largest markets, Ontario and Quebec," said Sebastien St-Louis in a conference call with analysts.

"We need the governments to either continue to build out the retail infrastructure, or allow the private sector to provide the service that consumers demand."

The opening of legal pot shops has emerged as a major sticking point for cannabis producers who are struggling to become profitable since recreational pot was legalized in Canada in 2018. The rollout of legal stores has been hampered in some of the country's largest markets due to onerous regulations and limited capacity, although several provinces including Ontario and British Columbia are set to open dozens of new outlets this year. 

In the country's biggest consumer markets, there are 87 licensed cannabis stores operating in Ontario with another 413 waiting further regulator licensing, while another 42 are open in Quebec, according to provincial data. It is unclear, however, how many more stores would be needed for Hexo – and other licensed producers – to become profitable.

St-Louis's comments come as Hexo reported better-than-expected third-quarter results Thursday, as sales of the company's value brand bolstered the company's revenue while trimming costs to place it on track to book positive cash flow this year. 

Hexo said its revenue in the quarter ending April 30 climbed 30 per cent to $22.1 million from the prior three-month period as Canadian consumers purchased more of the Ottawa-based company’s value brand offering as well as new cannabis extract products. 

The company also reported third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $4.3 million, an improvement from the $8.5 million loss it booked in its prior quarter, as it reduced various administrative and avoided significant inventory writedowns. 

Analysts polled by Bloomberg expect the company to report $20.3 million in revenue while reporting an adjusted EBITDA loss of $8.9 million.

St-Louis added Truss, the company's joint venture with Molson Coors Brewing Co., will soon have cannabis-infused beverages on the market. He also said the company recently installed specialized equipment that will help mitigate quality issues that have hampered some of its rivals including Canopy Growth Corp.