Hexo losses deepen a year after legalization
Hexo Corp. Chief Executive Officer Sebastien St-Louis said his work isn’t done “by any stretch” after the company recently laid off about 200 people and reported a fourth-quarter loss that was three times larger than analysts expected.
When asked by BNN Bloomberg’s Andrew Bell whether he would consider stepping down from his position given how other founding cannabis CEOs departed their roles amid softer-than-expected sales or regulatory concerns, St-Louis was adamant he will remain in place to steer Hexo toward its goal of becoming a global marijuana leader.
“The board always has that option given the [company's] performance,” St-Louis said. “The board has indicated they want me to continue to execute on that vision and I serve at the pleasure at the board and shareholders. I don’t feel that my work here is done by any stretch.”
St-Louis acknowledged he erred in assuming that more cannabis retail stores would open this year in Canada notably in Ontario, which the company previously listed as one of the reasons for its recent job cuts. However, Hexo is on track to become cash-flow positive in 2020, selling more of its product in Ontario and Alberta retail stores and is “actively engaging” with potential partners in the U.S. legal cannabis industry, St-Louis said.
St-Louis’ comments come following a string of announcements that encapsulated the challenging year that many Canadian cannabis producers have experienced. Last month, Hexo reported an adjusted fourth-quarter loss of $43.7 million after previously withdrawing its fiscal 2020 forecast for $400 million in sales. Hexo also cut 200 jobs in October, or approximately a quarter of its workforce, suspending its operations in Niagara, Ont. and scaling back some of its operations at its Gatineau, Que. facility.
CIBC Analyst John Zamparo said at its current pace, Hexo is on track to spend its current cash reserves of approximately $210 million by the first quarter of 2021 after spending heavily on building its operations in Quebec and Ontario.
“There is likely some ability to reduce the company’s capex budget, but barring either more drastic [selling, general and administrative expense] cuts, or significant share capture, or a massive acceleration of Canada’s store count, the company may face questions about its balance sheet in the next six to 12 months,” Zampano said in a recent report.
St-Louis noted that in light of the company’s recent financial troubles, Hexo is returning to its roots as a cost-conscious cannabis company as it seeks to emerge from the current group of Canadian operators to become one of the top three producers globally.
“What investors want to see right now is performance,” St-Louis said. “I’ve just spent the past week touring every site in Hexo, working with the teams and geting commitments to get back to our root culture of cost cutting, being efficient and being effective.”
However, St-Louis doesn’t consider his upcoming work to be described as a turnaround, highlighting a 30 per cent increase in quarter-over-quarter sales growth for its recreational cannabis business. He also said the company’s commitment to delivering on its five-year contract to supply 20,000 kilograms of cannabis annually to Quebec remains in place “for the long run” despite shipping only half of that amount this year.
“That is not a story that is in need of a turnaround. That’s a story that needs stewardship,” he said.
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