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Oct 17, 2019

Hexo's new discount bulk pot offering 'not a loss leader': CEO

Hexo and Molson plan to launch of CBD-infused drinks as early as December

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Hexo Corp.’s chief executive officer Sebastien St-Louis says the company’s new cut-rate, bulk pot offering won’t impact the company’s bottom line.

“This is not a loss-leader. This is a long-term sustainable product offering,” St-Louis told BNN Bloomberg in a Thursday interview.

“Over the last year, we’ve onlined over a million square feet of greenhouses, our manufacturing capability is better than ever. And now, with this larger format, we’re passing a lot of those savings on to the consumer. We’re maintaining a high-quality product, but cutting costs down dramatically.”

Hexo unveiled Original Stash on Wednesday, a Quebec-only offering of 28-grams of dried flower retailing for $125.70, all-in. The $4.49-per-gram rate of the bulk purchase comes in at 50 per cent below the national average for legal cannabis and 20 per cent below the black market rate, according to estimates from Jefferies Group.

Jefferies analyst Owen Bennet said in a research note Wednesday that the Quebec-based company’s intentions with the offering were “an aggressive move to address limited demand for Hexo and increase market share,” adding that the product runs counter to black market buying habits.

“Those who are price conscious, and especially those sourcing from the black market, are less likely to be prepared to pay over $125 for their dried cannabis, regardless of price per gram,” Bennett wrote. “The illicit model is known to be driven by convenience as well as price, where consumers are able to purchase 'little and often.’"

A painful year for Canadian pot stocks

It was one year ago today that recreational consumption of marijuana became legal in Canada, setting off an investor feeding frenzy in publicly traded cannabis producers and a wild ride in the stock market. Matt Bottomley, analyst at Canaccord Genuity, discusses lessons learned over the past 12-months and where the sector may heading in the years ahead.

St-Louis said that the move will open up an untapped customer base within the Canadian cannabis market.

“Less than half of Canadians are currently shopping legally,” he said. “With this offering, we think that really doubles the available market and it really matches the additional capacity that Hexo’s put online in the last year.”

And, while St-Louis said Hexo has not had any issues destroying excess inventory, he said “Original Stash” should help the company clear some internal shelf space.

“Inventory for an operating company is the root of all evil. So, you want to move it out as quickly as possible, and we want to make sure we maintain quality and a fresh product,” he said.

“[Original Stash] will allow us to increase volumes dramatically and we’re very confident that with our cost structure, we’ll be able to flow through the inventory that we produce.”

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.