David George-Cosh

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Hexo Corp. said Tuesday it plans to shutter three indoor production facilities it acquired from recent takeover deals in a move it expects to help the cannabis company become profitable. 

Hexo said it will shut down facilities it operated in Kirkland Lake, Ont. Brantford, Ont. and Stellarton, N.S. in early 2022 as they were deemed to not be material to the company's integrated operations. 

The closures will affect 155 staff - roughly 13 per cent of its total employee count - and it will assist those impacted with relocation to other in-house facilities, the company said in a statement. As well, a company spokesperson told BNN Bloomberg in an emailed statement Hexo will now exceed the $35 million in synergies it originally forecast it would make through its acquistions of three pot producers earlier this year. 

"As part of the integration planning process, we completed a comprehensive evaluation of all Hexo facilities to review their capabilities, capacity, and efficiency, and made the decision to centralize operations at our core facilities," said Scott Cooper, president and chief executive officer of Hexo, in a statement. 

"This decision is key to achieving our immediate priority of integrating our recent acquisitions to drive growth and profitability through the commercialization of cannabis consumer packaged goods products."

With the announcement Tuesday, Hexo is closing both of the Ontario facilities it acquired from 48North Cannabis Corp. back in May, leaving only a handful of brands remaining from its deal to buy the company for about $50 million. 

Hexo acquired its Nova Scotia facility from its Zenabis Global Inc. deal alongside two large indoor facilities in New Brunswick and British Columbia that it still intends to operate. 

The closures come a week after Hexo announced its fourth-quarter results that disclosed a going concern about its looming debt load. The company said there is an "ongoing concern with its senior secured convertible notes" issued in May that helped raise US$327.6 million prior to the closing of its deal to buy Redecan Pharm but used the company's assets as collateral to obtain that financing.

In a recent note, RBC Capital Markets Analyst Douglas Miehm said that Hexo's stock needs to stay above US$1.50 a share on the Nasdaq to avoid paying its lender a "significant cash outflow" for monthly settlements and is required to have positive adjusted earnings before interest, taxes, depreciation, and amortization starting in the fiscal second-quarter of 2022