David George-Cosh

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Hexo Corp. is laying off approximately 200 people as the beleaguered Quebec-based cannabis producer cites industry-wide unpredictability amid a drive to reduce costs and reach profitability.

Hexo said the cuts impact all of its departments and locations. Some notable departures include Arno Groll, Hexo’s chief manufacturing officer; and Nick Davies, the company’s chief marketing officer. Hexo had nearly 1,100 employees as of May, according to a recent regulatory filing.  

“This has been my hardest day at Hexo Corp.,” said Sebastien St-Louis, Hexo’s chief executive officer, in a statement Thursday.

“While it is extremely difficult to say goodbye to trusted colleagues, I am confident that we have made sound decisions to ensure the long-term viability of Hexo. The actions taken this week are about rightsizing the organization to the revenue we expect to achieve in 2020.”

Jefferies LLC analyst Owen Bennett said the departure of two key executives does raise concerns that things at Hexo may not have operating as well as hoped.

“If there have been issues in manufacturing and marketing, it could mean they persist for a while, at least until someone new is put into place and there is an opportunity to implement new methods,” Bennett wrote in a report.

He added that Hexo’s focus on profitability should be “admired,” saying cannabis companies that want to survive should be showing some pathway to producing profits as well as pot.

“The market no longer cares that this is a young industry and likely won't reward growth at all costs. It wants to see financial discipline, with controlled sustainable growth,” Bennett wrote     .

Hexo’s layoff announcement came a day after the company delayed the release of its fourth-quarter results to Oct. 29 from Oct. 24 after needing time to complete a full-year audit of its finances. Hexo also announced a $70-million private placement of unsecured convertible debentures led by a group of investors that includes St-Louis.

Earlier this month, Hexo cut its fourth-quarter revenue forecast and withdrew its outlook for the 2020 financial year.