Gatineau-based Hexo’s revenues soar in first full quarter since cannabis legalization

hexo
Hexo CEO Sebastien St-Louis.

Gatineau-based cannabis company Hexo Corp. (TSX:HEXO) reported a loss of $4.3 million in its latest quarter as revenue grew to $16.2 million in its first full quarter following the legalization of recreational cannabis in Canada.

The company says the loss amounted to two cents per share for the quarter ended Jan. 31.

The result compared with a loss of nearly $9 million or 10 cents per share in the same quarter a year earlier when the company reported $1.2 million in revenue.

The company's loss from operations in what was its second quarter increased to $6.9 million compared with a loss of $4.7 million a year earlier due to higher expenses as it prepared for the legalization of the adult-use market and stock-based compensation expenses.

The results came a day after Hexo announced a deal to buy Newstrike Brands Ltd., the cannabis company backed by members of the Tragically Hip band, in an all-share transaction valued at $263 million.

Newstrike shareholders are being offered 0.06332 of a Hexo common share in exchange for each common share held.

Shares of Hexo hit $8.37 in Thursday morning trading on the Toronto Stock Exchange, a jump of nearly seven per cent from Wednesday’s market close and the stock’s highest value since before legalization came into effect last October.

CEO Sebastien St-Louis said on Thursday he expected Hexo's sales to be relatively flat during its third quarter, which ends April 30, but a new facility the licensed producer is building in Belleville, Ont. will be "transformational."

"A two-million square-foot facility will give us enough space to fulfil that $400-million net sales (target) next year, and beyond," he told analysts during the company's earnings call.

LPs 'underestimated' infrastructure needed for legal weed: St-Louis

The Hexo CEO also noted on the call that cannabis products have been slow to reach retailers because licensed producers "underestimated" the infrastructure needed to fulfill orders.

St-Louis's comments came one day after Health Canada released legal cannabis sales and inventory figures for January that indicated sales of dried flower fell while licensed producers' finished inventory stockpiles continued to build up.

"All the LPs, including Hexo, generally underestimated the amount of packaging infrastructure and logistics and employees and space that it would take to actually do fulfillment," he said.

"It's one thing to grow this product, it's one thing to bag it in giant bags. But by the time you think about putting it in individual multi-line products, that's quite complex."

Since Canada legalized cannabis for recreational use last October, many provincial, territorial and private retailers have faced product shortages. The lack of product has prompted the provincial retailer in Quebec to shut its stores on Mondays and Tuesdays and was cited by the Ontario government in its decision to limit the province's initial batch of physical stores to 25.

The statistics released by Health Canada late Wednesday signalled that there continues to be a lag for finished inventory between licensed producers and sales channels.

In January, total sales of both medical and non-medical dried cannabis in Canada amounted to 7,115 kilograms, down 3.7 per cent from 7,385 kilograms in December, Health Canada said.

However, the amount of finished dried cannabis inventory at licensed producers rose by 16.4 per cent during that period to 10,174 kilograms, the health agency said. At the same time, the amount of finished dried flower inventory held by provincial, territorial distributors and retailers slipped by 5.7 per cent during the period to 9,346 kilograms.

Oil sales and inventory fared better in January, however.

Total sales of cannabis oil increased by 4.3 per cent to 7,856 litres during January. Meanwhile, the finished oil inventory held by licensed producers rose by 24 per cent to 33,822 litres and by distributors and retailers by 29.8 per cent to 19,099 litres.

– With files from OBJ staff