Three months after stepping into Hexo Corp.’s top job, CEO Charlie Bowman has already deepened his predecessor’s cuts and begun backing away from certain products, but he insists the moves are for a good reason: resetting Hexo’s cost structure “dramatically.”
Before Bowman took the helm at the end of April, the Gatineau, Que.-based cannabis company had consistently racked up millions in losses each quarter, seen its Nasdaq listing in peril and cycled through multiple CEOs.
Bowman believes he can put the company on the right track, beginning with a whole new strategy for revenue.
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“The previous administration said all revenue is good revenue, and that’s a bad, bad thing,” Bowman said in a call from Colorado.
“All revenue is not good. You need profitable revenue, you need revenue, which … might not make money today, but it’s going to make money in two steps.”
Bowman, who was acting chief operating officer before being appointed CEO, started his quest for good revenue with cost-cutting, a hallmark of his predecessor Scott Cooper’s less-than-one-year tenure.
Cooper previously ran Truss Beverage Co., a joint venture between Molson-Coors Canada and Hexo. Last year he orchestrated a 180-person layoff, which he expected to deliver about $15 million on an annualized basis.
Bowman doesn’t mince words about the move.
“The cost cutting wasn’t sufficient,” he said. “We’ve done additional cost cutting over those initial layoffs and redundancies … because you have to right-size your organization for success.”
In its latest financial filings, the company said it is working to cut 450 positions by the end of 2023 to save about $30.6 million a year.
Some of the moves have impacted management, which Bowman admits was “tough,” but “to do this effectively you had to have everybody all in,” he added.
The cuts have gone beyond personnel. Bowman has also dropped products which didn’t make any money and replaced them with profitable items.
He would not give specifics about what products or lines of business he targeted because the company plans to publicize its new goals during its fourth quarter.
However, he said, “if there’s segments where there’s not money to be made, I’m not going to chase false market share or false revenue, because it doesn’t add anything except cost into our infrastructure, and that’s probably the biggest change.”
The company is currently known for its recreational brands UP Cannabis, Original Stash, 48North, Trail Mix, Bake Sale and Redecan, but Bowman thinks there is room for Hexo to establish itself in the personal care, pharmaceutical and nutritional supplement spaces.
While rivals in the ultracompetitive market push heavily into products with high tetrahydrocannabinol (THC), pot’s psychoactive component, Bowman, who held senior jobs at extracts company BGG/Solix Algredients, sees potential in minor cannabinoids that could eventually help people with anxiety and a variety of illnesses.
There’s a lot at stake.
On a personal level, Bowman got into the business to help patients with ailments like cancer, which his father had.
On a business level, many are wondering how much more Hexo can take.
A 2021 PricewaterhouseCoopers LLP review of the business showed that Hexo “did not maintain, in all material respects, effective internal control over financial reporting” and several factors “raise substantial doubt about its ability to continue as a going concern.”
At one point last year, Hexo was even found non-compliant with minimum bid price requirements set out by the Nasdaq market, which could have delisted the company.
“The pain train (is) still rolling down the tracks” at Hexo, MKM Partners managing director Bill Kirk said in June, roughly a month into Bowman’s tenure.
In a note to investors, he said Hexo’s adult-use pricing in Canada has fallen below last year’s wholesale pricing, and market share is evaporating.
Despite cost cutting and reaching a US$211 million deal that could see rival Tilray Brands Inc. own a stake in Hexo, expenses have increased, Kirk pointed out.
“Put another way, Hexo’s best product isn’t commanding the price its worst product could 15 months ago AND its cost structure remains bloated,” wrote Kirk.
None of this was a surprise to Bowman when he accepted the CEO job.
“My eyes were wide open. I knew exactly what was going on,” he said.
That’s part of why Bowman’s pledged to be transparent with staff through every step of the transformation he’s plotting.
Some of what they’ve had to hear has been blunt.
“There’s a chance that our business could be acquired down the road. There’s a chance that our business could survive this, and there’s also a chance that our business cannot survive it.”
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