Gatineau-based pot firm Hexo Corp. is reducing its workforce by 200 jobs to adjust for expected future revenues and “ensure the long-term viability” of the firm, its chief executive said.
The announcement comes after earlier this month Hexo cut its net revenue forecast for the fourth quarter of its financial year which ended July 31 and withdrew its 2020 outlook, citing factors including slower-than-expected pot store rollouts and early signs of pricing pressure.
The cuts come after a massive hiring spree earlier this year that saw Hexo more than double its workforce, according to previous financial filings. Over the course of Hexo’s third quarter, the company’s payroll ballooned from 374 employees at the end of January to some 822 workers as of April 30.
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That’s not counting the 250 employees gained from its $263-million acquisition of Newstrike Brands, which closed May 24.
The wave of hires was meant to staff the company’s one-million-square-foot greenhouse in Gatineau as well as its research and development facility in Belleville. Hexo declined to say how many of the scheduled job cuts will be in the National Capital Region.
Chief executive Sebastien St-Louis said it was his “hardest day” at the company.
“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 Corp.,” he said in a statement. “The actions taken this week are about rightsizing the organization to the revenue we expect to achieve in 2020.”
The cuts included the elimination of some executive positions and the departures of chief manufacturing officer Arno Groll and chief marketing officer Nick Davies, the company said in a release.
Shares of Hexo slipped as much as seven per cent to $3.26 on the Toronto Stock Exchange from its previous close of $3.51, but the stock was trading at $3.40 by mid-afternoon.
The cost-cutting measures came one day after Hexo postponed the release of its fourth-quarter results to Oct. 28 and its conference call to Oct. 29 as it announced a $70-million private placement of convertible debentures led by a group of investors, including St-Louis and board directors.
The company said that it intends to use the proceeds of the private placement for working capital and general corporate purposes.
Analysts said Wednesday that the involvement of senior management and directors in the financing as positive and said it would provide confidence to investors, but given that the conversion price of $3.16 was below the previous day’s close it also signals that Hexo has little conviction in its near-term outlook.
Earlier this month, Hexo said its fourth quarter net revenue was expected to be about $14.5 million to $16.5 million, down from the roughly $26 million it had forecast previously. Hexo also said it was withdrawing its previously issued outlook for its 2020 financial year of up to $400 million in net revenue.
The executive departures announced Thursday are the latest changes in the upper ranks of the cannabis company.
Also in early October, Hexo said its chief financial officer Michael Monahan resigned, effective immediately, after taking on the role in May, citing family reasons. In July, co-founder and chief brand officer Adam Miron also stepped down from the company.
– With files from OBJ staff
