Hexo unveils expected savings from strategic plan, facility reconfiguration

cannabis stock image
cannabis stock image

Hexo Corp. says it expects its new strategic plan to reduce selling, general and administrative expenses by about 30 per cent by the end of fiscal 2023.

The Gatineau-based cannabis company says its plan, which was unveiled last month after its debts mounted and its co-founder left the business, will deliver about $175 million in cash over the next two fiscal years.

The company says the plan will generate incremental cash flow of about $37.5 million in fiscal 2022 and an additional $135 million next year.

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Hexo plans to achieve these goals by moving away from co-packaging agreements and toward using its in-house production capabilities.

Hexo intends to reconfigure its network of facilities to uncover greater efficiencies and will move vape and distillate production to a site it recently acquired when it purchased Toronto-based Redecan last year for $925 million.

Belleville facility sold

The company says it has also sold its 25 per cent interest in the Belleville Complex Inc. to Olegna Holdings Inc. for about $10.1 million, but will continue to lease the facility.

The latest announcement comes less than three months after Hexo’s auditor raised serious concerns about the company’s future as it reported a $67.9-million net loss in its latest quarter.

PricewaterhouseCoopers LLP said last October its review of the firm 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.”

The report was released as Hexo was trying to quell the upheaval stemming from a strategic reorganization that included the departure of co-founder and chief executive Sebastien St-Louis and chief operating officer Donald Courtney in mid-October.

St-Louis was replaced with Scott Cooper, who ran Truss Beverage Co., a joint venture between Molson-Coors Canada and Hexo that produces the Little Victory, Mollo and Veryvell beverages.

In early November, Hexo said it planned to close three recently acquired facilities and lay off about 155 workers in a bid to streamline production.

Hexo shares were down one cent to 72 cents in late-afternoon trading on the Toronto Stock Exchange.

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