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What's Behind Hexo's Impressive Fiscal Q2 Results?

By Keith Speights - Mar 18, 2021 at 12:00PM

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The Canadian cannabis producer improved from top to bottom.

It's been over three years since Hexo (HEXO -1.67%) delivered impressive stock gains. But the Canadian cannabis producer is on track to do it this year. Its shares have more than doubled so far in 2021. 

That momentum should continue. Hexo announced results for its fiscal 2021 second quarter, which ended on Jan. 31, 2021, before the market opened on Thursday. The marijuana stock jumped nearly 9% in early trading before giving up some of those gains. Here are the highlights from Hexo's Q2 update.

Cannabis leaf held in front of a Canadian flag

Image source: Getty Images.

By the numbers

Hexo reported revenue in its fiscal second quarter of 32.8 million in Canadian dollars. This reflected a 94% increase from the prior-year period revenue total of CA$17 million.

The company posted a Q2 net loss of CA$20.8 million. In the prior-year period, Hexo's net loss totaled CA$298.2 million.

Hexo generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of CA$202,000, compared to an adjusted EBITDA loss of CA$419,000 in the prior-year period. This marked the company's seventh consecutive quarter to achieve improving adjusted EBITDA.

Behind the numbers

Hexo's impressive revenue growth in fiscal Q2 was driven in large part by an 11% quarter-over-quarter and 72% year-over-year increase in nonbeverage adult-use cannabis sales. The company held on to its No. 1 market share in Quebec. It also made progress in other Canadian provinces.

The relaunch of the UP cannabis brand continued to pay off. Gross revenue for the brand made up 8% of Hexo's total nonbeverage adult-use gross revenue in Q2, compared to less than 1% in Q1.

Adult-use cannabis beverages also played a key role in Hexo's Q2 revenue growth. Sales of these beverages jumped 11% quarter over quarter. Hexo again claimed the highest market share in the beverage category.

Hexo's bottom line improved significantly from the prior-year period in part because the company didn't have any material impairments. Its operating expenses also fell 3% due to cost-reduction initiatives.

Looking ahead

The future appears to look brighter for Hexo than it has in quite a while. Money managers have been increasingly bullish about the pot stock. Hexo has high expectations for its CBD beverages recently launched in Colorado.

But the biggest story for Hexo right now is its plan to acquire Zenabis for around CA$235 million. This deal will vault Hexo into the top three among Canadian licensed producers based on adult-use cannabis sales.

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