What happened
Canadian cannabis company Hexo (HEXO) reported its fiscal first-quarter 2022 results today, and investors were disappointed. In addition to a net loss of more than $90 million, the company also announced a new strategic plan aimed at achieving positive cash flow over the next year. Hexo shares plummeted in response on Tuesday, losing more than 10% at their lows, and closing the session at that level.
So what
Although net revenue increased 70% year over year for the period ended Oct. 31, and 29% sequentially from the prior quarter, operating expenses exploded higher, leading to the huge net loss. In response, the company announced a new strategic plan, dubbed The Path Forward. The company also announced a new board chairman as the previous chairman, Dr. Michael Munzar, resigned, effective immediately.
Image source: Getty Images.
Now what
The $90 million loss compares to a loss of just over $3 million in the year-ago period. Operating expenses soared in just about every area of the business. Most notably, Hexo said it took an impairment charge after doing an assessment that resulted in some equipment it deemed redundant being taken out of service. It also wrote down the value of the investment it initially made for Truss, a joint venture with Molson Coors it created in 2018 as a stand-alone cannabis beverage company.
Hexo said it will now focus on a transformation into the first company among its Canadian peers to become cash flow positive from its operations. It seeks to reduce operating costs, streamline organizational structure, and concentrate on pricing- and revenue-enhancing strategies.
Investors appear to be skeptical, and were disappointed in the overall report. It will take another year to see the situation pan out, as Hexo believes it will help generate significant incremental cash flow in its fiscal 2023. Some shareholders apparently didn't want to wait that long with their invested capital.
