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HEXO Hands Out Pink Slips, Delays Earnings Release

By Eric Volkman - Oct 25, 2019 at 7:10AM

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Around 200 employees, including executives, are losing their jobs.

HEXO (HEXO 1.67%) is reducing its employee numbers. The company announced Thursday that it's eliminating roughly 200 jobs due to what it terms "a changing market and regulatory environment."

The company said the job cuts are being made throughout its locations and departments in an attempt at "rightsizing its operations." These reach into the executive level: HEXO's chief manufacturing and chief marketing officers have departed.

Marijuana bud burning.

Image source: Getty Images.

Like most Canadian marijuana stocks, Quebec-based HEXO is coping with a multitude of business challenges, particularly the notoriously slow cannabis licensing process in Canada. In the press release announcing the job reductions, HEXO wrote that "a delay in government approval for cannabis derivative products and early signs of pricing pressure are being felt nationally."

The announcement comes one day after HEXO said it was delaying the release of its Q4 and full-year fiscal 2019 results. 

The company originally scheduled its Q4 release for Thursday, Oct. 24. It had set that date on Oct. 10 when it released certain preliminary figures for the quarter. HEXO also announced at that point it was withdrawing its guidance for fiscal 2020.

The company wrote that the delay in releasing the results is due partially to a $70 million private placement of convertible debentures to a group of investors. "[I]n light of the financing and additional time required to finalize its year end filings," HEXO wrote, it will now publish the quarterly and annual figures next Monday (Oct. 28). A conference call to discuss these will be held the following morning.

That round of financing consists of 8% unsecured convertible debentures with a three-year maturity. One year from issuance, investors will be able to convert them into common shares of the company, as long as this occurs before maturity. The conversion price is 3.16 Canadian dollars ($2.41) per share, although this is "subject to adjustment in certain events."

HEXO did not specify what those events might consist of. It did say that the group of investors purchasing the securities includes company CEO and co-founder Sebastien St-Louis and four board members

Investors generally find earnings release delays -- not to mention withdrawn guidance and potential share dilution -- to be troubling. This seems to be the case with HEXO, as the company's stock closed down by over 6% on Thursday.

 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

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