Why is Cost of Goods so high?Price Waterhouse - the company who just resigned as Hexo's external auditor - listed in every year of their year notes the problems they foudn in Hexo's internal controls and processes.
EVERY YEAR - and Hexo did little or nothing to address the problems.
How can you possibly control direct expenses when you have deficient (or none altogether) accounting, inventory and inetrnal audit processes?
When Hexo couldn't get their own house in order - how could they possibly integrate Zenabis, 48N and Redecan into their incompetently run company?
One of the key reasons they high lited with the Redecan acqusiition was their glowing reviews of Redecan's LEAN processes (efficiency systems) - something Hexo didnt have.
The below is what I posted to Stockhouse (and had pumptards call insignificant - and that SSL was working to address) in 2020 and that they note the deficiencies had been listed the previous year with no action taken by Hexo.
The same comments were shown in 2021 and finally in 2022 - when Price Waterhouse had had enough.
Why is Cost of Goods Sold so high - incompetent management who didnt have the skill set to run Hexo.
From Hexo Financials:
Material Changes to the Control Environment
The Company continued to experience issues with the existing Enterprise Resource Planning (“ERP”) system and consequently embarked on a major ERP optimization initiative
Identified Material Weaknesses and Remediation Plan
A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls.
Functionality of the Enterprise Resource Planning (ERP) System
The Company identified multiple deficiencies in the ERP’s design and functionality during the year. Specifically, there is a reasonable possibility that IT dependent control activities relating to inventory management, property, plant and equipment, procurement and journal entry postings would not prevent or detect a material misstatement of the Company’s annual or interim statements on a timely basis.
Control Environment
The Company did not adequately design or implement a comprehensive governance program for controls and industry-wide pressures precipitated elevated turnover, resulting in an ineffective control environment
Risk Assessment
The Company did not design or implement an Enterprise Risk Management Program to identify and analyze risks. As a result, financial reporting processes and internal controls were not, in some instances, appropriately designed to address risks specific to the business.
Information Technology General Controls
While the Company had Information Technology General Controls (ITGCs) in place, some were assessed as ineffective
Fixed Assets
The Company did not have a fixed assets subledger within its ERP, instead maintaining this information within complex spreadsheets. This led to increased risk of error regarding the identification, tracking, classification, disposal, and deprecation of fixed assets.
Financial Reporting
The Company did not maintain effective process level and management review controls over financial reporting processes, reconciliations, the application of IFRS, accounting measurements related to complex transactions and compliance with administrative lender requirements. This resulted in adjustments being required to the preliminary consolidated financial statements and a revision to the prior year Consolidated Statement of Financial Position regarding classification between short-term and long-term liabilities.
Procurement
The Company did not have effective controls around the authorization of purchases. This material weakness was initially identified July 31, 2019