Hexo loses $113.61-million in fiscal 2021 , ENOUGH SAID .LOL
Hexo loses $113.61-million in fiscal 2021
2021-10-29 05:50 PT - News Release
Mr. Scott Cooper reports
HEXO REPORTS FOURTH QUARTER AND FISCAL YEAR 2021 FINANCIAL RESULTS HIGHLIGHTING STRONG GROWTH
Hexo Corp. has released its financial results for the fourth quarter and fiscal year ended July 31, 2021.
"I am honoured and humbled to join the team as Hexo's president and chief executive officer," said Scott Cooper. "I look forward to continuing to build on Hexo's strong foundation with an immediate priority of continuing to integrate our recent acquisitions and reviewing our financial position, with the ultimate goal of driving growth and profitability through the commercialization of cannabis consumer packaged goods products.
"As we review our last fiscal year, I would like to highlight some key achievements. Last fiscal, Hexo achieved its highest net revenue in the company's history, leads the Canadian cannabis market in four categories and completed three acquisitions, including the transformative Redecan acquisition, propelling the company to the No. 1 market share position in Canadian adult-use recreational cannabis sales," commented Mr. Cooper.
Business update
M&A (mergers and acquisitions)
Key highlights to July 31, 2021:
- Closed the Zenabis acquisition on June 1, 2021, offering diversified cultivation facilities, including a state-of-the-art indoor grow facility in Atholville, N.B.;
- Zenabis contributed $6.8-million in net revenue for the two months ended July 31, 2021.
Subsequent events:
- The company completed the acquisitions of Redecan and 48North Cannabis Corp. Through the integration progress, Hexo is focused on ensuring that it implements the strengths of each acquired company across the organization, identifies and resolves any weaknesses, and obtains synergistic value for the overall organization.
- Hexo believes these acquisitions will increase its market share, accelerate its path to profitability and create accretive synergies.
Operations
Key highlights to July 31, 2021:
- Committed to ESG (environmental, social and corporate governance) leadership, by offsetting 100 per cent of its 2020 operational carbon emissions and personal emissions for all employees. The company also committed to offsetting the plastic used in its pouch packaging.
Subsequent events:
- The company undertook a strategic reorganization, announcing the departure of its co-founder and chief executive officer, Sebastien St-Louis, and the appointment of Mr. Cooper as Hexo's new president and chief executive officer.
- Mr. Cooper joins Hexo from Truss Beverage Co., a joint venture between Molson-Coors Canada and Hexo that holds the No. 1 market share in cannabis-infused beverages in Canada, where he held the position of president and chief executive officer. For a period of not more than six months, Mr. Cooper will simultaneously remain in this role.
- Hexo also announced the appointment of Valerie Malone as chief commercial officer and Guillaume Jouet as chief people and culture officer. Both executives bring significant consumer packaged goods experience to the organization.
Canadian cannabis market
Key highlights to July 31, 2021:
- Net revenue increased 71 per cent quarter over quarter and 43 per cent from Q4 2020, marking Hexo's highest quarter of revenue to date.
- Total Q4 2021 net revenue increased to $38.7-million from $22.6-million in Q3 2021.
- Total net revenue for 2021 grew to $123.5-million from $80.6-million in 2020.
- The company increased market share in several Canadian provinces, including Ontario, Alberta and British Colombia, and maintained a top two market share in Quebec.
- Adult-use net revenues, exclusive of beverages, increased 28 per cent quarter over quarter.
- Cannabis beverage net revenues increased 70 per cent quarter over quarter and 161 per cent from fiscal 2020.
Maintained leading market position relative to peers as market share continues to diversify.
Hexo USA
Key highlights to July 31, 2021:
- On June 28, 2021, Hexo announced the closing of the acquisition of a 50,000-square-foot facility in Colorado providing the company with the necessary infrastructure to execute on its U.S. expansion plans. The facility is zoned for producing a full range of cannabis products and offers a variety of operational capabilities.
Subsequent events:
- Truss CBD USA announced the expansion of Veryvell, a line of hemp-derived CBD and adaptogen beverages, to 17 states following a successful Colorado launch in 2020. Truss CBD USA is a joint venture by Molson Coors Beverage Company and Hexo USA Inc., a subsidiary of Hexo poised to capture the U.S. cannabis-infused beverage market.
FINANCIAL UPDATE (in thousands) For the three months ended For the 12 months ended Income statement snapshot July 31, 2021 April 30, 2021 July 31, 2020 July 31, 2021 July 31, 2020 Revenue from sale of goods $53,022 $33,082 $36,140 $173,081 $110,149 Excise taxes (loss) (14,365) (10,482) (9,082) (49,583) (29,598) Net revenue from sale of goods 38,657 22,600 27,058 123,498 80,551 Ancillary revenue 103 60 87 271 233 Total revenue 38,760 22,660 27,145 123,769 80,784 Gross profit before adjustments 7,988 5,006 8,104 34,175 26,953 Gross profit/(loss) before fair value adjustments 1,499 4,379 (36,012) 29,066 (46,421) Gross profit/(loss) 3,234 8,816 (34,690) 48,798 (57,975) Operating (expenses) (63,116) (24,906) (71,509) (134,293) (418,576) (Loss) from operations (59,882) (16,090) (106,199) (85,495) (476,551) Other (expenses) and (losses) (9,630) (4,621) (63,333) (29,664) (75,961) (Loss) and comprehensive (loss) before tax (69,512) (20,711) (169,532) (115,159) (552,512) Current and deferred tax recovery 397 - - 397 6,023 Other comprehensive income 1,156 3 - 1,152 - Total net (loss) and comprehensive (loss) (67,959) (20,708) (169,532) (113,610) (546,489)
Other matters
Gross margins
Quarter over quarter, the company's total gross margin declined to 20 per cent from 22 per cent in Q3 2021. Net adult-use revenue (exclusive of beverages) gross margin declined to 12 per cent from 28 per cent due to: increases to sales in higher excise tax-burdened markets, decreases to average selling prices and the crystallization of fair value adjustments upon the business acquisition of Zenabis.
Normalizing for the impact of the crystallization, the company's total gross margin would improve to 26 per cent in Q4 2021. Strong margined international sales grew significantly in period to net revenues of $6.8-million and a gross margin contribution of 65 per cent. Wholesales were also impacted by the crystallization of fair value adjustments on the purchase price accounting of Zenabis; normalized for this, margins would otherwise have been 35 per cent versus reported gross margin of negative 65 per cent.
Going concern and the senior secured convertible note
The company acknowledges the continuing concern with its senior secured convertible notes issued on May 27, 2021. The company has maintained a positive relationship with the holder, with the holder having negotiated and agreed to two amendments favourable to the company. While there exists a risk that significant cash outflows may be required over the next 12 months under the terms of the senior secured convertible note, the company has been working with the holder to renegotiate the terms of the senior secured convertible note.
The company has sufficient financing for continuing working capital requirements; however, current funds on hand, combined with operational cash flows, are not sufficient to also support financing potential cash requirements under the senior secured convertible note, investments required to continue to develop cultivation and distribution infrastructure, and the future growth plans of the company. Management is exploring several options to secure the necessary financing, which could include the issuance of new public or private equity or debt instruments, supplemented with operating cash inflows from operations.
Nevertheless, there is risk that certain sources of additional future financing will not be available to the company or will be available on terms that are acceptable to management. In the meantime, management continues to monitor and manage its cash flow in relation to its strategic growth objectives and working capital requirements.
Conference call
The company will hold a conference call on Oct. 29, 2021, to discuss these results. Mr. Cooper and Trent MacDonald, chief financial officer, will host the call starting at 8:30 a.m. Eastern Time. An analyst question-and-answer period will follow management's presentation:
Date: Oct. 29, 2021
Time: 8:30 a.m. ET
About Hexo Corp.
Hexo is an award-winning licensed producer of innovative products for the global cannabis market. Hexo serves the Canadian recreational market with a brand portfolio including Hexo, Redecan, UP Cannabis, Namaste Original Stash, 48North, Trail Mix, Bake Sale, REUP and Latitude brands, and the medical market in Canada, Israel and Malta. The company also serves the Colorado market through its Powered by Hexo strategy and Truss CBD USA, a joint venture with Molson-Coors. With the completion of Hexo's recent acquisitions of Redecan and 48North, Hexo is a leading cannabis products company in Canada by recreational market share.
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