Q4-22 CEO Letter Dear stakeholders Q4-22 CEO Letter Dear stakeholders, This past year was one of strategic realignment for HEXO. It was also a truly transformative chapter in our story – one that we are confident made us stronger and more agile, and that ultimately laid the foundation for our future as one of North America’s leading cannabis companies. We focused on making the changes that will allow HEXO to maintain and expand its leadership position within the Canadian cannabis market. This process required a significant reset, including the divestment of underperforming assets, the rightsizing of the business and a refresh of our business model to focus on our core strengths. Difficult decisions were made, but we are stronger as a business and as a formidable investment in the emerging cannabis industry.
A solid foundation for long-term success Today we can confidently say that we took the necessary steps to position our business for long-term success. Refinancings provided us with a clean balance sheet and boosted cash reserves to over $83M, allowing us to focus on profitable growth. We reduced our personnel costs by $65M and set a minimum threshold for gross margin. We focused on cash flow and improved logistics by divesting from businesses that no longer offered HEXO a competitive advantage, while upgrading our product mix, enabling us to de-commoditize our portfolio so that everything we do, create, and sell is proprietary and uniquely ours. To achieve this significant transformation, we also updated our processes and operations to accommodate our new focus for the next decade. With this solid foundation in place, HEXO now moves to a second phase of its transformation. We continue to commit to three key priorities - aligning the company for success, resetting the organization for profit and growth, and delivering a preferred cannabis experience for our customers and other stakeholders. We are focused on producing the core cannabis brands our that customers want, leading in innovation, and reinforcing our market share. We have evolved our leadership across the organization and are benefitting from strong integration across our most successful brands. By concentrating on these products and ensuring that they do not compete against each other, we have built a loyal customer following and refined what truly sets HEXO apart from its peers. As a leading grower of high-quality cannabis, we are also continually evaluating our significant growing capacity and determining the most strategic placement for this product, while remaining laser-focused on doing what we do best: delivering a premium cannabis experience that puts the consumer first.
The now, the new, and the next We perpetually optimize our portfolio to ensure that we are delivering to today’s market while also anticipating tomorrow’s. We have the best “now” in our premium quality THC-based products, which also ensure consistent cash flow. We are always evaluating the “new” in terms of where the market is headed – from recreational to medical and therapeutic products – as well as identifying emerging market needs, from low-cost recession brands to top-shelf boutique or craft labels. It is in HEXO’s nature to look ahead, and this transformative era of our business is no different. When we look to the “next” frontier of cannabis, we will focus on research and innovation within the minor cannabinoids space. We believe that adding these to our portfolio will revolutionize the marketplace. We are also keeping a close watch on the use of cannabis in other products that lie beyond the horizon.
The standard of excellence in the cannabis industry At HEXO’s core lies one guiding principle: excellence. We believe that the path to our success lies in continuing to provide a premium cannabis experience that puts each and every customer first. Offering consistent, clean, and cost-effective products that create the standard of excellence in our industry is what makes HEXO a leading North American cannabis company and how we will continue to deliver value to our shareholders.