Stockwatch Fellow Canadian grower Hexo Corp. (HEXO) stayed unchanged at 23 cents on 1.86 million shares. It is unwinding its U.S. CBD beverage joint venture with Molson Coors. Molson Coors made the announcement in a quiet post on its Beer and Beyond blog -- so quiet, in fact, that the title of the post had to do with a completely different "beyond" category. The title and the first part of the post focused on the cancellation of a separate joint venture involving La Colombe Coffee. Lower down came the oh-by-the-way news that "Molson Coors and joint venture partner Hexo Corp. also said today that they have agreed to unwind their Truss USA joint venture and exit the CBD beverage business in the United States, effective Dec. 31."
The stated reason was the lack of a "near-term pathway to federal legalization," said Molson Coors. It explained that some retailers and distributors remain "hesitant to accept CBD beverage brands, complicating distribution and making the path to profitability a challenge." (While CBD is federally legal in the United States, putting it in food and drinks is generally not -- although, like so many CBD and cannabis products in the patchwork U.S. market, some states allow it, some do not and others turn a blind eye to the regulatory grey zone.) Molson Coors left the door open to re-entering the market "should the regulatory landscape change."
While Molson Coors took the trouble of a blog post, Hexo was even quieter, not mentioning the decision at all. Despite existing for more than 2-1/2 years, the joint venture is not material to either company. The two of them created Truss CBD USA in April, 2020, to "explore opportunities for non-alcohol hemp-derived CBD beverages." They launched their first product, the Verywell line of CBD sparkling beverages, in Colorado in January, 2021. In October of that year, they began expanding semi-nationally. Hexo disclosed in its recent fiscal year-end financials that Truss CBD USA now has a presence in 26 states. Yet it did not disclose any sales, saying the operations are "currently not significant to the financial results of Hexo."
The decision to wind down Truss CBD USA has no effect on Hexo's other joint venture with Molson Coors, known as Truss and operating here in Canada (where both CBD- and THC-infused drinks are allowed, though still no alcohol). According to Hexo's financials, Truss took in revenue of $13.5-million in the year ended July 31. Unfortunately, the sales were far from profitable, and Hexo recorded $7.6-million as its share of the net loss, while also recording a $57.7-million impairment charge. It is currently "exploring its options regarding the future of its investment in Truss."