Cannabis | Hexo’s future questioned by its listener

The auditor for cannabis producer Hexo has expressed serious concerns about the future of the company, which posted a net loss of $ 67.9 million in its most recent quarter on Friday.

PricewaterhouseCoopers asserted that its recent review of Hexo showed that the Ottawa-based company “has failed in all material respects to maintain effective internal control over its financial disclosures” and that several factors “raise substantial doubt as to its ability to continue to operate ”.

“The company has experienced recurring operating losses, has had cash outflows from its operating activities and has financial liabilities that may require significant cash outflows over the next 12 months,” the company wrote. auditor in a six-page report filed with Hexo’s fourth quarter financial report.

PricewaterhouseCoopers also noted that Hexo’s existing funds and operating cash flow were “not sufficient” to fund debt repayments, capital budgets and potential cash requirements associated with a premier convertible note. rank.

Auditor’s report released as Hexo attempts to calm the upheaval resulting from a recent strategic reorganization that saw the departure of co-founder and CEO Sébastien St-Louis and COO , Donald Courtney, last week.

Mr. St-Louis was replaced by Scott Cooper, who ran Truss Beverages, a joint venture between Molson-Coors Canada and Hexo which produces Little Victory, Mollo and Veryvell beverages.

Strengths and weaknesses assessment

Mr. Cooper told analysts on Friday that although he had only been in the job for nine days, he had “quickly gotten his hands dirty with the company” by attending meetings with employees, investors, board members, analysts and clients.

Mr. Cooper will also be mindful of barriers to remove to help the company meet its goals, manage the risk presented by the company’s debt structure, and work to help integrate its recent acquisitions of Zenabis Global, Redecan and 48North.

The company’s financial situation and the issue of its convertible note will also be taken into account in its priorities and those of Hexo.

“We maintain this positive relationship with the ticket holder,” CFO Trent MacDonald said on the same conference call.

“We understand the risk posed by this note and we take it very seriously. ”

Analysts are also keeping a close watch on the company’s stock price.

RBC Capital Markets analyst Douglas Miehm as well as analyst Sahil Dhingra noted that the company’s stock has fallen about 70% since its third quarter results “turned out weaker than expected. because of what was to be a temporary difficulty ”.

Hexo shares plunged 24 cents, or 11.8%, on Friday to close at $ 1.80 on the Toronto Stock Exchange.

Reduced loss in most recent quarter

Hexo on Friday posted a net loss of $ 67.9 million for its fourth quarter, which compared to a loss of $ 169.5 million for the same period last year.

Its loss per share was 48 cents for the quarter ended July 31, an improvement from the $ 1.60 loss in the fourth quarter of 2020.

Hexo says its net loss for the full year was 89 cents per share, down from a loss of $ 7.08 per share last year.

The company’s net income from the sale of goods totaled $ 38.6 million, up from $ 27 million in the same period last year.

Hexo said its recent acquisition of Zenabis, completed at a cost of $ 235 million, contributed $ 6.8 million to net revenues during the quarter.

But MM. Miehm and Dhingra claim that the data they analyzed shows that the market share of the Hexo-Zenabis-Redecan-48North bundle has increased from around 16% in March to 13% in August in the provinces of Alberta. , British Columbia and Ontario.