Cannabis | Hexo calls on Quebec, which remains on the sidelines

Quebec has no plans to inject money into struggling cannabis producer Hexo, which has turned to the state as it seeks funding. Real estate mogul Vincent Chiara, one of the company’s directors, believes the Legault government should give it some thought.

Julien arsenault
Press

The Gatineau company is in a precarious situation, to the point that its auditor, PricewaterhouseCoopers, has expressed serious concerns about the future of its activities.

Hexo is, however, the main supplier of the Société québécoise du cannabis (SQDC), which should give the Legault government pause, said Chiara, who is also one of the company’s main shareholders, according to financial data firm Refinitiv.

“If the government wants to protect its preferred supplier, which is a local player, its volume […], I think strategically it could be interesting, ”said the businessman on Friday in a telephone interview with Press.

Hexo has just registered three of its representatives, including the new CEO, Scott Cooper, in the Quebec Lobbyists Registry, in order to intervene with the Ministry of Economy and Innovation as well as Investissement Quebec (IQ) – the financial arm of the state.

The cannabis producer wishes to obtain financial support, which has not been quantified, in the form of share capital, in order to “accelerate” his “innovation program” and consolidate “jobs at the head office” in Gatineau .

“There will be no intervention by the Quebec government in the current structure,” said Mathieu St-Amand, press secretary to the Minister of the Economy, Pierre Fitzgibbon, in a statement.

By email, the company replied that it was unwilling to disclose further details. His contract with the SQDC expires in 2023.

Important doubts

In the fourth quarter, Hexo had lost 68 million. In presenting its results, on October 29, the company warned that it did not have enough money in its coffers to finance the repayments of its debt. She is looking for funding.

In a six-page report that accompanied the financial data, PricewaterhouseCoopers pointed out that Hexo had not maintained “effective internal control over its financial disclosures” and that “substantial doubt” hung over its ability to continue operating.

“The company has taken recurring operating losses, has had cash outflows and has liabilities that could require significant cash outflows,” one could read.

Despite this warning, Chiara does not believe it would be a risky investment for the state. It is the role of the auditor to assess the scenarios.

Several changes

Hexo’s difficulties led to a major reorganization this fall. Co-founder and CEO Sébastien St-Louis as well as COO Donald Courtney have left. Scott Cooper, who was previously the head of Truss Beverages, a joint venture between Molson Coors Canada and Hexo, took the reins.

At ATB Capital, Frederico Gomes believes that the company is at the heart of a transformation whose outcome is “uncertain”. It must integrate three recent acquisitions (Zenabis, Redecan and 48North) while new leaders are in place.

“The funds available are insufficient to finance the repayment of the debt, which increases the risk of dilution [pour les actionnaires] The analyst wrote in a report released at the end of October.

Last August, the cannabis producer raised 144 million thanks to a stock issue. Its convertible debt reached 404 million.

On the Toronto Stock Exchange on Friday, Hexo’s stock retreated 5.4% to close at $ 1.23. It has fallen by more than 75% since the start of the year. The stock had reached nearly $ 42 in April 2019. Hexo is due to release its first quarter results on Tuesday.

1200

Hexo estimated its workforce at 1,200 employees as of July 31. The company announced the layoffs of 155 people last month.