(Toronto) Three months after assuming the top job at Hexo, Chief Executive Charlie Bowman has already deepened his predecessor’s cuts and begun to drop some products, but he insists the moves are being made to a good reason: a “radical” reset of the company’s cost structure.
Posted yesterday at 4:35 p.m.
Before Mr. Bowman took the helm at the end of April, the Gatineau-based cannabis company was racking up millions of dollars in losses in all its quarters, had its NASDAQ listing threatened and had hosted several CEOs. in a short time.
Bowman believes he can get the company back on track, starting with putting in place a whole new revenue strategy.
“The previous administration thought all revenue was good revenue, and that’s a very, very bad idea,” Bowman said in a phone interview from Colorado.
“Not all income is good. You need profitable income, you need income, which […] may not make money today, but will make money later. »
Mr Bowman, who was interim chief operating officer before being named chief executive, embarked on his quest for ‘good’ revenue by cutting costs – which characterized the less than one-year tenure of his predecessor, Scott Cooper.
Mr. Cooper previously ran Truss Beverage, a joint venture between Molson Coors Canada and Hexo. Last year he orchestrated the layoff of 180 people, a move he said would save about $15 million on an annualized basis.
Mr. Bowman does not mince his words about this decision.
“Cost cutting hasn’t been enough,” he said. We had to cut costs even further after these initial layoffs […], because you have to find the right size for the organization to be successful. »
In its latest financial filings, Hexo said it was working to cut 450 positions by the end of 2023 to save around $30.6 million a year.
Cuts beyond staff
Some of those decisions had an impact on management, which Mr Bowman said was “difficult”, but “to do it effectively, everyone had to be involved”, he added.
The cuts went beyond personnel, as Mr. Bowman also ditched products that didn’t make money and replaced them with profitable items.
The big boss has been tight-lipped about which products or industries he has targeted, as the company plans to release new targets in its fourth quarter.
However, “if there are segments where there’s no money to be made, I’m not going to go after fake market share or fake revenue, because that doesn’t add anything other than cost to our infrastructure, and that’s probably the biggest change,” he said.
The company is currently known for its recreational brands UP Cannabis, Original Stash, 48North, Trail Mix, Bake Sale and Redecan, but Bowman believes there is room for Hexo to establish itself in the areas of personal care, pharmaceuticals and nutritional supplements.
As rivals in the fiercely competitive market push hard for products high in tetrahydrocannabinol (THC), the psychoactive component of cannabis, Mr Bowman, who has held senior positions at extracts company BGG/Solix Algredients , sees potential in minor cannabinoids that could possibly help people with anxiety and various illnesses.
Personal and business issues
The stakes are very high. On a personal level, Mr. Bowman got into the business to help patients with diseases like cancer, from which his father suffered.
Still, on the commercial level, many wonder how long Hexo will still be able to resist.
A 2021 review of the company by its auditor, PricewaterhouseCoopers LLP, showed that Hexo “does not[avait] not maintained, in all material respects, effective internal control over its financial disclosures” and that several factors ” [soulevaient] substantial doubt about its ability to continue operating”.
At some point last year, Hexo was even deemed non-compliant with the minimum bid price requirements set by NASDAQ, which could have resulted in its stock being delisted.
“The ‘pain train’ continues to roll along” at Hexo, MKM Partners managing director Bill Kirk said in June, about a month into Mr. Bowman’s tenure.
In a note to investors, he pointed out that Hexo’s recreational cannabis prices in Canada had fallen below last year’s wholesale prices, and its market share was evaporating.
Despite cutting costs and striking a $211 million deal that could see rival Tilray Brands land a stake in Hexo, spending has increased, Kirk said.
“In other words, Hexo’s best product is not fetching the price its worst product was fetching 15 months ago AND its cost structure remains inflated,” Kirk wrote.
None of this came as a surprise to Mr. Bowman when he took on the role of CEO.
“I had my eyes wide open. I knew exactly what was going on,” he said.
That’s part of why Mr. Bowman is committed to being transparent with staff at every stage of the transformation he’s planning.
Some of what they must have heard was brutal.
“It is possible that our company will eventually be acquired. It is possible that our company can survive [aux changements en cours], and it is also possible that our company cannot survive it. »