Hexo warning gives a jolt to industry

TORONTO Pot stocks slid on Thursday after Quebec cannabis producer Hexo Corp. issued a revenue warning and pulled its guidance for its coming fiscal year, marking the latest jolt for a sector that has become increasingly sensitive to concerns over sluggish growth and mounting losses.

Hexo said it now expects net revenue for its 2019 fourth quarter, which ended July 31, to be between $14.5 million and $16.5 million, and that net revenue for its 2019 fiscal year will be about $46.5 million to $48.5 million.

This followed guidance Hexo offered in June that suggested its Q4 revenue would double to around $26 million and that it was on track to hit $400 million in net revenue for its fiscal 2020.

“Fourth-quarter revenue is below our expectation and guidance, primarily due to lower than expected product sell through,” said Sebastien St-louis, the company’s CEO and co-founder. “While we are disappointed with these results, we are making significant changes to our sales and operations strategy to drive future results.”

Hexo said it was withdrawing the previously issued financial outlook for its fiscal 2020 as well, claiming that a delay in opening stores in its major markets had limited its reach with target customers and that “regulatory uncertainty” was increasing unpredictability. The move followed the resignation of the company’s chief financial officer, who cited family reasons, earlier this month.

“Withdrawing our outlook for fiscal year 2020 has been a difficult decision,” said St-louis. “However, given the uncertainties in the marketplace, we have determined that it is the appropriate course of action. We are also placing a greater focus on profitability.”

Shares of Gatineau, Que.based Hexo closed 23 per cent lower in Toronto on Thursday at $3.76. Other pot producers saw declines as well, including Canopy Growth Corp. (10.8 per cent) and Aurora Cannabis Inc. (9.3 per cent) in Toronto trading, and Nasdaq-listed Tilray Inc. (13.5 per cent).

Hexo’s woes are another sign of the challenges pot firms face in what remains a fledgling industry. They also underscore that investors are focusing more on traditional metrics, such as revenue and profits, and reacting accordingly.