HEXO Trims Workforce, Stock Falls More than 6%


Oct. 25 2019, Updated 7:32 a.m. ET

So far, the cannabis sector has struggled this year. The ETFMG Alternative Harvest ETF (MJ) has fallen 18.0% YTD (year-to-date). Meanwhile, the Horizons Marijuana Life Sciences Index ETF (HMMJ) has fallen 23.6% during the same period. Higher operating losses impacted the cannabis sector’s sluggish performance. As reported by MarketWatch, Jefferies’ analysts, Owen Bennett and Ryan Tomkins, discussed why it’s important for cannabis companies to attain profitability. Companies that become profitable or move towards profitability will likely perform well over the next 12 months.

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HEXO cut its workforce

On Thursday, HEXO (HEXO) announced a cut in its workforce amid changing market and regulatory conditions. HEXO wants to become profitable and attain long-term stability. As a result, the company removed approximately 200 positions. The eliminated positions included the chief manufacturing officer and chief marketing officer.

Earlier this month, HEXO provided lower-than-expected fourth-quarter guidance. The company withdrew its fiscal 2020 sales guidance. HEXO’s management blamed slower new store openings, delayed regulatory approvals for cannabis-derivative products, and pricing pressures for its lower sales in the fourth quarter.

Recently, Statistics Canada reported that the legal cannabis price fell from 10.65 Canadian dollars per gram in the second quarter to 10.23 Canadian dollars per gram in the third quarter. During the same period, cannabis prices in the black market fell from 5.94 Canadian dollars per gram to 5.59 Canadian dollars per gram. However, a high percentage of Canadians are buying marijuana from illegal sources. The widening gap between legal and illicit cannabis prices is also a concern for the cannabis industry.

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In the press release, Sebastien St-Louis, HEXO’s CEO, said, “Withdrawing our outlook for the fiscal year 2020 has been a difficult decision. 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.”

HEXO stock fell

HEXO lowered its workforce, which appeared to sit well with investors. Notably, the company’s stock fell 6.3%. HEXO has been going through a tough phase. The company has lost 36.4% of its stock value this month as of Thursday. The CFO’s abrupt resignation, the withdrawal of its fiscal 2020 guidance, and analysts’ downgrade caused HEXO stock to fall.

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Peer comparison

Aurora Cannabis (ACB), Canopy Growth (CGC) (WEED), and Aphria (APHA) have fallen 16.7%, 6.6%, and 2.5%, respectively, in October. Recently, vaping-related deaths and the expectation of slower revenue growth in the second half of 2019 dragged cannabis stocks down.

In October, Aurora Cannabis provided an update on its growth initiatives. The company also introduced a new product line in partnership with CTT Pharmaceutical Holdings. However, the price cuts from Cowen and Company, MKM Partners, PI Financials, and Jefferies dragged Aurora Cannabis stock down.

Cowen and Company, PI Financials, Jefferies, CIBC, and Compass Point have all lowered their target prices for Canopy Growth in October. The lower target prices caused the stock to fall. However, Canopy Growth completed its previously announced acquisition of Beckley Canopy Therapeutics. The company also acquired a 72% stake in BioSteel Sports Nutrition. To learn about analysts’ recommendations on Canopy Growth, read Canopy Growth: Analysts’ Target Prices and Ratings.

Aphria posted an impressive first-quarter performance on October 15. The company beat analysts’ EBITDA and EPS estimates, which led to a rise in its stock price. However, weakness in the cannabis sector dragged the stock down. To learn more about analysts’ recommendations, read Aphria: Analysts’ Ratings and Price Target.

HEXO will report its fourth-quarter earnings on October 28. Read HEXO: What Can You Expect from Its Q4 Earnings? to learn more. For more cannabis-related news, please follow 420 Investor Daily.


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