HEXO Corp. reported its financial results for the third quarter fiscal 2021 ended April 30, 2021 (“3Q21”). All amounts are expressed in Canadian dollars unless otherwise noted.
“At the advent of legalization, we articulated a plan to become a top three cannabis player in the Canadian adult-use market. With the acquisition of Zenabis and the announcements of intent to acquire 48North and Redecan, we are on the verge of surpassing that objective to become the no.1 licensed producer by recreational market share,” said HEXO CEO and co-founder Sebastien St-Louis. “While this was a challenging quarter, we maintained our number one position in the beverage category and increased our net sales outside of Quebec by 169% over last year, including 14% sequential quarterly growth in Ontario, while continuing to maintain our number one position as the preferred supplier to Quebec. Moving forward, we are committed to rebuilding our strain strategy and brand mix in the province of Quebec to ensure we meet consumer needs and maintain our dominant position in the province.”
Key Financial & Operating Results
- Total net sales increased 2% year over year.
- Total non-beverage adult-use net revenues in Canada, excluding Quebec, increased by 169% from 3Q20, while maintaining the number one position in Quebec.
- Net revenue (excluding beverage) increased 14% in Ontario from 2Q21
- Maintained the number one position in the beverage category.
- Total net sales declined $10.2M from the previous quarter.
- Total net loss remained flat as compared to the previous quarter.
- Working capital remained strong at $182M, with $194M of cash on hand as of today
- Non-beverage Canadian adult-use revenue decreased by 7% from 3Q20 and declined 29% from the previous quarter 2Q21 primarily as a result of a $5.2M sequential sales decline in the province of Quebec due to the specific timing of strain cultivation decisions made by the company, as well as certain production decisions in hash, which the company has since rectified and believes will result in growth within Quebec in the coming quarters
- In May, Truss strengthened its share leadership of the beverage category in Canada, growing to 46% market share nationally ($ share)1 [inc. Quebec].
- With awareness of the category at an all-time high amongst potential cannabis consumers (87 percent2), Truss expects Canadians to embrace cannabis beverages throughout the summer of 2021 and beyond.
- In April, Truss announced six new products to its existing brand offering for summer. Proudly made in Belleville, Ontario, the new CBD and THC products are full of flavours inspired by the approaching summer season, as well as feedback and insights gathered from Truss’ community of consumers:
- House of Terpenes™ Valencene & Sparkling Tonic
- XMG™ Citrus and XMG™ Watermelon
- Veryvell™ Honey Green Iced Tea
- Little Victory™ Lemonade
- Mollo™ 5 Lime
- The Company elected to repay its outstanding credit facility of $28,875 early, mitigating future interest and administrative costs.
- Selling, general and administrative costs, (defined as General and administrative, plus marketing and promotion, plus research and development), decreased 8% sequentially, coming in at $14.4M, down from $15.6M in 2Q21.
- Operating expenses decreased 17% from 2Q21 when adjusted for Health Canada recovery fees3 of $3.6M.
- Adjusted EBITDA for the period was ($10.78M), decreased from $0.2M in 2Q21.
Significant Subsequent Events
- Entered into a definitive agreement to acquire 48 North Cannabis Corp, offering a diversified product portfolio and accretive synergies. This transaction remains subject to customary closing approvals including regulatory and shareholders approvals, as well as approval of the plan of arrangement by the Ontario Superior Court of Justice.
- Entered into a definitive share purchase agreement to acquire Redecan, Canada’s largest private licensed producer. This transaction remains subject to customary closing approvals including regulatory and shareholders approvals.
- Closed Zenabis Global Inc. acquisition on June 1, 2021.
- Launched an at-the-market offering of C$150m, to date approximately C$47.2M of net proceeds have been raised.
- Won a dismissal (subject to plaintiffs’ appeal right) of the securities class action pending in the Commercial Division of the Supreme Court of the State of New York, New York County.
- Committed to offsetting the Company’s operational carbon emissions and the personal emissions of all 1,200 employees to become a leader in Environmental, Social, and Governance action.
Third Quarter 2021 Financial Results
| For the three months ended |
For the nine months ended | ||||||
| Income Statement Snapshot | April 30, 2021 |
January 31, 2021 |
April 30, 2020 |
April 30, 2021 |
April 30, 2020 |
||
| $ |
$ | $ | $ | $ | |||
| Revenue from sale of goods | 33,082 | 45,678 | 30,895 | 120,059 | 74,009 | ||
| Excise taxes | (10,482) | (12,851) | (8,817) | (35,219) | (20,516) | ||
| Net revenue from sale of goods | 22,600 | 32,827 | 22,078 | 84,840 | 53,493 | ||
| Ancillary revenue | 60 | 53 | 54 | 168 | 145 | ||
| Total revenue | 22,660 | 32,880 | 22,132 | 85,008 | 53,638 | ||
| Gross profit before adjustments1 | 5,006 | 11,688 | 8,783 | 27,075 | 18,873 | ||
| Gross profit/(loss) before fair value adjustments1 | 4,379 | 11,314 | 8,783 | 27,617 | (23,276) | ||
| Gross profit/(loss)1 | 8,816 | 18,584 | 5,730 | 45,614 | (23,260) | ||
| Operating expenses | (24,906) | (25,501) | (26,786) | (71,186) | (347,883) | ||
| Loss from operations | (16,090) | (6,917) | (21,056) | (25,572) | (371,143) | ||
| Other expenses and losses | (4,621) | (13,922) | 1,537 | (20,175) | (12,790) | ||
| Loss and comprehensive loss before tax | (20,711) | (20,839 | (19,519) | (45,747) | (383,933) | ||
| Tax recovery | – | – | – | – | 6,023 | ||
| Other comprehensive income | 3 | – | – | 3 | – | ||
| Total Net loss and comprehensive loss | (20,708) | (20,839) | (19,519) | (45,744) | (377,910) | ||
| 1 The Company has adjusted the presentation of gross profit before fair value adjustments by removing inventory and biological asset write offs and impairment losses. | |||||||
Total net revenue in 3Q21 decreased $10.2M from 2Q21 primarily due to a decline in adult-use non beverage sales of $5.2M in Quebec related to strain cultivation decisions made by the company and production issues relating to hash. The Company’s sales in the Alberta decreased $2.7M during the period in part due to a 32% decrease in the provincial UP brand sales because of temporary stock limitations as the Company continues to roll out the relaunched brand. Despite the impact of the COVID-19 third wave in Ontario during the period, in which most private retailers were limited to curb side pickup only, the Company’s sales in Ontario increased 14% or $0.6M. The increase was led by the strength of the UP brand and its 20%+ THC small format premium dry cannabis which grew 67% quarter over quarter.
The Company had no international medical cannabis sales due to revised prerequisite testing and an additional certification by the Israeli government which caused a delay in the Company’s ability to export. The Company has since received clearance and is now in compliance to resume these international sales. Total net revenue for the nine months ended April 30, 2021 increased 59% compared to the same period of fiscal 2020.
Operating Expenses
| For the three months ended | For the nine months ended | |||||
| April 30, 2021 |
January 31, 2021 |
April 30, 2020 |
April 30, 2021 |
April 30, 2020 |
||
| $ | $ | $ | $ | $ | ||
| Selling, general and administration1 | 11,177 | 12,299 | 11,238 | 35,147 | 40,833 | |
| Marketing and promotion | 2,452 | 2,149 | 2,131 | 6,682 | 9,621 | |
| Share-based compensation | 2,715 | 5,259 | 6,171 | 10,904 | 22,237 | |
| Research and development | 730 | 1,136 | 1,017 | 2,901 | 3,962 | |
| Depreciation of property, plant and equipment | 1,612 | 1,679 | 1,566 | 4,369 | 4,890 | |
| Amortization of intangible assets | 371 | 342 | 341 | 1,043 | 3,690 | |
| Restructuring costs | 336 | 860 | 865 | 1,721 | 4,846 | |
| Impairment of property, plant and equipment | 16 | 61 | 220 | 881 | 33,004 | |
| Impairment of intangible assets | – | – | – | – | 106,189 | |
| Impairment of goodwill | – | – | – | – | 111,877 | |
| Realization of onerous contract | – | – | – | – | 3,000 | |
| Disposal of long-lived assets | – | 1,294 | 3,237 | 1,294 | 3,734 | |
| Loss/(gain) on disposal of property, plant and equipment | (19) | (14) | – | 45 | – | |
| Acquisition and transaction costs | 1,871 | 436 | – | 2,308 | – | |
| Health Canada Recovery Fee’s1 | 3,644 | – | – | 3,891 | – | |
| Total | 24,906 | 25,501 | 26,786 | 71,186 | 347,883 | |
| 1 The Company has adjusted the presentation of the Selling, General and Administrative expenses to breakdown the Health Canada Recovery Fee’s for ease of user review and identification. This presentation differs from that of the Company’s interim financial statement for the three and nine months ended April 30, 2021. |
||||||
Total operating expenses decreased 2% from 2Q21 and when adjusted for Health Canada recovery fees of $3,644, total operating expenses declined 17%. The Health Canada recovery fees will be paid annually each April and are based upon the previous fiscal year’s sales and purchases by class of cannabis and quantity purchased and sold.
About HEXO Corp.
HEXO is an award-winning licensed producer of innovative products for the global cannabis market. HEXO serves the Canadian recreational market with a brand portfolio including HEXO, UP Cannabis, Original Stash, Bake Sale, Namaste, and REUP brands, and the medical market in Canada, Israel and Malta. For more information, please visit www.hexocorp.com.
