HEXO Corporation (HEXO) hosted its fiscal 2019 fourth-quarter earnings call earlier this week on October 29. With all the recent turmoil in the cannabis sector, digging into cannabis companies’ earnings calls is very important for investors. These calls hold clues to the futures of HEXO and its peers within the industry.
Let’s talk about some of the key items discussed on HEXO’s call in particular—especially why it’s lowered its fiscal 2020 revenue guidance.
Starting with the good news
Like on most earnings calls, the company’s CEO and cofounder, Sebastien St-Louis, started with all the good things that have taken place within the company. He talked about its capacity and expansion undertakings. With Cannabis 2.0 legalization having come into effect in Canada on October 17, St-Louis provided an update on that as well. For example, he discussed HEXO’s growth in Canada as well as its partnership with Molson Coors.
The bad news
While the cannabis sector was attractive all through 2018, the same can’t be said for 2019. As 2019 has progressed, cannabis companies have reported poor earnings results. Some have even lowered their guidances. As a result, their respective stocks have started feeling the heat.
HEXO’s outlook on its earnings call was no different. The company’s revenue missed its own expectations, and the future looks bleak. It’s announced that it will trim its workforce. As a result, it retracted its guidance for fiscal 2020.
HEXO lowered its fiscal 2020 guidance for a handful of reasons. It expressed disappointment in the slow retail rollout in Canada, citing a lower-than-expected number of stores in Quebec. It also said the Ontario government had revised its distribution model.
Management stated that it was also expecting a lower supply for its partner SQDC (Société Québécoise du Cannabis) than originally contracted.
HEXO also took a hit from a wholesale return worth 2.9 million Canadian dollars during its fourth quarter, leading it to set up a reserve of 3.8 million Canadian dollars for returns from the provinces. Naturally, its higher return provision will affect its revenue estimates as well.
The company also expects wholesale revenue to become more challenging. It concluded, “Until the market matures and the retail channels are built out, we will refrain from providing guidance.”
While the company’s retail rollouts were slower than expected, it was optimistic about the retail business. It stated that consumer demand remained strong, as indicated by the line-ups at existing retail stores.
For more on the top cannabis players, you may want to check out some of our new company overviews: