Major Canadian cannabis producer Hexo posted a second-quarter net loss of 298.2 million Canadian dollars ($210 million) on Monday, nearly five times larger than the CA$62.4 net loss reported in the previous quarter.
Almost half that loss stemmed from an impairment charge for disposing of a Niagara, Ontario, cannabis cultivation facility bought from Newstrike Brands in 2019.
Ottawa-based Hexo’s net revenue from adult-use cannabis sales reached CA$16.3 million in the quarter ending Jan. 31, up 20% from the first quarter.
Net revenue from medical cannabis shrank by 20% between quarters to CA$695,000.
About 72% of Hexo’s value brand Original Stash volume in the quarter went to Quebec’s government-owned retailer, Société québécoise du cannabis (SQDC).
Hexo reported an adjusted EBITDA loss of CA$10.3 million, or 47% less than the previous quarter’s adjusted EBITDA loss.
The company said it expects to be adjusted EBITDA positive in the first half of fiscal 2021.
Operating expenses hit CA$281.5 million in the second quarter, including the impairment loss of CA$138 million related to the sale of a cannabis cultivation facility acquired from Newstrike Brands.
Hexo acquired the former Newstrike facility a year ago as part of a CA$263 million deal.
Cultivation was later suspended at the facility in a cost-cutting move, and Hexo disclosed that unlicensed cannabis cultivation had taken place there.
The decision to sell off the facility resulted from “a strategic review of (Hexo’s) cultivation capacity,” the company said.
The document also warned that the ongoing COVID-19 pandemic could hurt Hexo’s future business operations, “including through disruptions in our cultivation and processing activities, supply chains and sales channels.”
Hexo also warned that “additional cash resources are required to meet ongoing working capital requirements from operations, maintain compliance with existing debt covenants, fund budgeted capital projects and launch additional revenue streams.”
Hexo reported cash, cash equivalents and short-term investments of CA$81.4 million as of Jan. 31.
“Existing funds on hand, combined with existing debt facilities, are not sufficient to support ongoing operations, existing commitments and costs of acquiring new investments for increased product offerings,” according to the filing.
Hexo’s management said it aims to secure additional financing.
“These circumstances lend substantial doubt as to the ability of the company to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern,” the filing stated.
The Ontario company trades as HEXO on the New York Stock Exchange and Toronto Stock Exchange.