Pot producer HEXO cuts nearly 20 per cent of its workforce

A Hexo Corp logo is pictured behind cannabis plants at their facilities in Gatineau, Quebec, Canada, September 26, 2018. REUTERS/Chris Wattie

Canadian cannabis producer HEXO (HEXO.TO)(HEXO) is cutting about 200 positions, nearly 20 per cent of its total workforce, the Quebec-based company said on Thursday.

“This has been my hardest day at HEXO,” Sebastien St-Louis, CEO and co-founder, said in a news release.

“While it is extremely difficult to say goodbye to trusted colleagues, I am confident that we have made sound decisions to ensure the long-term viability of HEXO. The actions taken this week are about rightsizing the organization to the revenue we expect to achieve in 2020.”

The cuts include some executive positions, as well as the departures of Arno Groll, chief manufacturing officer, and Nick Davies, chief marketing officer. The company blamed a changing market and regulatory environment for the layoffs.

“The delay in retail store openings in our major markets has meant that the access to a majority of the target customers has been limited,” the company’s news release stated. “Regulatory uncertainty across the pan-Canadian system and jurisdictional decisions to limit the availability and types of cannabis derivative products have contributed to an increased level of unpredictability.”

According to regulatory filings, HEXO had 1,072 employees at the end of May.

The layoffs are the latest development in what has been a turbulent period for the Gatineau-based licenced producer.

Shares were halted on Wednesday ahead of the announcement of plans to raise $70 million through a private placement of convertible debentures led by investors including CEO and co-founder Sebastien St-Louis. The release of fiscal fourth-quarter earnings was delayed four days until Oct. 28.

On Oct. 4, chief financial officer Michael Monahan announced his sudden resignation. Six days later, HEXO pulled its financial guidance for fiscal 2020 and forecast weaker sales due to “uncertainties in the marketplace.”

HEXO said on Oct. 10 that it expects net sales for the fourth quarter to be between $14.5 million and $16.5 million, and net sales for the year to be approximately $46.5 million to $48.5 million. In June, HEXO reported $13 million in net sales for its fiscal third quarter ended April 20. The company said at the time it was on track to double that figure in Q4 of 2019. HEXO had issued guidance of up to $400 million in net revenue in its 2020 financial year.

In a bid to grab a bigger share of legal cannabis sales in Canada, HEXO revealed a low-cost line of dried flower on Oct. 16 dubbed Original Stash. The 28-gram product costs consumers as much as one dollar less per gram than at the average illegal dispensary.

Toronto-listed shares fell 3.13 per cent to $3.40 at 2:04 p.m. ET. NASDAQ-listed shared declined 3.34 per cent to $2.60.

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