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$HEXO - Marijuana producer Hexo stock falls after sequential revenue decline in the wake of Canadian legalization

CEO says revenue will double in current quarter




Hexo Corp. shares fell sharply in Thursday trading after the company announced a sequential decline in revenue as part of its third-quarter earnings just months following recreational legalization of marijuana in Canada.

U.S.-traded shares HEXO, -1.69% HEXO, -8.44%  of the Canadian licensed pot producer fell 8.8% to a three-month low on Thursday.
Net revenue for the cannabis producer declined slightly to C$13.02 million ($9.8 million) in the fiscal third quarter, versus $13.4 million in the fiscal second quarter — in contrast to rivals such as Canopy Growth Corp. CGC, -0.93% WEED, -2.33% and Aurora Cannabis Inc. ACB, -0.53% ACB, -2.33%   which have posted significant quarter-to-quarter sales increases. The FactSet net sales consensus was C$14.8 million.
Hexo Chief Executive Sébastien St. Louis said on the earnings conference call that Hexo had guided last quarter that it expected recreational sales to be flat — third-quarter adult-use gross revenue was C$14.6 million, which includes excise taxes. St. Louis also said that Hexo expects revenue to double in the current quarter as it begins selling cannabis flower in Ontario and British Columbia.
Despite the relatively flat revenue, in the conference call early Thursday, St. Louis said that Hexo had sequentially increased the amount of adult-recreational use pot sold by 9% to 2,700 kilograms. St. Louis also said that it increased its cannabis production by 98% from the previous quarter to a total of 9,800 kilograms.
The net loss for the quarter to April 30 was C$7.75 million ($5.82 million), or 4 cents a share, after a loss of C$1.97 million, or 1 cent a share, in the year-ago period. The FactSet consensus was for a loss of 5 cents.

Hexo said it added 374 new employees during the quarter, to bring its total to 822 staffers at the end of the quarter and 1,100 at the time of the earnings conference call.
In addition the company said its affiliate Hexo Med S.A. has received a medical cannabis installation license from the Greek government which allows Hexo to establish cultivation, processing and manufacturing facilities in Greece.
Like many of its rivals in Canada, Hexo also plans to enter the U.S. via the cannabidiol, or CBD, market. CBD is a nonintoxicating cannabinoid that can be found in hemp plants, which the U.S. legalized. The U.S. Food and Drug Administration has made it clear that it regards health, food and beauty products containing CBD and without FDA approval, as illegal.
Hexo stock has shot up 72% this year through Thursday, while the ETFMG Alternative Harvest ETF MJ MJ, -1.63%  , has climbed 28% and the S&P 500 indexSPX, +0.41%  , has gained 15%. The Horizons Marijuana Life Sciences Index ETFHMLSF, -2.54% HMMJ, -2.57%  has gained 33% this year.

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