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HEXO Reports Rising Fourth Quarter Sales, Expenses

by Debra Borchardt
October 26, 2018

Canadian Cannabis Companies Report Record Sales Post-Legalization
HEXO Corporation (HYYDF), formerly known as The Hydropothecary Corp. reported that its revenue increased 14% to $1,410,656 quarter over last year’s $862,000 for the same time period. The net loss was a whopping $10.1 million versus last year’s net income of $935,000 for the same quarter. The net loss per share was five cents versus last year’s net loss of one cent for the same quarter.

“The past quarter has signified many milestones for HEXO Corp as we moved towards final preparations for the adult-use cannabis market. With two additional supply deals, this time in Ontario and in British Columbia, the establishment of a joint venture with Molson Coors Canada to develop cannabis-infused non-alcoholic beverages, a first step towards going global, and more, I’m extremely proud of the speed at which we continue to execute on our strategic priorities,” said Sebastien St-Louis, HEXO’s CEO and co-founder.

For the fiscal year ending July 31, 2018, revenue increased 20% to $4.9 million compared to $4.0 million for fiscal 2017. Sales volume increased 33% to 538,886 gram equivalents, compared to 404,158 in the same prior year period.

Raw Costs Declining

HEXO said that the weighted average cash cost of dried inventory sold per gram declined 60% year over year to $0.90 for the fourth quarter versus last year’s $2.23 for the same time period. The company said that the cost per grams sold had been trending downward cumulatively as a result of improvements in the cultivation processes and economies of scale resulting from the full utilization of a higher production capacity.

The company also reported that the weighted average cash cost of dried inventory sold slightly increased to $0.90 from $0.88 as compared to the 3 months quarter ended April 30, 2018. This trend is expected to continue in the short-term, as it moves towards full efficiencies of scale and utilization of the new facilities as well as begins increased levels of production to meet the demand of the adult recreational market.

Expenses Increase

Expenses increased to $4.3 million in the fourth quarter, compared to $1.2 million for fiscal 2017’s fourth quarter. HEXO attributed the increase to the general growing scale of our operations, including an increase in general, finance and administrative staffing and additional rental space. Consulting and professional fees increased by $1.7 million and $207,000 respectively, reflective of the increased financial reporting and control based regulatory requirements accompanying public status on the TSX-V and subsequently the TSX as well as increased compliance costs as a publicly listed company.

For the twelve months ended July 31, 2018, general and administrative expenses increased to $9,374 compared to $3,609 for the same period in Fiscal 2017. The increase is consistent with the explanation as stated above.

On a positive note, cash and short-term investments were $244.8 million and the balance sheet remained debt-free.