Hexo drops more than 20% after large write-downs, Medipharm notes oversupply of bulk cannabis hurt prices
Marijuana producer Hexo Corp. led cannabis stocks down Monday, falling 21% after the company reported earnings that were hit by write-downs.
Quebec-based Hexo HEXO,
Hexo booked an impairment loss of C$138.3 million related to its Niagara pot-growing facility, which it is currently trying to sell, and another C$111.9 million for intangible assets relating to its acquisition of Newstrike Brands. Hexo acquired Newstrike in an all-stock deal for about C$263 million in March 2019. At the time the company said it expected the acquisition to generate “annual synergies of $10 million” and expected to achieve net revenue from Canadian cannabis sales of C$400 million.
Amid the COVID-19 pandemic, Hexo said its manufacturing facilities remained open but has introduced working-from-home policies and cleaning measures to protect staff.
Jefferies analyst Owen Bennett wrote in a note Monday that the main point of focus for his team was the company’s admission that it would need more cash following C$130 million worth of raises last quarter. “This is not an envious task in the current environment,” he wrote.
Cannabis extraction company Medipharm Labs Corp. LABS,
Medipharm said that the Canadian cannabis sector experienced “significant challenges” in the fourth quarter that resulted in an oversupply of bulk cannabis extracts, which lowered selling prices and volumes. The company said that slower-than-expected retail expansion, fewer second generation-focused cannabis businesses — making products such as vapes and edibles that were illegal in Canada until December — and larger licensed pot producers not converting as much of their bulk inventory into finished good as expected contributed to the difficult fourth quarter.
Other pot companies plan to announce earnings after the bell Monday, including Cronos Group Inc. CRON,
Exclusive:Pot company Cronos receives SEC inquiry
In the U.S., vape distributor and cannabis accessories supplier Greenlane Holdings Inc. GNLN,
Greenlane said that sales fell largely because the company sold fewer Juul tobacco vape products and is restructuring to reduce its exposure to such revenue. Sales of Juul products dropped to $5.9 million in the fourth quarter, which is roughly 15.9% of the company’s revenue, compared with $20.2 million in the third quarter.
“The crisis of acute liquid vaping-related health conditions and related regulatory uncertainty continued to pressure fourth quarter sales,” Greenlane Chief Executive Aaron LoCascio said in a conference call Monday. “We believe that this quarter represents the trough in terms of impact to our business from regulatory and health concerns around vaping. In addition, we are confident that the changing mix in our business will help mitigate potential regulatory impacts in future quarters.”
In response to the COVID-19 pandemic, LoCascio said that the company’s corporate employees are working remotely and it has closed its retail outlets, though its distribution centers remain open because cannabis is seen by some state governments as essential. LoCascio said that increased e-commerce sales have made up for the drop off in bricks-and-mortar store revenue. The CEO said Greenlane’s business-to-business sales have seen “negative pressure” and that “we’ll see some adverse impact to our business although the duration [of] the impact remains difficult to assess at this time.”
LoCascio said that as a result of his experience running Greenlane through the 2008 financial crisis, he doesn’t anticipate that consumer buying habits related to cannabis will change due to increases in unemployment.
MedMen Enterprises Inc. fell 13% MMNFF,