HEXO Posts Disappointing Q3 Results; Shares Plunge 6.5%

Shares of HEXO (HEXO) fell 6.5% on Monday after the company posted a disappointing third quarter with lower-than-expected sales and profits. HEXO is a Canadian cannabis company focused on smoke-free and traditional cannabis products.

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Total net sales for Q3 2021 came in at C$22.7 million, up 2% from C$22.1 million in Q3 2020. Total non-beverage adult-use net revenues in Canada, excluding Quebec, increased 169% from a year earlier. HEXO maintained its first position as the preferred supplier to Quebec.

Meanwhile, the company posted a net loss of C$20.7 million compared to a loss of C$19.5 million in the prior-year quarter. On a per-share basis, the loss was C$0.17 per diluted share for the quarter ended April 30.

Analysts were expecting the company to report a net loss of C$0.06 per share on revenue of C$34.42 million.

HEXO CEO and co-founder Sebastien St-Louis said, “While this was a challenging quarter, we maintained our number one position in the beverage category and increased our net sales outside of Quebec by 169% over last year, including 14% sequential quarterly growth in Ontario, while continuing to maintain our number one position as the preferred supplier to Quebec. Moving forward, we are committed to rebuilding our strain strategy and brand mix in the province of Quebec to ensure we meet consumer needs and maintain our dominant position in the province.”

HEXO made a series of acquisitions this year to increase its market share.

In February, the cannabis company announced that it would buy Zenabis Global and its brands Namaste, Re-Up, Blazery, and Founders Reserve for C$235 million.

Last month, HEXO announced a deal to buy cannabis producer Redecan for C$925 million in cash and stock as well as another deal to buy 48North Cannabis for C$50 million. (See HEXO stock analysis on TipRanks)

Following the results, MKM Partners analyst William Kirk maintained a Hold rating on the stock with an C$8 price target. This implies 6.7% upside potential from current levels.

Consensus among analysts is that HEXO is a Hold based on 2 Buys and 6 Holds. The HEXO average analyst price target of C$19.90 implies 32% upside potential to current levels.