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Oct. 28, 2019, 7:48 a.m. EDT

Cannabis producer Hexo shutting down facilities amid deep staff cuts

Hexo lays off 200 employees, shuts down indoor growing operations near Niagara Falls

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By Max A. Cherney


Getty Images
Hexo’s CFO resigned earlier in October.

Cannabis producer Hexo Corp. will shut down several facilities it operates near Niagara Falls, Ontario, as a result of 200 layoffs it announced Thursday, according to people familiar with the matter.

Hexo /zigman2/quotes/206508254/composite HEXO -6.00%   /zigman2/quotes/200008967/delayed CA:HEXO -6.60%  did not respond to phone and email requests for comment. It was not immediately clear what the impact of the Ontario facilities’ closure will be on the company’s operations. The Ontario facilities were once operated by Newstrike Brands, which Hexo acquired in the spring. Hexo had 822 employees as of April 30, according to its last quarterly filing , and added about 250 more when its Newstrike acquisition closed in May.

The shutdown and layoffs at Hexo arrive amid a broad downturn in the sector, as cannabis companies in Canada struggle to meet investor expectations and, in some cases, their own — as in Hexo’s case. The dearth of retail weed stores remains an ongoing issue in Canada as the first anniversary of legal, recreational pot rolled by on Oct. 17. Wall Street analysts have also tamped down expectations for the past several weeks, issuing a wave of price target reductions.

Hexo stock closed down 6.3% in regular trading and fell 2% during the after-hours session.

U.S. traded shares of Hexo have dropped 41% in the past three months, as the benchmark S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.90%  has fallen 0.5%. The ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ -4.65%   has fallen 29% in the past three months and the Horizons Marijuana Life Sciences Index ETF /zigman2/quotes/200444869/delayed HMLSF -5.10%   dropped 33.5% in the same period.

/zigman2/quotes/206508254/composite HEXO 1.41, -0.09, -6.00%

The closure was also reported by The Hamilton Spectator, which said the layoffs occurred at a site with two greenhouses in production in Beamsville, Ontario, and another two greenhouses under construction. The newspaper said 100 layoffs occurred at the site.

Hexo’s layoffs announced Thursday included the chief manufacturing officer, Arno Groll, and the chief marketing officer, Nick Davies.

The facility shutdown occurred the day after the Quebec-based licensed cannabis producer said it was raising C$70 million ($53.5 million) in convertible debentures through a private placement and that it was postponing its earning call until Tuesday.

Hexo is now expected to report July-quarter results Monday, with a conference call scheduled for Tuesday at 8:30 a.m. Eastern.

According to analysts polled by FactSet, Hexo is expected to report losses of C$0.06.

Hexo is expected to report sales of C$15 million, up from C$1.4 million in the year-ago period. Earlier in October, Hexo issued a revenue warning, telling investors that it now expected revenue for the July quarter of C$14.5 million to C$16.5 million, well below the then-consensus of C$24.8 million. Hexo also rescinded its fiscal 2020 financial outlook and did not offer a replacement.

Hexo’s chief financial officer resigned at the beginning of October.

/zigman2/quotes/206508254/composite
US : U.S.: NYSE
$ 1.41
-0.09 -6.00%
Volume: 6.02M
Jan. 24, 2020 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$383.72 million
Rev. per Employee
N/A
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/zigman2/quotes/200008967/delayed
CA : Canada: Toronto
$ 1.84
-0.13 -6.60%
Volume: 3.46M
Jan. 24, 2020 4:23p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$500.74 million
Rev. per Employee
N/A
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/zigman2/quotes/210599714/realtime
US : S&P US
3,295.47
-30.07 -0.90%
Volume: 2.11B
Jan. 24, 2020 5:00p
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/zigman2/quotes/204332491/composite
US : U.S.: NYSE Arca
$ 17.43
-0.85 -4.65%
Volume: 1.56M
Jan. 24, 2020 8:00p
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/zigman2/quotes/200444869/delayed
US : U.S.: OTC
$ 6.97
-0.37 -5.10%
Volume: 12,059
Jan. 24, 2020 3:55p
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Max A. Cherney is a MarketWatch reporter based in San Francisco. Follow him on Twitter @chernandburn.

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