Things seem to just be getting worse for the large-cab cannabis sector. Companies like Aurora Cannabis (NYSE: ACB) and Canopy Growth (NYSE: CGC) were doing fairly well earlier this year, but they’ve managed to disappoint investors either by unexpected losses or by postponing profits.
Now it seems that another major cannabis company will be taking a major hit in the upcoming quarter. HEXO (NYSE: HEXO) warned on Thursday that it expects to see a significant decline in Q4 revenue, cutting its guidance in a move that has made investors scared.
The company expects to see net revenue for Q4 come in somewhere between $14.5 million and $16.5 million, well below the $24.8 million to $25.9 million it offered in its guidance earlier this year. This is due to a number of reasons but the most prominent of which being the delayed store rollouts which have hampered retail growth for major cannabis companies in Canada. At the same time, the vaping situation in the U.S. where regulators have banned or pushed harder rules on vapor products will likely hurt Canadian growth as well. Health Canada could easily end up following suit with their U.S. counterparts and place further restrictions of vaping products, further hurting cannabis companies in the country.
“Fourth quarter revenue is below our expectation and guidance, primarily due to lower than expected product sell through,” commented Sebastien St-Louis, CEO and co-founder of HEXO Corp. “Withdrawing our outlook for fiscal year 2020 has been a difficult decision. “However, given the uncertainties in the marketplace, we have determined that it is the appropriate course of action. We are also placing a greater focus on profitability. We are evaluating our plans and operations to see where we can be even more efficient. We are at our best when we are highly focused on our strategic priorities, always with a view to drive long-term value for shareholders. Growing low-cost, quality cannabis and developing innovative products is our priority and we are renewing our commitment to do so.”
In response to the news, shares of HEXO plunged to a 2-year low not seen since 2017, giving up 22% of its value over the course of the day. At the same time, many other cannabis stocks ended up falling in response to the news. Tilray (NASDAQ: TLRY), Canopy Growth and Cronos (NASDAQ: CRON) have all fallen by 10%, 8.2%, and 6.2% respectively following HEXO’s announcement. Overall, large-cap cannabis stocks have, for the most part, lost their appeal, prestige, and the sense of security that investors had enjoyed about these companies. Time will tell when they will will end up staging a recovery, but at this point, it doesn’t seem likely they’ll do so anytime this year.
HEXO Company Profile
HEXO Corp is a consumer packaged goods cannabis company that creates and distributes innovative, easy-to-use and easy-to-understand products to serve the Canadian cannabis market. The company serves adult-use market under the HEXO brand, while continuing to serve its medical cannabis clients through the well-known Hydropothecary brand. The company offers dried cannabis; Elixir, a cannabis oil sublingual mist product line; and Decarb, an activated fine-milled cannabis powder product. – Warrior Trading News