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Home / Business / Hexo revenue forecast slams cannabis sector as stock falls 24%

Hexo revenue forecast slams cannabis sector as stock falls 24%



A Hexo Corp earnings report on Thursday hit the broader cannabis sector, sending the stock down 24%, putting it on track for the worst ever, one-day percentage loss.

Hexo

HEXO, -23.59%

surprised the market when it warned of a fiscal fourth quarter tax loss, citing "lower than expected sales of products." The company said it is also withdrawing its fiscal 2020 budget outlook, as "regulatory uncertainty" and jurisdictional decisions to limit accessibility and types of cannabis derivative products have led to an "increased level of unpredictability."

The company expects revenue in the quarter to July 31

of $ 14.5 million to C $ 16.5 million ($ 10.9 million to $ 12.4 million), well below the $ 24.8 million FactSet consensus .

MKM analyst Bill Kirk said the news was very disappointing, but that the company is still well positioned for the upcoming launch of derivative products in Canada, and that there may be "more delay than lost opportunity.

" We believe HEXO's Approach to be the working component of expert partner products has the best chance of creating a defensible brand ("Powered by HEXO"). It is a less commodified approach, which should give them early access to some exciting categories, ”the analyst wrote in a note to clients. He highlighted the company's partnership with brewer Molson Coors

TAP, + 0.59%

as one who offers early benefits in cannabis drinks.

Read: Sundial sued in the United States for failing to disclose half a ton of cannabis was returned by the client

Kirk repeated the purchase valuation on the stock and C $ 12 price target.

In a separate note published Thursday, Kirk said the black market in Canada is thriving on a year of legalization – and that's bad news for the major licensed manufacturers. The provinces are going too slowly in opening stores and the price gap with legal weeds is widening.

On Wednesday, Statistics Norway released price data for the black and legal markets and found an average legal price in the third quarter of $ 10.23 per gram, almost twice the average price of the black market at $ 5.59 per gram .

"When surveyed consumers show a strong price sensitivity, we believe the widening of these price gaps limits the growth and addressable market of current legal product offerings. Combined with slower provincial purchases and delayed Ontario openings, we still believe that 3Q results for Canadian LPs are likely to fall below consensus expectations, "Kirk wrote.

Tilray Inc.

TLRY, -9.38%

was down 0.5%, Cronos Group

CRON, -5.89%

CRON, -5.61%

was down 2% and Aurora Cannabis

ACB, -4.99%

ACB, -5.03%

was down 3%. Market leader Canopy Growth

CGC, -8.09%

WEED, -7.95%

was down 3%, after that said David Klein, CFO of Constellation Brands

STZ, + 0.85% ,

has become the new chairman of the board. Beer brewer Corona has invested $ 4 billion in Canopy and has tightened its grip on the company in recent months.

Read now: Canopy Growth's remaining CEO talks about the pot company shake, and his search for his replacement

Frustrated with loss, May Constellation installed Mike Lee, a former CFO, as Canopy's interim CFO to monitor the strategy. And in July, former Canopy CEO Bruce Linton fired.

At the last earnings call, Constellation CEO Bill Newlands said the company was pleased with the progress Canopy had made in recent months.

For more, see: Corona beer parent stock slips 5% as cannabis investment weighs on earnings

& # 39; The US market needs banking to flourish without it – it's legitimate companies that follows the rules facing major obstacles. Banking legislation would be a huge positive catalyst. & # 39;


Jason Zandberg, PI financial analyst

In the regulatory sphere, Senate Majority Leader Mitch McConnell, a longtime opponent of marijuana law reform, spends more than usual thinking about cannabis on a trip to California this week, as MarketWatch's Max A. Cherney reported. McConnell attends at least two days of meetings with industry leaders and Golden State spokesmen to discuss possible bank reform, among other issues, according to people familiar with the matter.

"I think this is very positive that McConnell has been meeting with stakeholders in the cannabis market," PI Financial analyst Jason Zandberg told MarketWatch. "The US market needs banking to flourish, without it – there are legitimate companies that follow the rules facing major obstacles. Banking legislation would be a huge positive catalyst."

For more on this, read: Mitch McConnell meets with executors in California, needs cannabis banking reform

Elsewhere in the sector, Green Organic Netherlands shares

TGODF, -14.74%

TGOD, -15.38%

fell 13%, a day after the company said it considered the financing options for completion of construction at two plants. The company said that efforts to get commercial banking facilities and equipment leasing have ended because the terms offered were not acceptable. But the company said it has no debt and $ 56.7 million in cash available in Canada.

See also: Cannabis shares narrow as MedMen leaves the deal and Aleafia drops Aphria as supplier

Aphria

APHA, -9.55%

APHA, -8.66%

was down 3%, Aleafia Health

ALEAF, -1.95%

ALEF, -2.41%

was down 2% and Organigram Holdings

OGI, -9.21%

was down 8%.

ETFMG Alternative Harvest ETF

MJ, -4.48%

was down 1.5%, with 21 of the 38 constituents trading lower. The Horizons Marijuana Life Sciences ETF

HMMJ, -6.38%

was down 2.5%, with 33 of the 54 components trading lower.

S&P 500

SPX, + 0.90%

was up 0.6% and Dow Jones industrial average

DJIA, + 0.84% ​​

was up 0.6%.

Cannabis Watch: For all MarketWatch's coverage of cannabis shares


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