Large Impairment Charges Send HEXO Stock Plummeting 28% In One Day

HEXO Corp. (NYSE:HEXO), (TSX:HEXO) reported its second-quarter earnings yesterday that included positive increases in an impressive list of metrics. But all of those figures were overshadowed by one measure— a C$298.2-million (US$210.4 million) net loss for the three-month period that ended Jan. 31.

That number alone was enough to send shares of the Quebec-based cannabis grower plunging more than 27.5% Monday on the New York Stock Exchange and just over 28% on the S&P/TSX Composite. The stock closed at US$0.79 in New York and C$1.10 in Toronto.

HEXO Corp. Weekly Price Chart

The one-day drop was enough to earn the pot stock the dubious honor of being the worst performing equity on the main Canadian exchange yesterday.

The dramatic drop in the cannabis company’s share price served as another example of the renewed volatility in the marijuana sector. Just last week, HEXO was one of several pot stocks that rode a sector-wide rally which followed the general stock market upswing in the wake of the devastating drop across world markets triggered by the global COVID-19 pandemic.

In fact, last week, HEXO's value doubled as cannabis retailers were reporting record sales in what appeared to be individuals stocking up on the weed as they hunkered down for a prolonged period of social distancing.

Shares of HEXO last week went from a low of US$0.57 (C$0.825) on Monday, March 23, to a high of US$1.205 (C$1.71) on Friday, March 27.

Losses Overshadow Positives

Yesterday, all of that was wiped from the board. The loss for the latest quarter was largely attributed to approximately C$250 million (US$176.4 million) in impairment charges, including C$138.3 million (US$97.6 million) related to its facility in Niagara Falls, Ont., that was recently put up for sale and C$111.9 million (US$79 million) after the grower re-assessed the value of its assets.

Among the quarter's positive headlines the company highlighted a 17% increase in net revenues, which totaled C$17 million (US$12 million) for the second quarter, compared with C$14.5 million (US$10.2 million) for the previous three-month period and C$13.4 million (US$9.5 million) in the same period in the previous year.

HEXO also increased its output of cannabis to 22,305 kilograms compared with 16,107 kilograms in the previous quarter.

Gross revenues jumped 23% to C$23.8 million (US$16.8 million) in the second quarter from C$19.3 million (US$13.6 million) in the first quarter.

The amount of adult-use cannabis shipped revenue in the quarter increased by 21% compared with the the first quarter of fiscal 2020.

In the last year, HEXO stock has lost just over 88%. And given the downward pressure on many stocks due to the pandemic, the company issued a statement on the possible negative impact the COVID-19 crisis could have on its operations.

“Our priority is the safety and wellness of our employees, and that is what our emergency response team is focused on,” said CEO Sebastien St-Louis.

“At the current time, the company remains operational, as the cannabis sector has been included as an essential workplace in Ontario and Quebec,” the statement added.

Aurora Cannabis Flirts With Listing Threshold

Aurora Cannabis (NYSE:ACB), (TSX:ACB) stock price slipped below the US$1 again last Friday on the New York Stock Exchange, where it continues to remain. Trading below the $1 (C$1.42) threshold means the Edmonton-based cannabis grower could face being delisted in the United States.

Aurora Cannabis Weekly Price Chart

Shares of the Canadian marijuana company closed yesterday in New York at US$0.888, a 13.8% decline on the day. In Toronto, the shares dropped 13.7% to end the session at C$1.26.