The Canadian marijuana producer delivers tremendous sales growth in its latest quarter and has additional production capacity on the way.
When Canadian marijuana producer HEXO (NYSEMKT:HEXO) reported its fiscal 2019 first-quarter results in December, the company’s revenue included only two weeks of recreational marijuana sales. Investors didn’t get a full picture of how much growth HEXO would actually generate with the new market. But that picture is now pretty clear.
HEXO announced the results from its fiscal 2019 second quarter, which ended on Jan. 31, before the market opened on Thursday. Here are the highlights from the company’s update. (All figures are in Canadian dollars.)
Image source: Getty Images.
HEXO results: The raw numbers
Net income (loss)
Adjusted earnings per share (EPS)
Data source: HEXO. CA$1=$0.75.
What happened with HEXO this quarter?
It’s not surprising what drove HEXO’s tremendous sales growth. Over 91% of the company’s second-quarter revenue, nearly CA$14.8 million, came from the Canadian adult-use recreational marijuana market.
It’s also not surprising where HEXO made most of its sales. The company has a major supply agreement with the province of Quebec and generated 84% of its adult-use sales in the province in the second quarter. The rest of HEXO’s adult-use sales came from British Columbia and Ontario.
Most of HEXO’s improvement from the previous quarter and prior-year period stemmed from volume growth. However, the company also benefited from a CA$0.38 per gram increase to its average selling price from the previous quarter.
What might be at least somewhat surprising, though, was that HEXO’s recreational marijuana sales increased by 185% over the previous quarter. That is certainly a big jump. But there were nearly six times as many days of recreational sales in the fiscal second quarter compared to the first quarter — 92 days to 16 days.
Medical cannabis sales increased 17% year over year to CA$1.4 million. However, this was a 3.4% decline from the previous quarter.
What management had to say
HEXO CEO and co-founder Sebastien St-Louis said, “This is an exciting time for HEXO as we continue to achieve milestones on the way to becoming a top two cannabis company.”
This quarter not only saw an exponential increase in gross revenue and production, but also saw us continue to execute on our promises including reaching a construction and licensing milestone on our 1,000,000 sq. ft. greenhouse expansion and listing on the NYSE-A. Just yesterday, we announced an agreement to acquire Newstrike Brands Limited. HEXO’s future is very promising, I am looking forward to continually driving shareholder value and achieving milestones with our team.
HEXO doesn’t expect net revenue (which reflects gross revenue less excise taxes) to increase very much in the third quarter. However, HEXO thinks that net revenue in the fourth quarter will double that of the second quarter. What will make the big difference? Capacity.
The company anticipates completing its initial harvest from its new 1-million-square-foot greenhouse in the third quarter. This expansion will boost HEXO’s annual production capacity to around 108,000 kilograms. But even better days should be ahead.
HEXO just announced the acquisition of Newstrike Brands, a deal that will increase its annual production capacity to around 150,000 kilograms. The company’s partnership with Molson Coors also puts HEXO in a great position to profit from the expanded recreational market in Canada for cannabis beverages and edibles. HEXO anticipates that this market will open in the latter part of 2019.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of Molson Coors Brewing. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.