HEXO Corp. (TSX:HEXO)(NASDAQ:HEXO), Canada's largest cannabis producer by market share, is eliminating 142 jobs at its factory in Atholville, in northern New Brunswick. This is the old Zenabis factory.
According to the village mayor, Jean-Guy Levesque, a total of 250 people are currently working in this factory. A manager from HEXO informed him of the decision on Wednesday.
The goal, according to the company, is to simplify processes and reduce operational expenses.
Jean-Guy Levesque explained: “They realize that the demand is not as strong as he thought so they are stuck with companies which, yes, are productive and profitable, but the problem is that they are in overproduction and they have to reduce production and cost of operation.”
The employees affected by these layoffs were informed of the decision on Wednesday morning. They will receive a severance bonus of a few weeks' wages.
To the 108 remaining employees, who wonder if it will soon be their turn, the mayor replied that they have no indication at this level.
“It is enormous. You know all the businesses here that are leaving, that are closing, of two or three or four people, it makes our hearts ache. Here we have a company with 250 employees,” deplores Atholville’s mayor. “Of course it will be extremely difficult for the region. But we are strong people in Restigouche. We will raise our heads.”
The Atholville area has developed a lot around this important cannabis production plant. Together with the AV Cell factory, it is the largest employer in the region.
Zenabis, a Breath of Fresh Air
In the summer of 2017, after several years of effort, Zenabis obtained a permit to open a medicinal marijuana production plant in Atholville. This was before the legalization of cannabis, in October 2018, in Canada.
The arrival of the cannabis producer in Restigouche was welcomed as a breath of fresh air by the community.
In 2018, a year after opening, the Atholville plant employed 145 people. A year later, Zenabis employed 360 people and was aiming for a workforce of 400 employees.
HEXO, headquartered in Ottawa, bought its competitor Zenabis in 2021, in a transaction estimated at $235 million.
HEXO’s former CEO Sébastien St-Louis mentioned a restructuring in the spring of 2021 but affirmed that the Atholville factory, which then employed 380 people, would keep its place.
Michel Soucy, the former mayor of Atholville, was in office when the Zenabis factory opened in 2017. He was shocked to learn that the plant was undergoing major cutbacks. He commented: “It's the impact at the regional level. I feel very sorry for the people who have lost jobs and families. We do this all the time, saying that we can have a better future for the people who work there and their region, but 140 jobs suck.”
Michel Soucy and Jean-Guy Levesque both hope that this decision by Hexo is only temporary and that jobs could return when the situation stabilizes.
In November 2021, HEXO announced the closure of three recently acquired factories, including that of Stellarton, Nova Scotia. All of this meant the loss of 155 jobs.
Loss of 450 jobs in Canada and Closure of a Factory in Ontario
Cannabis producer HEXO said its restructuring plan to streamline its structure and cut costs included cutting 450 jobs.
In financial documents, the Quebec company indicated that this staff reduction would result in annual savings of $30.6 million and aims to simplify its organizational structure so that costs are more closely aligned with the business’s size.
The company's latest management discussion and analysis document indicates that most of the reductions will be achieved with less reliance on external consultants, a new information technology platform, and synergies discovered through recent acquisitions.
HEXO will close a processing and manufacturing facility in Belleville, Ontario by the end of July.
HEXO’s Q3 Results Disappointed
HEXO shares hit a new record low on Wednesday after the company reported fiscal third-quarter results that fell short of analysts' expectations.
The cannabis producer said third-quarter revenue rose 101% to $45.6 million from a year earlier, but fell by 14% compared to the previous quarter in a context of continued competition in the Canadian market.
The Gatineau, Quebec-based company said it lost $146.6 million in the quarter, which compared with a loss of $21 million for the same period a year earlier. The company took an $83.1 million impairment charge related to the closure of its Belleville, Ontario, plant factory. It also said it would take a $14.6 million charge related to an inventory write-down.
Despite being Canada's recreational cannabis market leader with a 9.7% share, according to industry data tracker Hifyre, HEXO suffers from the same woes plaguing the rest of the industry. A surplus market led by a glut of growers combined with an unstable consumer base and an onerous tax regime has led many Canadian pot companies to struggle to report profits.
HEXO reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $18.4 million, a steeper decline from the $10.8 million loss reported a year earlier.
On Tuesday, HEXO and Tilray both announced that they were reassessing certain terms of their financing agreement to allow the latter to purchase senior secured convertible notes formerly held by a US hedge fund. These convertible notes would now give Tilray a 50% stake in HEXO when exercised.
DepositPhotos © Fotofabrika 6
