HEXO stock is witnessing a sharp fall in Thursday’s session as HEXO Corp (TSX:HEXO) (NYSE:HEXO) reported lower than estimated revenue for the third quarter.
Canadian cannabis company HEXO Corp has been on a roll so far this year, reporting highly impressive 2019 Q1 growth in the recreational cannabis market in Canada. In addition to that, the company also managed to make a key acquisition in the form of Newstrike Brands that further burnished its reputation as one of the major players in the growing industry.
Revenue Misses Estimate
Considering the performance and growth it had demonstrated, there was a lot of anticipation regarding HEXO’s Q3 2019 results that were published late Wednesday. In this regard, it is also worthwhile to mention that HEXO stock had been analyzed by a Bank of America Merrill Lynch analyst who termed HEXO his favorite cannabis stock.
The company’s primary source of revenue proved to be the adult-use recreational marijuana market in Canada, and in this quarter, HEXO recorded revenues of $14.6 million CAD from the segment. Net revenue came in at $13.02 million CAD, behind analyst estimates of $14.8 million CAD.
The revenue from the adult-use segment declined by 1.3% from the previous quarter, and that is something that the company must be looking at closely.
The net loss for the latest quarter stood at $7.75 million CAD ($5.82 million USD), or 4 cents a share, while analysts were projecting a loss of 5 cents.
HEXO stock is the biggest loser in the cannabis sector and now down 8% at $5.94 on the NYSE American.
Key Operational Details
Of all the gram equivalent sold during the quarter, 84% was made up of milled and flower products. The total cannabis sold during the quarter stood at 2,759 kilos, which was a slight rise from the 2,537 kilos of cannabis that it had sold in the previous quarter.
According to experts, the company’s Achilles heel continues to be its limited production capabilities, but that could change soon once the production from the new 1 million square foot greenhouse comes into the equation.
The rise in spending also resulted in a deeper net loss this quarter. Expenses for the quarter stood at $24.1 million CAD, which is a year-on-year rise of a whopping 3,523%.
Analysts believe that the company’s production capacity will rise significantly in the next quarter but so will the expenses. However, the integration of Newstrike Brands could prove to be another major boost as it will raise HEXO’s capacity by as much as 150,000 kilos a year.
Despite today’s fall, HEXO stock is still up about 45% so far in 2019.
Featured image: Canva