“Craft absolutely surprised us,” is what Hexo Corp. CEO had to say about a cannabis sales plunge.
The Canadian cannabis producer lost almost 21 million Canadian dollars ($17.3 million) in its third quarter on revenue that came in substantially lower than expected due to increasing competition from craft marijuana companies.
The company reported net revenue for the three months ended April 30 was CA$22.7 million, 31% lower than the previous quarter, and about one-third lower than analysts’ predictions.
Hexo’s CA$20.7 million net loss was about the same as the previous quarter’s deficit, bringing the year-to-date loss to CA$45.7 million.
“Q3 was our fault,” Hexo CEO Sebastien St. Louis explained, citing cultivation decisions made by the company and production issues relating to hash.
St. Louis said Hexo had removed some strains from its catalogue that were doing well in Quebec, planning to replace them with “incredibly promising” strains.
“What happened, nine months later when we actually cultivated … is we did not hit the same quality. We could not replace our strains that were now out of inventory with better or like-quality (strains),” St. Louis said on a call with analysts.
“That resulted in a loss of flower share.”
“What we underestimated was the speed with which the cannabis industry moves,” he told analysts.
“Craft has absolutely surprised us,” he added. However he said it was “mostly a one-time thing.”
The company also blamed “revised prerequisite testing and an additional certification by the Israeli government which caused a delay in the Company’s ability to export.”
The Israeli medical marijuana market has been offline for imports for much of the past eight months after increasing testing requirements. Hexo said the issue is resolved and shipments to the country have recommenced.
On the dried-flower category, St. Louis remarked, “Craft loaded in some of their best product … But what we’ve seen on the tail end of Q3 and starting Q4 is the craft growers that were originally successful with their first load-in now are running out of product, their quality has taken a nosedive.”
“The craft product that’s coming off the shelf right now is terrible compared to what they were doing,” he added. “So there’s huge consistency and growth issues that craft needs to solve.”