Can Pyxus International’s Cannabis Operations Save Their Declining Revenues?

Pyxus International (NYSE: PYX) posted declining revenues for its first quarter of 2020 today after the bell, with revenues of US$276.7 million for the quarter, down 4.9% from a year earlier. The 145 year old tobacco giant became popular once again late last year after it was announced it was stepping into the cannabis market through the acquisition of Figr, a licensed Canadian producer.

Citing the decline largely on crop destruction from a hurricane in one of its primary production regions, the issuer saw an overall decline of $14.3 million on a year over year basis. Selling, General, and Administrative expenses increased by $11.3 million over the same period, which the firm largely attributed to that of establishing its Figr cannabis operations as well as its Humble Juice e-liquid brands.

The firm also identified that it had made significant inroads in the New Brunswick cannabis market, wherein its brand represents 7% of all legal cannabis sales in the province. Pyxus currently operates two licensed facilities within Canada, one of which is located in PEI while the other is in Ontario. Collectively, the two facilities will span 1.1 million square feet upon full build out, and will produce an estimated 140,000 KG of cannabis per year.

Despite its cannabis ambitions, Pyxus is in significant trouble when it comes to its debt load. While the firm netted a gross profit of $39.71 million for the quarter, this barely covered the interest expense of $33.8 million for the three month period, and most certainly did not cover the SG&A expenses of $49.37 million.

With a total debt load of over US$1.4 billion, and a cash position of US$164.13 million, it appears that Pyxus International’s foray into cannabis operations may be too little, too late. While current market rates typically yield roughly CAD$5.00 in revenues per gram for cannabis for producers, an annual capacity of 140,000 KG could theoretically yield over CAD$700 million in revenues per year for the producer.

However, the growing market in Canada simply doesn’t require this amount of capacity at this point in time due to the slow growth of sales, which has largely been mired by provincial retail regulations. Mixed with the significant amount of short term debt held by Pyxus International, the exercise almost appears to be a wasted effort.

Pyxus International is currently down 14.71% to $11.77 in after hours trading.

Information for this briefing was found via Pyxus International. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.