Hexo Corp Delays Q2 Filings, Announces $265 – $280 Million Asset Impairment

Hexo Corp (TSX: HEXO) (NYSE: HEXO) appears to be the latest cannabis firm to delay its filings, following that of Cronos Group (TSX: CRON) (NASDAQ: CRON) and Sundial Growers (NASDAQ: SNDL). Hexo announced the delay this morning, which is in relation to a significant impairment loss of between $265 and $280 million.

The impairment being taken is a result of the firms carrying value of net assets significantly exceeding the firms market capitalization as of the end of the second quarter, which is January 31, 2020. Mixed with a significant constrain in distribution channels which has allegedly limited sales for the company, and Hexo has been faced with the reality of taking an impairment within the currently due financial reports.

Hexo Corp currently has a market valuation of $278.4 million, while its total assets as per the latest filings sit at $853.3 million. Total assets include goodwill of $111.8 million, as well as intangible assets of $126.9 million.

Select financial information was released by the firm however, with net revenues for the second quarter coming in at $17.0 million, an increase of 17% from the first quarters figure of $14.5 million. Unfortunately, this was the only positive news provided by the company within the release.

In addition to the significant impairment the company expects to take within the second quarter, the firm has announced that its previously shuttered Niagara Facility will be going up for sale, less than a year after it was acquired through the Newstrike acquisition. The property consists of land, greenhouse facilities, as well as cultivation and production licenses and equipment. At the time of the acquisition, Hexo marked $46.0 million as being attributable to the purchase of property, plant, and equipment, but it is unknown how much is related to the Niagara facility.

The company also expects to file a restated MD&A for the first quarter of 2020, as well as the year end of 2019 due to a continuous disclosure review by the Ontario Securities Commission, which it anticipates filing later today.

Hexo Corp is currently seeking a management cease trade order as a result of the delayed filing of its financial statements, which will cease once the second quarter financials are filed.

Hexo Corp last traded at $0.98 on the TSX.

Information for this briefing was found via Sedar and Hexo Corp. 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.