This press release constitutes a “designated release” for the purposes of the Company’s prospectus supplement dated May 11, 2021 to its short form base shelf prospectus dated May 7, 2021 as amended on May 25, 2021.
- On December 14, 2021, HEXO announced The journey to the future, a new strategic plan that leverages the capabilities of its past operations and recent acquisitions to accelerate organic growth, increase market share to become the first company in its industry to generate positive cash flow from his activities.
- As part of this strategic plan, the Company intends to reduce its selling, general and administrative expenses by approximately 30% by the end of fiscal 2023.
- The Company has identified savings of $30 million by optimizing its production network and leveraging capacity from its recent acquisitions.
GATINEAU, Quebec, Jan. 19, 2022 (GLOBE NEWSWIRE) — HEXO Corp. (TSX: HEXO; NASDAQ: HEXO) (“HEXO” or the “Company”), a leading producer of high-quality cannabis products, today provided an update on its previously announced strategic plan, The journey to the future, designed to strengthen HEXO’s position as Canada’s leading cannabis company in terms of recreational market share, with the goal of becoming the first company in its industry to generate positive cash flow from its operations.
The plan is expected to generate incremental cash flow of approximately $37.5 million in fiscal 2022 and an expected incremental cash flow of approximately $135 million in fiscal 2023, for a total of $175 million over the two fiscal years, stemming from cost reductions and expected organic revenue growth.
“It is a strategic imperative for HEXO to strengthen its capital position and restructure the Company’s operations with a view to generating positive cash flow from operations over the next three quarters,” said Scott Cooper, President and CEO of HEXO. “As a company, we are making immediate strategic decisions to optimize the operational presence we will need during the next phase of HEXO’s strategic evolution, while remaining focused on customer needs and our ongoing product innovation. »
HEXO is committed to providing its shareholders with updates as the Company executes the strategic plan. Today’s announcement provides focus on two of the five strategic pillars: i) streamlining and simplifying the organizational structure and ii) reducing manufacturing and production costs.
Streamline and simplify the organizational structure
To more closely align the Company’s operating costs with its size, HEXO announced significant cost saving initiatives to reduce selling, general and administrative expenses. These initiatives are expected to represent a 30% reduction in the Company’s selling, general and administrative expenses by the end of fiscal 2023. These cost reductions will be achieved by reducing dependence on external consultants, the rationalization of the Company through the implementation of a new IT platform, the adjustment of the size of the company and the synergies resulting from recent acquisitions.
Reduce manufacturing and production costs
In addition to savings in selling, general and administrative expenses, the Company has also identified some $30 million in additional savings by optimizing its production network and leveraging the capabilities of its recent acquisitions, which in particular by the following measures:
- Abandon co-packing agreements and acquire internal production capacities;
- Leverage HEXO’s size to achieve sourcing savings; and
- Reconfigure the Company’s production network to achieve greater efficiencies, for example, moving vape production and distillate production to the Redecan facility.
Sale of non-core assets and debt reduction
Under the terms of the strategic plan, the Company has also identified certain non-core assets that it could divest. The Company expects to use the proceeds of these sales primarily to reduce debt.
With this in mind, HEXO sold its 25% interest in Belleville Complex Inc. (“BCI”) to Olegna Holdings Inc. (“Olegna”) for approximately $10.1 million. Olegna owns the remaining 75% of the facility and HEXO will continue to lease the facility for processing, manufacturing and distribution without any change to existing lease agreements. Proceeds will be used to amortize the High Trail ticket as required by the terms of the ticket.
The sale of the Company’s interest in BCI to Olegna constitutes a “related party transaction” within the meaning of Regulation 61-101 respecting measures to protect minority security holders in special transactions (« NI 61-101 ”), as Olegna is majority-owned and controlled by Mr. Vincent Chiara, a director of HEXO. HEXO relies on the applicable exemptions from the minority security holder approval and valuation requirements of NI 61-101 on the basis that neither the fair market value of the subject matter of the transaction nor that of the consideration for the transaction exceed 25% of HEXO’s market capitalization.
The sale price of the Company’s interest in BCI was determined based on a valuation performed by an arm’s length third party.
The Company will continue to provide updates on the progress of the initiative The path of the future as new facts arise in this regard.
This news release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws (“forward-looking statements”). Forward-looking statements are based on certain expectations and assumptions and are subject to known and unknown risks and uncertainties and other factors that could cause actual events, results, performance and achievements to differ materially from those are anticipated there. These forward-looking statements should not be construed as guarantees of future performance or results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any of the forward-looking statements as a result of new information or future events, or for any other reason. .
This press release should be read in conjunction with the management’s discussion and analysis and the unaudited condensed consolidated interim financial statements of the Company as at October 31, 2021 and for the quarter then ended, together with the accompanying notes. Additional information about HEXO is available on the Company’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, including the Company’s Annual Information Form for the fiscal year ended July 31, 2021 dated October 29, 2021.
HEXO is an award-winning licensed producer of innovative products for the global cannabis market. HEXO serves the Canadian recreational cannabis market with its portfolio of brands, including HEXO, Redecan, UP Cannabis, Namaste Original Stash, 48North, Trail Mix, Bake Sale, REUP and Latitude, as well as the medical market in Canada, Israel and Malta. The Company also serves the Colorado market through its Powered by HEXO® strategy and Truss CBD USA, a joint venture with Molson Coors. With the recent acquisitions of Redecan and 48North by HEXO, HEXO ranks first among cannabis products companies in Canada in terms of recreational cannabis markets. For more information, please visit the website hexocorp.com.
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