Canadian licensed producer Hexo Corp. recently announced that it will lay off 200 workers, reports the Ottawa Citizen. With its main plant in Gatineau, Hexo began as Hydropothecary, a medical cannabis provider with its own line of proprietary strains, sprays and other products.
Recently, the company made headlines for its new cannabis product, which undercuts the average price of illegal marijuana by about one dollar per gram. Unfortunately, it may be some time before this product takes off. Meanwhile, the company has to cut costs.
A once expected cannabis boom soon fell short of expectations after several variables were introduced, both before and after legalization. In Hexo’s case, the predicted $400 million net profit did not materialize.
The worst part is that none of this is Hexo’s fault, meaning there is little they can do to remedy the situation.
A Regrettable Decision
As of May 2019, Hexo had 1072 employees, which are now about to be cut down to around 800. To their credit, however, Hexo has expressed regret over the move. CEO and co-founder Sébastien St-Louis said in a statement:
“This has been my hardest day at Hexo Corp. While it is extremely difficult to say goodbye to trusted colleagues, I am confident that we have made sound decisions to ensure the long-term viability of HEXO Corp.”
Whether in the interest of fairness, finance or both, the layoffs will span all levels of the organization, from junior employees to executives. Every one of their facilities – Gatineau, Belleville, Montreal, Niagra and Brantford –will lose employees.
Black Market, Regulations and Slow Rollout to Blame
Although the last year has seen some improvements, there are still massive obstacles that stand in the way of Hexo’s (and other companies’) profits. The Ottawa Citizen explains:
“In its statement, Hexo cited a number of reasons for the layoffs: the delay in opening retail cannabis stores; regulatory uncertainty; pricing pressures; and ‘jurisdictional decisions to limit the availability and types of cannabis derivative products [that] have contributed to an increased level of unpredictability.’”
The “jurisdictional decisions” Hexo mentions is Quebec’s overzealous decision to ban certain edible products. Despite the fact that the federal government approved many of the affected products, items like baked goods and other sweet items will be banned in recreational stores. This is bad news for Hexo, who is working on chocolate and candy edibles.
Furthermore, topicals will only be available for medical recipients. Given that a large portion of Hexo’s customer base is located in Quebec, this seriously cripples Hexo’s profitability.
Meanwhile, its other cash cow, Ontario, suffered from lower sales due to its delays in opening physical dispensaries, which are still currently limited to 75. However, 22 of those 75 approved stores are currently open, along with just 24 in Quebec.
Finally, there is the black market, which still dominates around 80% of the cannabis market. Hexo’s new value strain may help make a dent in illicit sales, but this will take time.
WeedAdvisor’s Role in Supporting Licensed Producers
Naturally, we are saddened by the latest news from Hexo, both for its employees and the industry itself. With stories like these, it is easy to believe legal cannabis has a bleak future.
But keep in mind that analysts made similar doomsday stories during the initial rollout, when things were in much worse shape.
Until revenue increases for licensed producers, saving money is crucial. WeedAdvisor’s many business solutions are not only inexpensive, but also meant to improve efficiency and ensure compliance, preventing potential fines and other financially harmful issues.