Hexo Corp.’s auditor raised serious concerns about the company’s future as it reported a $67.9 million net loss in its latest quarter.
PricewaterhouseCoopers LLP said its recent review of the Ottawa-based cannabis business showed that Hexo “did not maintain, in all material respects, effective internal control over financial reporting” and several factors “raise substantial doubt about its ability to continue as a going concern.”
“The company has suffered recurring losses from operations, has had cash outflows from operating activities, and has financial liabilities that may require significant cash outflows over the next twelve months,” the auditor wrote in a six-page report filed along with Hexo’s fourth-quarter earnings.
It also noted that Hexo’s existing funds and operational cash flow are “not sufficient” enough to fund debt repayments, capex budgets, and potential cash requirements under a senior convertible note.
The auditor’s report come as Hexo is trying to quell the upheaval stemming from a recent strategic reorganization that involved the departure of co-founder and chief executive Sebastien St-Louis and chief operating officer Donald Courtney last week.
St-Louis was replaced with Scott Cooper, who ran Truss Beverage Co., a joint venture between Molson-Coors Canada and Hexo that produces the Little Victory, Mollo and Veryvell beverages.
Cooper told analysts on Friday he was nine days into the job, but “quickly getting my arms around the business” by cramming in meetings with employees, investors, board members, analysts and customers.
“These will also help me understand where Hexo can capitalize on strengths and where we may need to augment capabilities to compete for and earn our customers’ and consumers’ business,” he said.
Cooper will also look for barriers he can break down to help the company meet its targets, address the risk presented by the company’s debt structure and work to help integrate Hexo’s recent acquisitions of Zenabis Global Inc., Redecan and 48North.
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