Hexo (HEXO) - Get Report shares were tumbling 22.2% to $2.87 Thursday after the Canadian cannabis company warned that its fourth-quarter revenue will miss expectations due to "lower-than-expected product sell-through."
The Gatineau, Quebec-based company said it also was withdrawing its 2020 financial outlook due to regulatory uncertainty across the pan-Canadian system and "jurisdictional decisions to limit the availability and types of cannabis derivative products have contributed to an increased level of unpredictability."
Hexo said it expects fourth-quarter revenue to total C$14.5 million to C$16.5 million ($10.9 million to $12.4 million), short of Wall Street's call for C$24.8 million ($18.6 million). For the year, the company expects revenue of about C$46.5 million to C$48.5 million ($34.9 million to $36.4 million).
"While we are disappointed with these results, we are making significant changes to our sales and operations strategy to drive future results," said Sebastien St-Louis, Hexo's CEO and co-founder. "Over the past quarter, we began re-configuring our operations to focus on high-selling strains and initiated a new sales strategy that we believe will meaningfully improve performance."
Despite the disappointing announcement, MKM analyst Bill Kirk said in a note to clients that the problem may be "more of a delay than lost opportunity."
Kirk, who reiterated his buy rating on the company, said Hexo's method of helping partners with their product "has the best chance of creating a defensible brand." Its partnership with Molson Coors (TAP) - Get Report should give it an early mover advantage when cannabis edibles become legal in Canada, which is expected in mid-December.
On Monday, the company's stock took another hit, when Michael Monahan, the chief financial officer, resigned from Hexo, saying he was stepping down due to his "family's needs." Stephen Burwash, the vice president of strategic finance, was named as his replacement.
Kirk wrote that he believed "a reset of expectations following a CFO departure is a difficult but prudent move."
Hexo is scheduled to release its quarterly results on Oct. 24.