Clock Ticking Loudly As Hexo Looks To Meet Looming Debt Deadline

For shareholders of Hexo (NASDAQ:HEXO) (TSX:HEXO), the past 12 months have been an up-and-down experience. And it could get even rockier as a deadline to reach a thus-far elusive milestone looms large at the end of this month.

HEXO Daily

That is when the cannabis grower must meet the terms of a debt financing deal it struck last May with a New Jersey-based hedge fund to raise US$360 million in secured convertible notes. That deal was struck so that Hexo could acquire Redecan, an Ontario-based cannabis cultivating and processing operation.

The acquisition thrust Hexo into the top tier of the Canadian cannabis sector. But the financing deal included the caveat that Hexo had to report positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Otherwise, it will default on the debt.

Last week, Hexo officials outlined a plan it put together last month to generate new cash flow and cut costs. According to a statement, the company plans to reduce its selling and administrative costs by 30% by the end of the 2023 fiscal year by eliminating consulting contracts, migrating to a new IT platform and what it called “right-sizing the organization.” Hexo also will trim about $30 million by optimizing its assets, which includes consolidating some activities.

Given the scope of the moves and the limited time between now and the end of the month, the clock is ticking loudly at Hexo headquarters.

Hexo stock closed up about 1.3% on the NASDAQ yesterday to end the day at 53.4 cents. Shares had reached a 2021 high in July, when they were trading just above $8. In the last year, the stock has lost more than 90% of its value.

Arizona Reaping Benefits Of Legalization

If you are wondering why more and more states in the US are opting to legalize marijuana even if the federal government is dragging its feet, just look at what the Department of Revenue in Arizona reported last week.

As the state marked the one-year anniversary of the legalization of recreational marijuana on Jan. 22, it announced total sales of legal weed reached just over $1.2 billion during the first 11 months of that year, surpassing expectations. Sales for December were not included in the calculations. That generated $190 million in tax revenue—a significant source of revenue.

And sales are expected to grow in coming years.

Weed Tops Booze In Massachusetts Tax Revenues

Meanwhile, in Massachusetts, December marked the first time the state generated more tax revenue from legalized marijuana sales than it did from alcohol.

According to a report by news site Marijuana Moment, the state collected $74.2 million in taxes at the midway point of 2021, compared with only $51.3 million from alcohol taxes.

Illinois also saw its taxes generated from cannabis sales top those garnered from alcohol sales for the first time last year, as the state netted approximately $100 million in taxes on marijuana sales in 2021.

According to a report released earlier this year by the Marijuana Policy Project, just over $10 billion has been generated in cannabis tax revenue in the US since the weed first began being sold legally in some states in 2014.