This Company is Meeting Cannabis Demand in Canada

The company surprises by rising to meet higher than expected retailer demands for cannabis.

Photo by Alex Person on Unsplash

HEXO Corp. (TSX: HEXO.TO), a Canadian cannabis producer with supply agreements with Société québécoise du cannabis (SQDC), Ontario Cannabis Society and British Columbia, announced this morning they delivered on all orders and replenished stock across Canada last week legalization. Although demand was higher than expected, the company says it rose to the occasion. 

High demand

In the run-up to federal legalization in Canada, experts predicted high demand at the various selling points nationwide. Actual orders last week, however, came in higher than many observers’ expectations. Stores and online outlets in that country had difficulty supplying and restocking pot product. In Ontario’s provincially-run market, revenue totaled $41 million in just one day.

One company’s supply remained reliable throughout. One HEXO Corp. buyer, the Société des alcools du Québec’s (SQDC), endorsed the company’s preparedness for legalization day.

Hexo rises to challenge

“HEXO has risen to the challenge of a much higher than anticipated demand during the first few days of legalization, and we are very pleased with their responsiveness,” said Jean-François Bergeron, the Société des alcools du Québec’s Vice-President of Supply Chain.

“Thanks to HEXO’s preparedness, we have been able to provide and maintain customer service to the SQDC’s clients, even with this higher demand.”

Via its 310,000 square foot production facility, HEXO supplied enough premium dried flower, oils, milled flower and pre-rolled cones to meet the first week of demand. Further, it sent resupply shipments ahead of the original schedule. Its buyers – stores and distribution centers – benefitted from undisrupted access to cannabis products. To meet the exorbitant demands, moreover, the company shipped several times over the weekend.

“We’ve been focused on executing all of our plans for several weeks, and I am proud that our team’s dedication and capability has meant that customers’ access to HEXO product has been dependable. Sales have been good, and we’ve been able to keep up,” added HEXO CEO and co-founder Sébastien St-Louis. “We said we were ready; now we have proved it.”

Gatineau property expansion to come

Furthermore, HEXO plans to continue growth and maintain its reputation for reliability. Its next expansion is a 1,000,000 square foot greenhouse on its Gatineau property. The expansion will increase their production capacity to 108,000 kilograms of dried flower per year. As expected, the construction project has an expected completion of end of 2018 which is on time.

Activist investors influencing operations

Previously Hydropothecary, HEXO is a Quebec-based cannabis producer. New York investment firm Riposte Capital is the company’s second-largest shareholder. The firm increased its position and said the market is paying too little for HEXO shares. As a result, they fired HEXO’s communications and investor relations management.

HEXO has the longest-standing government contract to supply recreational marijuana with a five-year, $1 billion agreement with Quebec. The company also inked a joint-venture deal with Molson Coors Brewing. Development from the joint venture won’t be paying off until 2019 or beyond.

The company could be a possible takeover target as it stands. It has a cash-rich balance sheet with approximately $250 million in the bank. Accordingly, the company has room for growth. For a primer on investing in the industry, see our introduction here.

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