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The stock has responded negatively ... given the reduced revenue visibility implied by this decision Russell Stanley, analyst, Beacon Securities

Analysts had already expressed concerns about Hexo’s $400-milion revenue target prior to Thursday’s retraction.

“We believe downside risk exists because of the company’s sales guidance for F2020 ($400MM), which could be impacted by factors outside the company’s control (regulations; specifically a delay in the derivatives products market or onerous regulations),” wrote CIBC World Markets analyst John Zamparo earlier this month.

Beacon Securities said Thursday that it was downgrading Hexo to a hold from a buy. Analyst Russell Stanley wrote that they had been forecasting 2020 net revenue of $374 million compared to a consensus of $323 million, “and we therefore believe the analyst community had come to view the guidance as aggressive.”

“Nonetheless, the stock has responded negatively … given the reduced revenue visibility implied by this decision,” Stanley said.

“The name of the game is profits and free cash flow and there’s no sign of that ever happening for these companies.” Barry Schwarts, chief investment officer, portfolio manager, Baskin Wealth Management

BMO Capital Markets analysts Tamy Chen and Peter Sklar said in a note earlier this week that there “may be downside” to Hexo’s fourth-quarter guidance given a 50-per-cent month-over-month decline in the sales that licensed producers made to provincial retailers in July.

“We believe the mid-term outlook could also be challenging as Hexo is trying to expand its dried flower sales into provinces outside of Quebec when these provinces are focused on working through their current inventory on hand,” the BMO analysts wrote.

Hexo still has a joint venture with beermaker Molson Coors Brewing Co. to develop non-alcoholic, cannabis-infused drinks. Zamparo said they valued Hexo’s stake in the JV company, Truss, at approximately $120 million.