4.2400 -0.01 (-0.24%)
After hours: 6:12PM EDT
|Bid||4.2600 x 4000|
|Ask||4.4300 x 2200|
|Day's Range||4.2104 - 4.3300|
|52 Week Range||3.7050 - 8.4000|
|Beta (3Y Monthly)||4.74|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||N/A|
The award recognizes professional cannabis growers whose dedication to their craft consistently produces top quality crops for the marketplace. The nominees are growers that set the bar for others to match.
Since hitting a 52-week high of $8.40 in April, Hexo (NYSE:HEXO) slid down for the last several months and has since been trading sideways within the $4-$4.50 range. In fact, HEXO stock, now in negative territory for 2019, has lagged other pot stocks generally as compared to the Alternative Harvest ETF (NYSE: MJ).Source: Shutterstock That MJ exchange-traded fund is up slightly by 1.4% for the year. HEXO stock is the seventh-largest holding in the fund's 37-pot stocks portfolio. Now with the fall investor season in full swing, Hexo may be finally ready to break out of the trading band after their next quarterly earnings call later today.The cannabis sector is well known for highly cyclical boom and bust trends. When trading finally moves from sideways to a bounce back, here are three key reasons why Hexo is a pot stock to watch. InvestorPlace - Stock Market News, Stock Advice & Trading Tips Canada's Cannabis 2.0 Around the CornerHexo is one of the Big Five Canadian cannabis stocks. As such, Hexo stock will likely be a prime target of investor interest next month. As part of the ongoing process of national legalization of cannabis in Canada, Oct. 17 marks the date when it becomes legal to sell cannabis extracts. The first round of legalization in Canada began in 2018 but applied only to dried marijuana. The legislation scheduled to take effect next month will bring into the Canadian market a vast range of cannabis-infused edible products that will be far more appealing to a broader audience."The edibles market is estimated to be worth at least $1.6 billion a year in Canada, with cannabis-infused beverages adding a further $529 million," according to Jennifer Lee, Deloitte Canada's Cannabis national lead. "The introduction of cannabis-infused edibles will clearly threaten the alcohol industry as consumers are using the product for similar usage occasions," she wrote recently. * 7 Deeply Discounted Energy Stocks to Buy Hexo has been patiently waiting to pounce on the newly expanded market and has already developed cannabis-infused gummy candies, a premium vape line as well as several cannabis-infused beverages. Powered by Hexo: Innovation will Protect MarginsAs the global cannabis market expands, commodification is inevitable. That is, a bulk of consumers may simply seek their best bang for the buck.Generic cannabis producers focusing purely on high output and low price could get caught in a price squeeze. Seeing the long-term direction of the market, Hexo has invested heavily in R&D and product innovation to enhance the brand value of a "Powered by Hexo" product line. "Building our innovative technology is critical in building a brand. We believe that brand will be the final moat by which CPG cannabis companies are differentiated," explained Sebastien St-Louis, Hexo co-founder and CEO, on a recent earnings call."We're continuing to expand our R&D and innovation team with top scientists, chemists who have extensive experience in CPG companies. We now have 25 PhDs on staff. They're focused on developing new and innovative products for the market and best-in-class technology for our Powered by HEXO experiences," he said Strong Top Line RevenuesThe global cannabis market is still in the very early stages where firms are focusing primarily on building infrastructure, expanding distribution channels, and creating a market presence among new consumers.While Hexo is certainly building production capacity and distribution as well as creating a valuable brand identity, it is undoubtedly furiously growing top-line revenue. Hexo's total gross revenue was CAD 15.9 million ($12.05 million) for Q3 2019, 11.8x over the same quarter in 2018. Hexo expects revenue to double in Q4 2019, particularly as it starts to expand aggressively beyond Quebec. * The 8 Worst Stocks to Buy Before the Trade Turmoil Cools Off Undoubtedly, there is much risk inherent in Hexo's financials, as well as the entire pot stock sector. Hexo operating cash flow is negative, and operating losses continue to mount. Further, many investors are becoming wary of the ebbs and flows of political sentiment about new cannabis laws in the US, where the Republican-controlled Senate has so far expressed near-zero support for legalization.However, all these risks are already well and truly baked into the Hexo stock price. A favorable earnings call this month may be all it takes to see Hexo stock rebound for its current sideways trading pattern. Given the intraday volatility, Hexo may be a good buy on any market dip.As of this writing, Theodore Kim has no positions in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Stocks to Sell in Market-Cursed September * 7 of the Worst IPO Stocks in 2019 * 7 Best Stocks That Crushed It This Earnings Season The post As Canadians Get Ready for Edibles, is Hexo Stock Ready to Bounce? appeared first on InvestorPlace.
Market research and data analytics firm Prohibition Partners has released its first North American Cannabis Report. In the 134-page paper, the firm analyzes the current state of the cannabis industry in Canada and the United States to draw key insights into the industry’s future in the region. The firm is estimating that by 2024, the continent's cannabis market will be worth $47.3 Billion.
Just three months ago, Seaport analyst Brett Hundley was rolling back price targets on Canadian cannabis stocks, cutting forecasts for both sales and EBITDA left and right -- and Hundley was right to do so. Since the analyst began slashing targets, shares of Aphria (APHA) and Hexo (HEXO) (two subjects of the analyst's ire in June) have fallen 10% and 35%, respectively. More broadly (and over a longer time horizon) the Horizons US Marijuana Index ETF has declined 39% from April to today -- against a broader S&P 500 performance that's been basically flat.And yet, there comes a day that marijuana stock prices get too cheap to ignore, and that day, apparently, was Labor Day 2019.Seaport Announces a Labor Day SaleIn a report just out entitled "Labor Day Sale", Hundley argues that after the sell-off, it's now "time to buy cannabis stocks" again. His reason:"Quality cannabis names" are trading at "2020 price-to-sales multiples near 3.0x-4.0x, alongside EV multiples of 7.5x-10.5x against 2020/21 EBITDA expectations." In the analyst's opinion, these valuations have been depressed for several good reasons, including "disappointing and frustrating regulatory developments, delayed profitability expectations, specific compliance/credibility issues, and founder/management upheaval."And yet, Hundley foresees a "potential for forward regulatory improvements/updates and widening access to capital" that could result in higher valuations going forward. And he further argues that "the [marijuana] space is profitable" already -- albeit only profitable from the perspective of "EBITDA," which considers earnings but not the interest, taxes, depreciation, and amortization that generally come along with (and subtract from) them.Given this continued absence of real profitability, though, are any of these stocks really bargains, even down 39% on average?3 'Quality Cannabis Names' to ConsiderHundley notes that the valuations on his alleged "quality cannabis names" look attractive when compared to "biotech/pharma" stocks trading "6.0x+ 2020 sales expectations and 15.0x-25.0x 2020/21 EBITDA expectations." But which ones exactly? Let's take a closer look.Canopy Growth (CGC) for example, probably the best-known Canadian cannabis stock (and certainly the most expensive at $8.9 billion in market capitalization), currently sells for 19 times the $467 million in sales it's expected to produce in 2020. Aurora Cannabis (ACB), the next-biggest player in the industry at $5.9 billion in market cap, costs more than 11 times the $516 million in sales that analysts project for it in 2020. And Cronos Group (CRON), No. 3 in the industry at $3.9 billion in market cap, costs a staggering 23.6 times forward sales!In fact, to get anywhere close to his promised "3.0x-4.0x" sales valuations, Hundley has to scrape pretty far down into the barrel, coming up with just one example from his own coverage list: Green Thumb Industries (GTBIF), which he says at $1.6 billion in market cap costs 3x fiscal 2020 projected sales. Granted, the analyst says there are other names down in that barrel as well, if you're willing to look for them -- Cresco (CRLBF) for one, and Trulieve (TCNNF) for another.But if these are the kind of "quality cannabis names" Hundley is urging investors to look for, it bears asking: If they're so great, why hasn't he bothered to cover Cresco and Trulieve before?The answer could be as simple as this: Because they aren't.Visit TipRanks’ Trending Stocks page, and find out what companies Wall Street’s top analysts are looking at now.
The price of Hexo (NYSE:HEXO) stock continues to decline. HEXO stock fell down to the $4 threshold this past week, and has now declined more than 50% from its recent peak. Like industry rivals Tilray (NASDAQ:TLRY) and Canopy Growth (NYSE:CGC), Hexo stock has faced relentless selling.Source: Shutterstock Hexo stock has largely declined because of the huge drop in marijuana shares in general. With the industry producing far more marijuana than consumers demand -- particularly in Canada -- everyone is suffering. That said, Hexo has potentially stepped into a company-specific problem with its advertising strategy. It remains to be seen if the skeptics' arguments about Hexo's marketing strategies end up hurting the business or not. Hexo's Joint Venture With Molson CoorsIn a recent article on HEXO, Will Ashworth suggested that Hexo's partnership with Molson Coors (NYSE:TAP) acts as a floor to support Hexo's stock right now. The thinking is that the Hexo/Coors joint venture (JV) can start distributing CBD drinks in Canada when they are legalized in December. Hexo has a large supply of CBD ready, so they should be able to hit the ground running once the legal red tape is taken care of.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 Best Tech Stocks to Buy Right Now Ashworth suggests that this JV could deliver $175 million in revenues in coming years. Combined with the projected Quebec market for dried flower, and Hexo stock would be selling at 2.2x its realistic sales in a few years. This is a solid bullish argument for Hexo stock.On the other hand, we'll have to see how this all plays out in practice. Hexo and Molson Coors are far from the only companies trying to commercialize CBD drinks. Even if they are successful to this extent, how much will it help Hexo's stock price? Keep in mind that TAP stock only trades for 1.1x today's sales. That's despite Molson Coors also trading at a 12x P/E ratio and paying a more than 4% dividend yield.I'm not sure Hexo stock should trade at a much higher sales ratio than Molson Coors, even assuming its projected revenue growth eventually plays out. You can make a good case for owning Molson Coors' stock today, instead of Hexo. Collect the fat dividend in the meantime, and if this JV works, it should give TAP stock a strong growth element that will cause investors to bid its shares back up. Unlike Hexo, Molson Coors has huge cash flows and profits from beer to fall back on in case its CBD drinks don't take off. Hexo Bulls May Be Overlooking These Two ConcernsOur Vince Martin made some excellent points in his recent Hexo stock article. For one thing, he pointed out that Hexo's dominance in the Quebec market is far from guaranteed in the future. Hexo achieved a significant first-moved advantage, getting a favorable contract with the provincial government.However, that contract appears to only run for one year, and it's not guaranteed that it will be renewed indefinitely. Competition has grown significantly since Hexo took its lead in the Quebec market. And now there's the advertising issue which could hurt the company's credibility in getting its contract extended. People banking on Hexo retaining a 30%+ share of the Quebec market may end up disappointed.The other concern is that Hexo has built a chunk of its strategy around being a leading food ingredients company. However, Quebec has already cracked down on CBD candies, and the national government may follow its lead. Investors will need to watch how regulation in this market develops, as a heavy touch would be bad news for the Hexo stock price. Hexo Stock VerdictI've been bearish on HEXO stock since May, when I said it would be unable to live up to its rising stock price. Even with Hexo now trading sharply lower, there's still little that would compel investors to get involved today.That's not to say that Hexo stock is without any merit. But in a marijuana sector that is taking blow after blow, you need some specific characteristic or catalyst to get excited about. There's just not enough that makes Hexo stand out right now. If you want exposure to the CBD-infused beverages business, TAP stock seems like a much better choice at this juncture.Remember that Molson Coors owns 57.5% of the beverages joint venture with Hexo. On top of that, Molson Coors has warrants to buy a large chunk of Hexo stock at $6 per share. Thus, if the partnership goes well, TAP stock owners will get a lot of the economic benefits. Sure, Hexo would have more upside than TAP if everything goes perfectly. But if there are any bumps in the road, Molson Coors will be the much safer holding of the two going forward.At the time of this writing, Ian Bezek owned TAP stock. You can reach him on Twitter at @irbezek. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Best Tech Stocks to Buy Right Now * 10 Mid-Cap Stocks to Buy * 8 Precious Metals Stocks to Mine For The post Don't Buy Hexo Stock as It Continues to Drop appeared first on InvestorPlace.
It's been a tough summer for Hexo (NYSE:HEXO) shareholders. But for investors seeking exposure to the cannabis market, the price is nearly right for a less speculative investment.Source: Shutterstock I've said it before and it bears repeating, Hexo, along with competitors Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC) or a New Age Beverages (NASDAQ:NBEV) face very real challenges despite the potential opportunity within the cannabis industry. Universally, the group is mired in losses as companies spend aggressively to gain market share. All the while, the opening up of new markets due to regulatory red tape remains much easier said than done.It's a tough combination that's resulted in supply dwarfing demand and a business environment which will undoubtedly see casualties. In large part these difficult realities are why cannabis stocks have cratered and why Hexo stock has lost more than 50% over the past four months. But turning your back on HEXO could be a big mistake.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe fact remains that Hexo is well-positioned for success within the niche edibles and cannabis-infused beverages market. With a partner in beverage giant Molson Coors (NYSE:TAP), Hexo maintains resources ranging from financial support to Molson's marketing, distribution and operational expertise. * 7 Best Tech Stocks to Buy Right Now Hexo stock's partnership isn't a guarantee of survival. For the reasons already stressed, it's simply too early to know if Hexo will ever be a viable business. But it would be unfair to not appreciate Molson Coors as a significant advantage as Hexo looks to build its brand in this up-and-coming, but still speculative market. Hexo Stock Weekly ChartHexo's technical wherewithal relative to its peers also makes it a standout in the cannabis space. Obviously, the deep corrective move over the past few months hasn't been pleasant. However, HEXO stock is technically unique. Shares remain in an uptrend supported by it's late April higher high pattern and today's higher low relative to its December bottom.With a small double bottom having formed on the weekly chart, HEXO is nearly ready for investors to buy. With this second pivot low finishing in a weekly hammer as of Friday's close, shares are in position to buy on confirmation of this reversal candlestick.My recommendation for buying Hexo stock would be to buy shares above $4.18. That's 8 cents through the high of the weekly hammer. This approach gives up a few pennies of profit in return for trying to purchase HEXO on sustainable momentum to avoid the possibility of a weaker buy signal in Hexo stock price that's doomed to fail.Similarly, and to contain risk, I'd place an initial stop at $3.63 and 8 cents beneath the pattern low. This exit looks to evade being an easy target for a bear raid hitting picture perfect stops at $3.70.In exchange for the position risk of 65 cents, I'd take partial profits in between $5.00-$5.15. The targeted area is slightly above the double bottom's July high and may draw in fresh buying interest. But with no guarantees and profits approaching 1.5x the risk, this spot reasonably makes sense off and on the price chart.Investment accounts under Christopher Tyler's management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Best Tech Stocks to Buy Right Now * 10 Mid-Cap Stocks to Buy * 8 Precious Metals Stocks to Mine For The post Hereas How to Buy Hexo Stock Now appeared first on InvestorPlace.
When a stock declines by a considerable percentage over a short period of time, some investors may see value. The value proposition is, in some investors' eyes, only enhanced by a low price tag. However, those traits are often more hallmarks of value traps than characteristics of legitimate value.Source: Shutterstock Such is the plight of Hexo (NYSE:HEXO) stock. While the shares traded somewhat sideways in August, losing just 1.23% compared to 11.12% for the ETFMG Alternative Harvest ETF (NYSEARCA:MJ), Hexo stock is still off 36% in the third quarter and labors 52.14% below its 52-week high. Even with all that, the cannabis company still isn't a value play. Not yet anyway. * 7 Best Tech Stocks to Buy Right Now What makes Hexo stock risky over the near-term, particularly for those perceiving value here, is that there's actually a lot to like with this name. Hexo has enviable partnerships and a compelling business model that, for the most part, executes well on. However, the broader cannabis investment space is largely out of favor with investors at the moment -- a significant headwind for Hexo stock.InvestorPlace - Stock Market News, Stock Advice & Trading TipsIn other words, Hexo may not be the cause of the disease (it's not), but it's not the cure, either. Broader weakness in the cannabis space only adds to Hexo's "falling knife" status. Some Rays of LightOne longer-ranging factor in favor of Hexo stock is that the company, unlike so many of its cannabis rivals, isn't carrying goodwill on its balance sheet. Analysts and investors usually tolerate goodwill until it becomes a problem.Goodwill isn't a tangible asset. It's considered intangible related to a purchase of something intangible in which the buyer likely overpaid, betting that the acquired business would eventually deliver growth that made overpaying for it a good deal. The problem with this strategy is that it doesn't always work out and it leads to companies taking charges or impairments on that good will.That's when Wall Street gets frustrated. The scenario isn't unusual, but it's usually something that if investors tolerate, they do so with larger, profitable companies with strong balance sheets, descriptors that are hard to come by in the cannabis arena. Hexo remains among the denizens of money-losing marijuana firms and while that's not a positive, it is good news that the company isn't carrying mountains of goodwill.Another area of strength for the company, and one that could be a long-term driver for Hexo stock, is its logistical superiority. The company has an array of strategically situated distribution hubs that can cement forays into important markets while keeping costs to a minimum. It's possible that competitors will encroach on this model and adopt it for themselves, but Hexo has mostly mastered it ahead of its rivals.Additionally, Hexo is growing revenue at an impressive rate and the recent Newstrike acquisition gives the company important scale. The rub is that with rising revenue and solid scale come increasing analyst and investor demands for profitability. Bottom Line on Hexo Stock: Wait It OutIn the current environment, Hexo stock is being hit with a triple whammy: cannabis, growth and small-cap stocks being out of favor and yes, Hexo is a small-cap growth name. Add to that, Hexo stock trades for 41.15x forward earnings, compared to about 21x on the S&P SmallCap 600 Growth Index (INDEXSP:SP600G). That gets us back to Hexo stock not being cheap by any stretch.The other issue for Hexo stock is that it closed around $4 at the end of August, but the average analyst price target is $7.20, meaning that forecast needs to be revised lower or that stock needs to start moving higher. It's likely the former happens before the latter.For risk-tolerant investors who just can't resist the allure of Hexo stock, let it stay around $4 for a few weeks before jumping.Todd Shriber does not own any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Best Tech Stocks to Buy Right Now * 10 Mid-Cap Stocks to Buy * 8 Precious Metals Stocks to Mine For The post Hexo Stock Requires Patience, Flair for Risk appeared first on InvestorPlace.
Hexo (NYSE:HEXO) stock has traded sideways this month. Shares rose from $3.98 on July 29 to as high as $4.95 on Aug. 13. But since mid-August, shares have fallen back, closing at $3.94 per share on Aug. 29. Compared to its larger peers, shares have held steady.Source: Shutterstock Shares in Canopy Growth (NYSE:CGC) are down more than 28% for the month. Aurora Cannabis (NYSE:ACB) stock has fallen roughly 12.7% since late July. Hexo is becoming increasingly focused on "smoke free" uses (beverages, edibles, etc.) than its peers. Focusing on this niche could be its key to success. * The 8 Worst Stocks to Buy Before the Trade Turmoil Cools Off With infused beverages hitting the market later this year, should investors take a position in HEXO ahead of this product launch? Or should investors take heed, given shares continue to trade at a high valuation? Let's take a closer look at Hexo stock.InvestorPlace - Stock Market News, Stock Advice & Trading Tips TAP Partnership Provides Scale with Minimal DilutionAs I discussed in my prior article, expectations for cannabis-infused products drive the Hexo stock price. The company has partnered with Molson Coors (NYSE:TAP) to launch Truss. Truss is Hexo's line of non-alcoholic, cannabis-infused beverages. This strategic partnership gives the company a greater chance of success in this space. With Molson Coors's scale and infrastructure, Truss can be rolled out more efficiently.Another positive of this partnership is the structure. So far, strategic partnership deals have been highly dilutive to cannabis company investors. With Canopy Growth, Constellation Brands (NYSE:STZ) has quietly taken over the company. This also happened with Cronos (NASDAQ:CRON) and its partner Altria (NYSE:MO).Molson Coors received warrants as part of the deal, but the partnership is structured as a joint venture. Molson Coors owns 57.5%, with Hexo owning the remainder. This may limit upside if infused beverages are a success. But it limits Molson Coors's control over the entire company. Molson Coors's warrants only give it the right to buy 11.5 million shares at a strike price of $6 a share. With 256.9 million shares outstanding, and 50.9 million warrants outstanding, this hardly gives Molson Coors control over Hexo's destiny.Other catalysts could move the Hexo stock price. The company's strategy focuses on "smoke-free" cannabis products. This includes edibles, vapes, wellness products, and cosmetics. Selling plain old pot is a commodity business. The opportunity to develop high-margin brands is the key to long-term profitability.Hexo is no slouch when it comes to selling pot. The company remains Quebec's biggest supplier. The recent acquisition of Newstrike Brands helps scale up their cultivation infrastructure. But is all of this reflected in the Hexo stock price? Let's take a look at how the stock's valuation stacks up to peers. Hexo's Valuation in Line With PeersUsing the Enterprise Value/Sales (EV/Sales) ratio, the company trades in line with peers. The company's current EV/Sales ratio is 36.4. Compare this to Aurora Cannabis (EV/Sales of 45.6), Canopy Growth (EV/Sales of 35.3), and Cronos (EV/Sales of 98.5). An EV/Sales ratio of over 30 is still a rich valuation.The expectations of Truss and other products inflates the Hexo stock price. Investor enthusiasm has tapered off, as seen from the 53% drop from its all-time high in April. If Truss is a success, Hexo stock should see a massive boost. But with the current rich valuation, additional declines are a risk. If investors lose faith in Hexo shares could fall much further.So what does this mean for investors entering the stock today? Cannabis shares have been beaten down. But marijuana stocks have yet to trade at fire sale prices. It's impossible to predict the unpredictable. Only time will tell if we have reached a bottom in cannabis stock valuation. But long term, investors may be getting a bargain entering Hexo stock at the current trading price. Hexo Has Potential, but Tread CarefullyHexo stock offers a unique opportunity for cannabis investors. While its competitors try to dominate the smoked marijuana space, Hexo is going "smoke-free." Focusing on beverages, edibles, and other cannabis-infused products, the company could find riches in niches. Their partnership with Molson Coors is a conservative way to get scale without sacrificing much equity. Unlike its larger peers, Molson Coors is in no position to quietly take over the company.The Hexo stock price remains inflated. Investors are betting on the company's future potential. Long-term, shares could see big gains. Short-term volatility is a risk. Keep HEXO on your radar, but tread carefully before entering a position.As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * The 8 Worst Stocks to Buy Before the Trade Turmoil Cools Off * 7 'Strong Buy' Stocks to Beat Volatility * 7 Mega-Cap Tech Stocks on a Rebound Now The post Hexo's "Smoke-Free" Strategy Is Solid, but Shares Remain Overvalued appeared first on InvestorPlace.
Investors tend to treat all cannabis stocks the same. That's pretty common in an emerging market. However, this "one size fits all" mentality means one bad stock can spoil things for the bunch. Case in point, Hexo (NYSE:HEXO) had a bad second quarter. Awful, in fact. But when looking at the company as an investment, you have to look at their business model, which is distinct from other major players like Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB).Source: Shutterstock For example, Aurora is concentrating its efforts on the medicinal marijuana market. Canopy, on the other hand, is dominating the recreational use market. Cultivating one or more niches is a hallmark of the cannabis market. And it's no different for Hexo.Hexo is focusing on the edibles and beverage market. While this is a small niche at the moment, the cannabis-infused beverage market may be worth up to $3 billion by the end of 2019. The first example of this model paying dividends occurred in the fall of 2018 when Molson Coors Brewing (NYSE:TAP) partnered with HEXO. The Canadian brewer is building a cannabis beverage brand, and the first drinks will be available for sale on Dec. 16. That's the date when these products become legal in Canada.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe partnership between Molson Coors and Hexo may not seem much different than Constellation Brands (NYSE:STZ) forming an alliance with Canopy. However, it's worth noting that Molson chose Hexo over both CGC and Aurora Cannabis -- among other cannabis companies it met with. One reason for this was the company's history of innovation. It's also worth noting that Hexo will have a deliverable for this space that the other cannabis companies will not. That deliverable can be significant for Hexo stock when, pending regulatory approval, it can launch these CBD-based drinks in a limited U.S. market in 2020. Hexo Is Beating Some of the Big Players at Their Own GameIn terms of sales growth, Hexo is one of the best cannabis stories around. The company is delivering trailing 12-month revenue growth of 245%. This number is even more impressive when you consider that for quite some time, Hexo has been limited by its own production capacity. * 7 Stocks to Buy Down 10% in the Past Week That situation, however, appears to be changing.Hexo recently completed a 1-million square foot expansion of its Gatineau, Quebec facility which previously operated at approximately 310,000 square feet of capacity. This growth will allow Hexo to become one of the top-10 cannabis producers in Canada by 2020. The company also recently acquired Newstrike Brands which will eventually push Hexo's production capacity to 150,000 kilograms.But what good is supply if you don't have demand?Not to worry. The Quebec-based company also has a large supply deal with the province that will insure about 30% of Hexo's distribution over the next five years. There are few certainties in the cannabis industry. However, locking up 30% of Canada's largest cannabis market should have a positive effect on Hexo stock. Why Does HEXO's Share Price Continue to Fall?Since hitting its all-time high in mid-April, Hexo stock has declined over 50%. This selloff has taken the company below the symbolically important $1-billion valuation mark. And at its current price near $3.90 per share the stock is getting perilously close to going negative for the year. By all indications, this would make Hexo stock look like a classic falling knife, but I'm not so sure this is accurate. Regulation in the Cannabis Market Will Remain an AnchorBoth medicinal and recreational use of marijuana is gaining mainstream acceptance. But voter approval is only the first step. The obstacle that all cannabis companies face is regulatory hurdles. Hexo has been stymied by Health Canada. Canada's regulatory agency is swamped by the large amount of companies filing licensing applications for cannabis. And all of these new products must have compliant packaging which is creating another delay.But as frustrating as this is for cannabis companies and their would-be investors, it's not unexpected. The U.S. faces similar regulatory issues as it tries to assimilate products that still make many consumers wary. What's in Store for Hexo Stock?The company provides its next quarterly earnings report on Sept. 12. The market will be looking to see if the regulatory environment improves and all systems are go for a successful launch of their CBD-infused beverages. If so, Hexo stock should get a nice lift going into 2020. If not, it's still hard to ignore the potential of this stock -- which investors can get at a sizable discount.Hexo is a stock for the long haul, and like all cannabis stocks, it's not for the faint of heart. But if you look at how Hexo is different from its competition, you'll find a strong case for owning HEXO shares.As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Stocks to Buy Down 10% in the Past Week * 15 Retail Survivors to Buy for the Long Run * 7 Stocks That Wall Street Thinks Could Rise 50% Or More The post Hexo Stock Smokes its Competition appeared first on InvestorPlace.
Back in June I suggested cannabis company Hexo (NYSE:HEXO), in a sea of noisier names like Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB), might be the market's best-kept marijuana-minded secret. Hexo stock has continued its struggles.Source: Shutterstock Its hub-and-spoke business model that leans on big-name partners is a savvy approach to low-cost growth its rivals aren't utilizing.I followed up on that commentary in late July, further fleshing out the notion that Hexo stock requires a long-term mindset. Near-term volatility threatened to shake shareholder confidence and undermine HEXO shares, in the absence of those partnerships.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe underlying thesis still stands. With plans to add more Fortune 500 caliber partners like its relationship with Molson Coors (NYSE:TAP) at the end of its spokes, this young cannabis name is a name worth watching. But, it's still a long-term play.The in the meantime just became very hairy and scary for Hexo stock though, and there's absolutely nothing to prevent matters from getting worse before they get better. Sector-Wide Headwinds PersistMore than once since marijuana mania took hold, after Constellation Brands (NYSE:STZ) made a major investment in Canopy Growth, have I warned investors about two related pitfalls of the cannabis craze as a whole. * 7 Tech Industry Dividend Stocks for Growth and Income One of them is the likely price-cutting commoditization of the plant. The other is investors' impending realization that simply being in the pot business is no guarantee of immediate profits.The former, incredibly enough, hasn't started to happen yet even though the prospect remains on the table.As for the latter, following second quarter's industry-wide results it's quite clear some of these names may never make their way out of the red. Canopy's quarterly sales of recreational pot actually fell sequentially, per the report from June, and Hexo stock took a beating after an unexpected revenue dip for its most recently-ended quarter.It's not the individual stories within the marijuana arena that are of interest here and now though. The movement could shrug off one or two stumbles.Rather, the cannabis craze has become a groupwide matter again, much like it was in early 2018. All of these names are being lumped together because after the past couple rounds of quarterly reports they all seem to be facing the same underlying headwinds. Those headwinds are (1) the realization that building scale is expensive and difficult, and (2) the fact that recreational demand hasn't lived up to the palpable hype from a year ago.And that's a problem for Hexo stock. With every other major marijuana name losing ground after a few-too-many red flag started to wave this year, the falling tide is dragging the Hexo stock price lower with it. Pot Stocks Have a ProblemThe graphic below tells the tale. Over the course of the past twelve months, with the exception of New Age Beverages (NASDAQ:NBEV), every major cannabis stock is in the red. And even then, a major footnote is merited. That is, of all the marijuana names in focus, NBEV stock has fallen the farthest from its peak. It's now down nearly 70% from its September-2018 high.It's not a mere matter of bad luck or an unfair comparison either. These names have been steadily trending lower, as a group and individually, since April. Several are at or near new 52-week lows. Click to EnlargeWhen one name in a group of eight stocks stumbles, there's something wrong with that company. When all eight lose ground for four straight months there's something wrong with the industry.Admittedly, it may be more about perception than reality. It just doesn't matter. If the bulk of investors are convinced none of these names are worth holding onto, then these names are going to struggle. Bad news for one leads to bad results for another, creating a self-fueling selloff. Bottom Line for HEXO StockHexo is still arguably one of the more compelling names in the cannabis business. By putting itself in a support and supply role for major brands that want to plug into the cannabis market, it avoids being forced to make risky investments that may or may not pan out.Hexo also doesn't grant large, controlling stakes of itself to its partners the way rivals have. Case(s) in point: Constellation now controls nearly 40% of Canopy Growth, which was enough to oust CEO Bruce Linton in July.Altria Group (NYSE:MO) now owns 45% of Cronos Group (NASDAQ:CRON), with the option of buying up to 55%. That effectively puts it in charge of Cronos, even though it may not have the same vision as Cronos CEO Michael Gorenstein does. Hexo remains relatively flexible in comparison.But, so what? All pot-based plays are being treated as liabilities now, and Hexo stock is no exception to that trend.As to when it might end is anybody's guess, but the tide's not likely to turn until at least a couple of these names can prove there's sustainable profit growth ahead.I'm not holding my breath.As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Tech Industry Dividend Stocks for Growth and Income * 7 Stocks the Insiders Are Buying on Sale * 7 of the Worst Stocks on Wall Street The post Especially Under Current Conditions, Stay Far Away from Hexo Stock appeared first on InvestorPlace.
Like many other companies in the cannabis industry, Hexo (NYSE:HEXO) is facing difficult times. The price of HEXO stock has fallen dramatically. In just four months it has dropped from $8 to $4 a share. Making matters worse, support at the $4 level seems to be breaking.Source: Shutterstock If you are interested in learning more about Hexo or other companies, a good place to start is by reading investor presentations. These are easily found on a company's website under the investor or investor relations section. The presentation will include things such as the company's highlights, strategy and management biographies.You can learn a lot about a company and its industry by reading the presentation. However, it is important to understand is that these presentations are prepared by the company's management for investors -- so they will always present the company in a good light.InvestorPlace - Stock Market News, Stock Advice & Trading TipsWhat is also important to understand, and maybe even more important, is that you can also learn a lot if you consider what is not in the presentation. Hexo's Investor PresentationHexo places a lot of emphasis what the company calls strategically located, large-scale low-cost production facilities. The company believes that the strategic location of these facilities allows it to have competitive electricity and labor costs. The presentation also discusses the company's established retail distribution network in Canada and how it is positioned to take advantage of the growing global market. * 10 Marijuana Stocks to Ride High on the Farm Bill What the investor presentation doesn't say is important as well. There is no mention of the company's earnings or profits. That is because there aren't any. HEXO is losing money. Over the past five years the company has lost about $350 million CAD and most analysts that follow it believe that it will lose money this year as well.Cannabis stocks saw a tremendous rally last year due to the euphoria and unrealistic expectations that lead up to legalization in Canada. Now investors are realizing that it wasn't a rally as much as it was a bubble. Investors are starting to come to terms with the fact that many of these companies are losing money.Despite this, Wall Street remains very bullish on HEXO stock. 14 companies follow it on a research basis. Of these, 10 have "buy" ratings on it, three have it as a "hold," and one has a "sell" rating on it. The average price target is $10.60, which is almost triple the current price. What's Next for Hexo Stock?HEXO stock just broke support at the $4 level. This level was also support at the end of July. There is a good chance that it now becomes a resistance level. If support breaks and the stock goes lower, the people who bought it are now losing money. They tell themselves that if the stock rallies back up to the level, they will sell it so they can get out at break-even. This abundance of stock for sale at the particular level is what creates resistance.If Hexo stock continues to trend lower, there may be support around the $3.10 level. This is because it is where the company's lows were last December.As of this writing, Mark Putrino did not hold any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Tech Industry Dividend Stocks for Growth and Income * 7 Stocks the Insiders Are Buying on Sale * 7 of the Worst Stocks on Wall Street The post Hexo Stock Drops as the Company Continues to Lose Money appeared first on InvestorPlace.
Hexo Corp (NYSE:HEXO) has been trending lower since the end of April 2019, but it's not just Hexo stock, the entire pack of cannabis industry stocks have witnessed sharp correction. in the last few months.Source: Shutterstock When I last wrote on Hexo stock, it was trading at $3.99 and I opined that the stock can bounce back from deeply oversold levels. The stock moved higher by 23.8% to $4.94. However, the rally was followed by a swift correction and the stock is back to $4.0.As I initiate coverage again on HEXO, I am of the opinion that the stock will continue to provide trading opportunities. Long-term investors should, however, stay away from the stock.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThis coverage will elaborate on the factors that serve as negative triggers for long-term investors. Competitors are Relatively More AttractiveIf I had to choose stocks from the cannabis industry for long-term exposure, I would prefer investing in Canopy Growth (NYSE:CGC) or Aurora Cannabis (NYSE:ACB). Of course, these two names have also witnessed a sharp decline in stock price.However, in an industry that is already shaping up to be significantly competitive, Canopy and Aurora are better bets. * 10 Companies Using AI to Grow To elaborate on the reason, selling dry cannabis or cannabis oil is unlikely to be a long-term revenue and free cash flow driver for companies.It is product innovation and wide market reach that will deliver revenue growth traction and free cash flows. To be specific, product innovation would imply deep inroads in medicinal cannabis and value-added recreational cannabis. Just as an example, cannabis drinks that serve as an alternative to alcohol.When it comes to product innovation and regional expansion, Canopy Growth and Aurora Cannabis have an advantage over Hexo Corp.As an example, Aurora Cannabis has 15 production facilities globally with a presence in 25 countries. In addition, the company has been more aggressive in terms of inorganic growth and investment in R&D. The company's medical distribution network is also robust as compared to Hexo.Similarly, Canopy Growth has 90 patents with over 240 patents filed. The company also has operations in 12 countries and the patents indicate the level of R&D investment.The key point is that all these companies are focused on valued-added cannabis products and medicinal cannabis for growth and margin expansion. If long-term exposure has to be considered, Aurora and Canopy are ahead in the race with higher financial muscles. Cash Burn and Equity DilutionIn January 2019, Hexo had issued common shares worth C$57.5 million. With negative operating cash flows, I believe that further dilution of equity is a concern.The first reason is the high investment costs of R&D research. If investments are not robust, Hexo stock can fall behind peers in terms of product launch.The second reason is relatively high level of investment in marketing. There needs to be increasing awareness and visibility of medicinal products and that will require investment.In addition, it is worth noting that companies like Aurora and Canopy have pursued inorganic growth to expand into new regions. The potential acquisition would need financing and that increases the prospects of equity dilution.From the industry perspective, an oversupply of dry cannabis is a concern for Hexo and other players. The oversupply has been swelling and the implication is lower realized price of cannabis and margin compression. This would additionally depress cash flows. Concluding Words on Hexo StockThe Hexo stock price has been on a downward trend with intermediate rallies. The factors of competition, cash burn, an oversupply of cannabis and equity dilution have contributed to the weakness.These factors will continue to impact stock sentiment in the foreseeable future. With relatively strong players in the industry, Hexo Corp is unlikely to be the first preference for a long-term investor. For traders, the stock continues to be attractive.Hexo Corp has a pipeline of products that includes vapes, edibles and beverages. It remains to be seen if sales scale up to a level that translates into a robust EBITDA margin. Until then, markets are likely to remain skeptical.As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Companies Using AI to Grow * The 10 Biggest Winners From Second-Quarter Earnings * 7 Marijuana Penny Stocks to Consider for Those Who Can Handle Risk The post Hexo Stock Is a Good Trade for the Brave but Definitely Not an Investment appeared first on InvestorPlace.
Hexo Corp (NYSE:HEXO) continues to feel the impact of its underwhelming Q3 earnings, a slower than expected recreational cannabis market in Canada, and concern over corporate leadership in the industry. Hexo stock is down 13% from Monday's open, and is now trading right around the $4 mark.Source: Shutterstock This continues a slide that began after HEXO hit an all-time high of $8.28 in April, and worsened after another quarter of red ink and the departure of its co-founder from his executive role. HEXO Underwhelmed in Q3On June 12, HEXO reported Q3 earnings and failed to impress investors. The company missed badly on revenue ($13 million CAD compared to the $14 million analysts were looking for) and the red ink was worse than expected, with a quarterly loss of $7.75 million -- up from a loss of $1.97 million the previous year. The company announced plans to enter the U.S. CDB market through a joint venture with Molson Coors Brewing Co (NYSE:TAP), but that is fast becoming a crowded field and investors weren't overly impressed. Hexo stock dropped over 8% on the results.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 10 Marijuana Stocks That Could See 100% Gains, If Not More HEXO is expected to report Q4 earnings in September. Investor Nervousness Around Cannabis IndustryMany investors piled onto Canadian cannabis stocks over the past year, looking for the legalization of recreational pot in Canada to result in a boom market. The reality has been a little harsh for some.Slower than expected initial sales of recreational pot led to cannabis stocks tumbling in the days after recreational marijuana use was legalized in Canada last October. There were no line-ups at Canadian cannabis retailers and product shortages were reported as a result of glitches in distribution and production. While the situation has improved, recreational pot still isn't exactly flying off the shelves in Canada.Adding to investor unease, 2019 has seen considerable drama among Canadian cannabis companies, and HEXO has not been immune. In January, the CEO of Aphira (NYSE:APHA) left the company amid allegations of improprieties regarding acquisitions in Latin America. On July 10 the CEO and co-founder of Canopy Growth (NYSE:CGC) was forced out of his role, and didn't leave without igniting controversy over his dismissal.Just days later on July 18, HEXO's co-founder stepped down from his role of Chief Brand Officer, although he retained his seat on the board.The most recent headlines were centered around CannTrust Holdings (NYSE:CTST), which became the center of Health Canada and Ontario Securities Commission investigations over illegal cannabis cultivation at one of its facilities. The fallout there has included the firing of the CannTrust Holdings CEO and the forced resignation of the company's co-founder and chairman. The series of leadership shakeups and missteps has certainly not helped cannabis stocks in 2019, although the corporate transitions are expected to put many of these companies in stronger positions for the long term. How Does Hexo Stock Performance Compare to Cannabis Cohorts?Even after this week's 13% drop and a decline in Hexo stock price of around 40% since it reported Q3 earnings in June, HEXO is performing reasonably well on the year compared to its fellow Canadian cannabis stocks. Year-to-date growth is 6.5% for HEXO, while Aurora Cannabis (NYSE:ACB) is up 11% and Aphira has gained over 8%.However the biggest of the Canadian cannabis producers Canopy Growth has lost 13% since the start of the year. CannTrust Holdings -- the company that kicked off the latest round of concern about the industry -- has dropped some 64% so far in 2019. * 7 Retail Stocks to Buy on the Dip The question for HEXO investors is whether the company's Q4 earnings are going to going to be as underwhelming as Q3's were. If so, the Hexo stock price slump that started in April could well continue through the fall. And HEXO doesn't have far to drop before it goes into the red for 2019…As of this writing, Brad Moon did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Retail Stocks to Buy on the Dip * 7 Marijuana Stocks With Critical Levels to Watch * 7 Internet of Things Stocks to Buy Now The post Hexo Stock Continues to Feel the Effects of Cannabis Industry Issues appeared first on InvestorPlace.
When it comes to Canadian cannabis companies, Hexo (NYSE:HEXO) doesn't always get the recognition it deserves. Hexo stock is often seen as the little brother to bigger players like Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CGC). Source: Shutterstock InvestorPlace - Stock Market News, Stock Advice & Trading TipsBut if you're looking to get in at the ground floor with a growing cannabis company, HEXO isn't a bad option. The company's sales have grown by massive amounts over the last 12 months. And the company predicted its revenue will double over the next quarter. Of course, many investors are hesitant given some of the recent uncertainty in the Canadian cannabis industry. Here are three things you need to know before investing in Hexo stock. The Cannabis Industry Is On Unsteady FootingThere's been a lot of volatility in the cannabis industry recently. First, there was the revelation that CannTrust (NYSE:CTST) was illegally growing marijuana in unlicensed rooms. And most recently, Canopy Growth released an abysmal earnings report showing that the company isn't as profitable as many investors believed. All of this has caused marijuana stocks across the board to fall.The cannabis industry is going to be huge, but it's still unclear which companies will be around to cash in on it. At this point, it's impossible to predict which company will fall victim to regulatory issues or plunging sales next. Hexo Stock Isn't Yet ProfitableHexo's most recent earnings report showed that the company achieved huge growth over the past year. In the third quarter of 2018, the company's sales were a mere CAD $1.24 million. This year, that figure came in at CAD $15.9 million.However, like many cannabis companies, Hexo is not yet profitable. The company may have earned more during the third quarter, but it also spent a lot more money. Its total operating expenses came to CAD $24.1 million during the third quarter.And the company is still held back by its production capacity. However, the company did open a 1-million-square-foot greenhouse in April so it will be interesting to see how that impacts the company during its Q4. HEXO Has Long-Term PotentialLooking forward, Hexo stock does have a lot of long-term potential. The company's sales are impressive and it currently holds a 30% market share in Quebec.And Hexo is actively working to improve its production capacity. In March, the company announced it planned to acquire the Toronto-based Newstrike Brands. Once these facilities are fully operational this will give Hexo an additional 470,000 square feet in production space. The company currently makes most of its revenue from recreational and medicinal marijuana sales. But its recent partnership with Molson Coors (NYSE:TAP) sets the stage for Hexo to lead the market in cannabis-infused beverages, once legalized. * 10 Marijuana Stocks That Could See 100% Gains, If Not More My advice with Hexo is to proceed with caution. The fundamentals look promising but there are just too many unknowns going forward. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned stocks. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Marijuana Stocks That Could See 100% Gains, If Not More * 11 Stocks Under $10 to Buy Now * 6 China Stocks to Buy on the Dip The post Will Hexo Stock Be Around for the Long Haul? appeared first on InvestorPlace.
Aurora Cannabis (NYSE:ACB) is continuing to spread its bets across product lines and markets far and wide. With a market cap now standing at $5.9 billion, the Edmonton, Canada-based marijuana stock is the second-largest cannabis company in the sector just behind Canopy Growth (NYSE:CGC) of $9.25 billion.Source: Shutterstock On Monday, Aurora Cannabis announced that it completed its acquisition of Hempco Food and Fiber, a producer of hemp-based fiber and nutritional supplements such as CBD products. The aggressive move into the small but rapidly expanding CBD market will give Aurora a definite leg up into penetrating the U.S. market, where sales are starting to boom.Despite news of the expansion, ACB stock closed down slightly and is now trading at $5.84, well off its 52-week high of $12.52.InvestorPlace - Stock Market News, Stock Advice & Trading TipsCertainly, investors have cooled off to ACB stock since earlier this year with many believing it is still overvalued in comparison to Tilray (NASDAQ:TLRY) or Hexo (NYSE:HEXO). Yet, taking a long-term prospective, ACB may be a solid value play if it gets closer to its 52-week low of $4.58. * 10 Marijuana Stocks That Could See 100% Gains, If Not More Here are three key reasons why ACB is a good long-term play: Aurora Cannabis Has Rock-Bottom Production CostsAurora Cannabis has certainly been on an acquisition binge since it was first founded in 2006. The acquisition of Hempco was just the latest in a string of ACB stock acquiring more production assets, including the takeover last year of CanniMed Therapeutics for $1.1 billion as well as MedReleaf in a $3.2 billion.In fact, since 2016 Aurora has closed on 18 strategic acquisitions across the entire cannabis production value chain. But now, it commands enormous scale, with operations in five continents, 25 countries and 15 global production facilities. By 2020, ACB stock will have put online a production capacity of 625,000 kgs per year. Eventually, Aurora Cannabis estimates that average production costs given their huge economies of scale will fall to be well below $1 per gram. The long-term winners of the pot stock market will likely be those producers who can implement scale in order to minimize production costs. The U.S. CBD Market Is Already Alive and KickingThe most important reason for ACB's acquisition of Hempco may be the U.S. hemp market. After the U.S. legalized hemp last year, various CBD products from hemp are expected to pop up in drug stores from coast to coast.CBD can be found in a wide range of healthcare products, including skin ointment, infused beverages and CBD oil. The U.S. CBD space is heating up, and many major retailers want to get into that market. This month, the grocery chain Kroger (NYSE:KR) announced it would start selling Charlotte Web's (OTCMKTS:CWBHF) hemp products. In fact, Canopy Growth is investing about $150 million in building a hemp industrial park in New York state where CBD is already legalized acquired AgriNextUSA last March specifically to expand hemp production. ACB Stock Owns the Supply Chain and Creates Brand EquityACB may be the leader among marijuana stocks in terms of focusing on the high end of the cannabis market in order to maximize average selling price. Aurora Cannabis stock invests heavily in research and development to create a marketable brand name and valuable intellectual property. Through global expansion, Aurora is is spending to buy its own distribution channels and establish leadership in key international markets. Size and ownership of distribution channels should allow ACB stock to focus on the highest margin products, notably branded medical marijuana.The weeks ahead may certainly see choppy waters for ACB stock. But given its long-term fundamentals, size, scale and investment in brand equity, Aurora Cannabis stock will be a decent long-term value if it gets any cheaper.As of writing, Theodore Kim does not have any position in the above-mentioned stocks. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Marijuana Stocks That Could See 100% Gains, If Not More * 11 Stocks Under $10 to Buy Now * 6 China Stocks to Buy on the Dip The post Aurora Cannabis Doubles Down on U.S. CBD Market appeared first on InvestorPlace.
Ever since it reported quarterly results on June 13, HEXO (NYSE:HEXO) stock continued its downtrend. At a recent price of $4.23, the stock is getting close to falling below the symbolic $1 billion CAD ($750 million) market capitalization. Growing bearishness around cannabis stocks and the uncertainties around the company's growth prospects are hurting HEXO stock. Then, last month, its key brand executive stepped down from the position. What will it take to get investors interested in the company again?Source: Shutterstock On July 18, Hexo's co-founder and chief brand officer, Adam Miron, stepped down from his position. He will retain his seat on the Hexo Board of directors. Miron may have decided to leave the company because of regulator Health Canada slowing the pace of growth in the industry. Excessive regulations and slow decision-making took away the growth momentum for Hexo and the cannabis market in the last year. Sebastien St-Louis, Hexo's co-founder, said just about what you'd expect: "I respect his decision to take on new challenges and focus on his true passion: building."The Hexo stock price is down more than 40% in the past three months, versus the near-25% decline in the cash-heavy exchange-traded fund AdvisorShares Pure Cannabis ETF (NYSEArca:YOLO). Hexo is the fifth-largest equities holding in the marijuana fund's 28 constituents, at 4.72% of the portfolio. YOLO has a ~17% cash position.InvestorPlace - Stock Market News, Stock Advice & Trading Tips New C's in the C-suiteIn its Q3 2019, Hexo added a new COO, Donald Courtney, who has notable experience at Pepsi Bottling Group, Mars, and as head of MedReleaf. Michael Monahan joined the company as its new CFO. His chief responsibility is driving Hexo's global strategy. By expanding outside of the U.S., the company will have less geographic risks and a bigger addressable market. As more countries legalize cannabis, Hexo's addressable market will expand. These additional executive members will lead the 25 PhDs that the company has on staff. * 10 Stocks Under $5 to Buy for Fall Last quarter, Hexo secured around 200,000 kilograms of hemp supply for CBD and non-THC cannabinoid extraction for fiscal 2020. It has a secondary supply agreement of around 60,000 kilograms of hemp that will be supplied in the next two quarters. Hexo is gearing up for upcoming demand in edibles and concentrates, pending legalization in October in Canada. It signed a multi-year extraction agreement with Valens. This will add 30,000 kilograms of output in the first year and 50,000 kilograms of cannabis and hemp biomass in the second year. Collectively, Hexo has a near-term target of having 150,000 kilograms of supply. Greenhouse Helps Double OutputTo date, Hexo sold over 7.5 million grams of adult-use medical cannabis to Canadians. In the last quarter, sales increased 9% to 2,700 adult-use grams and grams equivalent. As its distribution across the Great White North expands, expect sales from this segment growing.Hexo produced ~9.8 tons of dried gram equivalent (9,800 kilograms). Output increased 98% sequentially after yields increased from its 250,000-square-foot B6 greenhouse. It also benefited from the first harvest at its 1-million-square-foot B9 greenhouse.Looking ahead, the company is prepared for the legalization of edibles and concentrates in October 2019. But the big risk here is any Canadian regulatory delays. This would push Hexo's phase two adult-use output into December. To mitigate these risks, the company is developing CBD gummies, a premium vape line, and cannabis-infused beverages in partnership with Truss, its joint venture with Molson Coors Canada that was announced in October 2018. Pricing HeadwindA drop in gross margins is a major risk for Hexo shareholders. Though the company reported a gross margin of 49% on net revenue, it expects price pressures ahead, as CEO St. Louis said on the recent conference call. "We do expect over the next 24 months as there is significant pricing compression that the flower might gradually gross margins towards the 40% level," he told participants. * 10 Undervalued Stocks With Breakout Potential Despite the pricing compression, Hexo expects its introduction of more advanced products will push the gross margin back toward 50%. Hexo Stock Valuation and Your TakeawayHexo will report quarterly results on Sept. 12 after the market closes. Two analysts who cover Hexo stock have a 125% upside target price (per TipRanks). Realistically, number-crunching a fair value on Hexo at this time is difficult (per finbox.io).Forecasting its revenue is difficult without knowing when the Canadian government will finalize the regulations. Hexo forecast FY2020 revenue of over $400 million CAD, which is multiples bigger than its $15.9 million CAD ($63.9 million CAD annualized) reported in the third quarter.Investors are taking a wait and see approach. As stocks like Tilray (NASDAQ:TLRY) or CannTrust (NASDAQ:CTST) fall, investors want more proof that revenue growth is sustainable and profits are achievable. HEXO stock investors need the market warming up to cannabis stocks again. It must also meet its revenue projections to win back investors.Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Marijuana Stocks to Ride High on the Farm Bill * 8 Biotech Stocks to Watch After the Q2 Earnings Season * 7 Unusual, Growth-Oriented REITs to Buy for Your Portfolio The post Why Investors Should Trade Cautiously With Hexo Stock appeared first on InvestorPlace.
Cliff Asness made his name as a PhD in finance, a market theorist, and financial trader before founding AQR Capital Management in 1998. The firm, one of many quant trading hedge funds that grew up in the late 80s and 90s, was successful, weathered the financial crisis of 2008, and today manages assets worth over $225 billion. Asness remains the firm’s Managing Principal.In short, Cliff Asness knows the ins and outs of financial trading. So, when his firm exits a position – completely – it’s worth examining why.This is what happened with AQR’s most 13F, filed with the SEC. The disclosure shows that AQR shed its entire holding in two Canadian cannabis producers, Aurora (ACB) and HEXO (HEXO). Both names are commonly bandied about as major players in Canada’s newly legal cannabis industry, and Aurora is, by production output, Canada’s largest cannabis company. And the AQR positions were substantial; to get out, the company had to dump 7,102,892 shares of ACB worth a total of $64,268,000, and 472,777 shares of HEXO valued at $3,124,000.So, let’s look under the hood, and see just what’s going wrong that Asness jumped ship.Aurora Cannabis (ACB)Aurora presents us with the less clear case. To start with, the company isn’t just Canada’s largest marijuana producer, its output is accelerating. The company beat the production expectations in its last quarter, with nearly 30,000 kilograms of cannabis and derivative products available for sale.So, Aurora has a solid foundation, with plenty of product for sale. Good. What’s not so good is that the company is in the red, and even lowered forward earnings expectations for Q4, from C$111 million to the C$100 to C$107 million range. It was a bitter pill for investors.Adding to the problems, Aurora may simply be overvalued. It has a market cap of US$5.9 billion, but Q3 revenues were just C$65 million and EPS was negative. That is not sustainable for any company.And finally, while high production may be a long-term positive, in the short-term Aurora has to deal with a supply crunch in its domestic market as Health Canada tries to work through a backlog of seller licenses. In that environment, adding more product to the supply chain will simply confuse the market’s pricing signals.Piper Jaffray analyst Michael Lavery sums up the bears’ case on ACB: “Aurora has industry leading production capacity, which can drive near-term revenues, but there is still little visibility around some key industry growth opportunities. Aurora plans to export medical cannabis to European markets, but it cannot do so until it receives EU-GMP certification, which could take time. Its strategy for expansion into both the US CBD and THC markets is still unclear, and the Canadian market faces risk of oversupply, which we estimate is likely in calendar 2020.”In line with those comments, Lavery puts a Hold rating on ACB, although his $7 price target does suggest an upside of 19% from current levels. (To watch Lavery's track record, click here)It appears the voice of the Street backs Lavery's sidelined vantage point on the cannabis maker. Out of 7 analysts polled by TipRanks in the last 3 months, 4 remain sidelined, while 3 are bullish on Aurora stock. (See ACB's price targets and analyst ratings on TipRanks)HEXO Corporation (HEXO)HEXO presents us with a much more straightforward bear case. The stock simply has nothing spectacular about it; it is just another Canadian marijuana company, trying to make a living in a recently legalized, suddenly crowded industry.Like its peers, HEXO has its fingers all segments of Canada’s new cannabis sector: growing/production, sales, and export, for both medical and recreational uses. HEXO management is upbeat about next year’s expected legalization of edibles in Canada, and toward that end is partnering with Molson Coors (TAP) on development of cannabis-infused beverages. It’s a reasonable plan for future expansion, but other, larger cannabis companies are following similar paths. Canopy Growth (CGC) already has Constellation Brands (STZ) as a major stakeholder, and Cronos Group (CRON) has the same relationship with cigarette maker Altria (MO).So where can HEXO differentiate itself? Its EPS has been consistently negative, and the upcoming September report is forecast to show more red ink. The share price peaked in April, has fallen by almost half since, and cannot seem to gain traction above $4. While there is great potential for high profits in the Canadian legal cannabis industry (and longer-term, globally), there is just no indication that HEXO is going to be a big player when the industry matures.These are the factors that Jefferies analyst Ryan Tomkins was getting at, when wrote of his bottom line for HEXO: “Hexo's Q3 results were below expectations on sales, gross margin… QoQ performance was also underwhelming, though this had been partly flagged by management at Q2. Expectations were at an all-time high given previously announced FY20 guidance, and mgmt presenting a number of risks and a cautious tone on the conference call was [not] taken well.”All in all, Tomkins just doesn’t see HEXO as a stock to buy as he rates it 'underperform.' (To watch Tomkins' track record, click here)
Aurora Cannabis (NYSE:ACB) is a Canadian-based marijuana grower. ACB stock trades on the NYSE. Like most other companies in this industry, the company has disappointed share holders. ACB shares have lost about 40% of their value since just this past March. What Aurora Wants You to KnowAurora focuses on nine different Key Performance Metrics to evaluate itself and believes that they illustrate a strong performance.Revenue is the first metric and the company divides it into three segments: Consumer, Medical, and International. All three of these segments saw increases versus the third-quarter of 2018. Consumer was up 37% to $29.6 million and Medical grew 8% to $25.1 million. International revenue was $4 million, an increase of 38%.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe fourth and fifth metrics are the average net selling price per gram and the cash cost to produce a gram. The selling price was down 6% to $6.40, but the cost to produce a gram fell by 26% to $1.42.Gross margin on cannabis net revenue and SG&A costs are the sixth and seventh metrics. Gross margins grew by 1% and SG&A costs were also up by 1%.The company also looks at kilograms produced and the amount of active registered patients. The 15,590 kilograms that were produced is a 99% increase over Q3 2018, and the number of active registered patients grew by 5% to 77,136.59 What You Should Know About ACB StockThis all sounds fine and dandy, but ACB stock has not acted well and it will probably continue to be under pressure in the near-term. I would not own this stock, but if I did, my biggest concern would be the large amount of goodwill and intangible assets that the company claims as part of its valuation.A look at Aurora's most recent balance sheet shows that the company has $729 million in goodwill and $259 of intangible assets. This is $988 million. The total value of the assets of the company is $1,910 billion. That means that goodwill and intangibles are 50% of the valuation. To me, that is a major red flag.Goodwill essentially means the company's reputation. For example, suppose the assets of a company, like the equipment and property, are worth $100 and the company believes that its reputation is worth $20. If someone else was to buy this company they would need to pay $120. The buyer would list the $20 it paid for the company's reputation as a goodwill asset. The problem is that it is really hard, if not impossible, to value a company's reputation and other intangible assets.If management overpays for a company, this overpayment will be considered an asset even though it really isn't one. This value will eventually be lost.The reason why Aurora Cannabis has so much in goodwill and intangible assets is because they have made numerous acquisitions over the past few years. In my opinion, ACB probably overpaid for many of these acquisitions. Because of this I believe that the goodwill and intangible valuations are way too high. Eventually it will need to be revalued, which will in turn make the ACB stock price drop.To put this into perspective, consider that HEXO (NYSE:HEXO) and Tilray (NASDAQ:TLRY), two other large growers, have no goodwill and only a fractional amount of other intangible assets. What's Next for Aurora Cannabis Stock?ACG has been trending lower since hitting resistance at the $7 level two weeks ago. There is resistance at this level because it was supported from March through July. Support levels become resistance levels because after the level is broken, those who bought it are looking at a loss. They tell themselves that is the stock rallied back up to the level they will sell it and get out of the position at breakeven. This supply of the stock is what causes the resistance.If the stock continues to trade lower, it may find support around the $5 level. This is where the lows were in December and January.At the time of this writing Mark Putrino did not hold any positions in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Cheap Dividend Stocks to Load Up On * The 10 Biggest Losers from Q2 Earnings * 5 Dependable Dividend Stocks to Buy The post Aurora Cannabis Shareholders Aren't Happy appeared first on InvestorPlace.
At the end of July, a short seller went after Hexo Corp. (NYSE:HEXO) -- and the market yawned. In fact, the HEXO stock price bottomed the Friday before, gained 9% the day of the report, and even with a pullback is up over 11% since the session before its release.Source: Shutterstock The market's lack of response isn't terribly surprising. Short sellers have had a few high-profile misses of late. In late 2017, Citron Research infamously compared Shopify (NYSE:SHOP) to Herbalife (NYSE:HLF); SHOP stock has tripled since then. * 10 Stocks Under $5 to Buy for Fall Closer to home, in December Quintessential Capital Management alleged self-dealing at fellow cannabis producer Aphria (NYSE:APHA). Quintessential made some good points: Aphria took a C$50 million impairment on acquired assets barely four months later. APHA stock lost half its value after the release, then promptly rose 150% before fading along with other cannabis plays.InvestorPlace - Stock Market News, Stock Advice & Trading TipsSo there are some reasons why investors might see this bear raid, too, as much ado about nothing. And in terms of the most widely-covered allegation, it may be. But the report does highlight some potential risks to HEXO stock -- risks that investors would be wise to at least keep in mind going forward. The Snapchat Risk to Hexo StockThe primary allegation from short seller The Friendly Bear is that Hexo's advertising on Snap (NYSE:SNAP) platform Snapchat could violate Health Canada regulations. The Friendly Bear compared Hexo to CannTrust Holdings (NYSE:CTST), whose stock plunged after illegal grow rooms put its production license at risk.The argument is intriguing, if a little thin. Health Canada regulations prohibit advertising of any kind to minors (those under 18, the federal minimum age for cannabis purchase in the country, though most provinces set the age at 19). Snapchat, of course, sees heavy usage among teenagers.But, as The Friendly Bear points out, the regulator also forbids advertising that associates the brand with "glamour, recreation, excitement, vitality, risk or daring." An ad captioned "A Fresh Spark" may well fit that bill. Both issues are amplified by the fact that Health Canada, in March, emphasized both the promotional nature of some online advertising and pointed to concerns about social media ads being seen by customers who were not of age.In a statement to Bloomberg, Hexo refuted the report. It noted that it doesn't run campaigns in its home province of Quebec, where regulations are more stringent. And it said its agreement with Snapchat ensures ads reach only adults.That response seems to have satisfied investors. And perhaps with good reason. The regulations are stringent, and perhaps somewhat vague. Even if Health Canada determined that the ads were in violation, one imagines Hexo would be able to pull or revise its advertising. Comparing Hexo to CannTrust, in particular, seems like a potential bridge too far. Two More Risks to the HEXO Stock PriceThat said, the report also contained two other intriguing facts that didn't seem to gain as much attention. First, the author highlighted a potential risk to Hexo's relative dominance in Quebec. The company owns about 30% share in that key market, thanks to a first mover advantage and its physical presence in the province.An agreement with the province ensures guaranteed purchases of 20,000 kilograms in year one, per a Hexo press release from last year. But it's not clear that the guaranteed extends beyond year one, with Hexo itself writing at the time that the agreement was "expected to supply" increased amounts going forward. With competition increasing, the expected growth in demand may not materialize.The second source of potential pressure comes from a recent regulatory measure. Quebec already has banned the sale of candies, in an effort to protect minors. Federal regulations on edibles appear to be much the same, ahead of the expected launch of those products near the end of this year.That's a potential issue for Hexo in Quebec and beyond. After all, Hexo itself is focused on becoming, as it terms it, "the premier branded 'ingredients for food' cannabis company." If regulations compress the edible market, Hexo, more than other cannabis plays, would suffer. Patience May Be Wise With HEXO StockNone of this is to say that investors should have sent the HEXO stock price tumbling -- or that Hexo stock is a short. I wrote last month that HEXO would be an intriguing buy at some point. The stock has returned to similar levels, but I'm still somewhat loath to rush in.The focus on edibles is wise for a smaller producer -- but that catalyst remains likely six months away. Cannabis stocks continue to struggle, with even Aphria's blowout earnings report not enough to spark a sector-wide rally.And Hexo Corp. doesn't have a lot of room for error. It remains reliant on Quebec. It will remain reliant on edibles going forward. If either of those two markets is smaller than hoped, Hexo's growth slows. And a market cap still over $1 billion (including the effect of warrants) may well come down. The HEXO stock price may be cheaper, but that's not the same as it being cheap.As of this writing, Vince Martin has no positions in any securities mentioned. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Cheap Dividend Stocks to Load Up On * The 10 Biggest Losers from Q2 Earnings * 5 Dependable Dividend Stocks to Buy The post Social Ads Not the Only Risk to HEXO Stock appeared first on InvestorPlace.
Among marijuana equities, Hexo (NYSE:HEXO) stock continues to gain increased attention. An alliance with Molson Coors (NYSE:TAP) and a solid base of business in its home province of Quebec have bolstered its business. Also, it looks poised to establish another niche once Canada legalizes cannabis-infused beverages.Source: Shutterstock However, departures in top management and a possible violation of advertising regulations have hurt the company. Moreover, the overall industry has suffered as supply has increased and more investors have questioned inflated valuations.Hence, for the Hexo stock price to rise, investors need both a solid floor and a catalyst.InvestorPlace - Stock Market News, Stock Advice & Trading Tips HEXO Is Outside of the Top Tier, But CompellingOver the last year, it has become clear that Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), Cronos Group (NASDAQ:CRON), and Tilray (NASDAQ:TLRY) have emerged as the market leaders in Canadian marijuana. However, many investors missed the run-up in these stocks and have sought a leader among the alternatives.Some see that as Hexo stock, but that strategy faces some challenges. Our own Luke Lango does not think Hexo will survive an inevitable industry shakeout. His prediction could easily come true. I also agree that most of the smaller marijuana stocks will disappear. * 10 Cheap Dividend Stocks to Load Up On However, investors can make money in such stocks. Strangely, my best returns in trading marijuana stocks came from charting the moves in the beleaguered CannTrust (NYSE:CTST). My caution in making sure a floor truly is a floor saved me from getting back in as their scandal came to light. Has Hexo Stock Bottomed?Still, Hexo stock may have established such a bottom. In a recent article, I told investors to stay away until "it found a floor," not fully realizing at the time that it might have bottomed in the $4 per share range. InvestorPlace contributor Mark Putrino outlines how HEXO stock has built support at that level. Since finding this bottom, HEXO has risen slightly to the $4.40 per share level.HEXO has now become my favorite among the aforementioned "other" marijuana stocks. Yes, they may have pushed the envelope by advertising on Snap's (NYSE:SNAP) platform. Also, departures in the C-suite have made some investors nervous. However, I like that it holds a 30% market share in Quebec, the province that is home to 20% of Canada's population.In this market, the catalyst that could boost the Hexo stock price has not yet become apparent. However, it has built a partnership with Molson Coors that could eventually bolster the stock.This alliance offers two key benefits. It could help to make Hexo a leader among cannabis-infused beverages once Canada legalizes those drinks. It also gives HEXO a segue into the U.S. This will offer benefits as both individual states and the federal government loosen restrictions. Should I Buy Shares?To profit from Hexo stock, investors need both a floor and a catalyst. For one, investors must become convinced that the floor truly is a floor. Nobody on the outside can credibly rule out a CannTrust-like scandal in any marijuana stock. However, barring that uncommon scenario, HEXO appears to have established that support at the $4 per share level.I should add that I also see the bottom holding in case more multiple compression occurs. For next year, analysts estimate that revenues will range between 185.7 million CAD ($139.8 million) and 398.3 million CAD ($299.9 million). This would mean a price-to-sales ratio of between 3.7 and 7.8 at the current $4.40 per-share price. That appears high by S&P 500 standards but comes in well under most marijuana stocks.I also think one problem with Hexo stock involves an industry factor outside of the company's control. After a shortage last fall, Canada now finds itself in a supply glut for dried flower. This challenges both Hexo and its peers to find a way to increase demand. That "way" could come later this year with cannabis-infused drinks.Some believe Hexo stock will not survive an industry shakeout. However, I think both the Molson Coors alliance and the market share in Quebec almost ensure such a scenario happens through a buyout instead of a bankruptcy. This gives investors yet another reason to look at HEXO.As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Cheap Dividend Stocks to Load Up On * The 10 Biggest Losers from Q2 Earnings * 5 Dependable Dividend Stocks to Buy The post Hexo Stock Needs Just Two Things to Move Higher appeared first on InvestorPlace.
The recent market drop has certainly been brutal and quite broad. But then again, this bear move is opening up interesting opportunities.Just look at the cannabis space. In fact, the downturn of marijuana stocks preceded the recent decline of the overall markets, as various public cannabis companies had a tough time meeting investors' lofty expectations.In yesterday's trading, Canopy Growth (NYSE:CGC) was, at one point, off 10.5% to $28.60 (the stock was over $50 a few months ago). That was after the stock had dropped 6.6% the day before. And on Wednesday, Tilray (NASDAQ:TLRY) dove 15%.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe declines were kind of scary. But when it comes to investing, going against the grain can mean getting strong returns.One marijuana stock that should get attention is Hexo (NYSE:HEXO). Since late April, Hexo stock price has gone from $8.30 to $4.47.But HEXO has a number of positive characteristics. First of all, HEXO has gotten validation from Molson Coors (NYSE:TAP), which has formed a partnership with the cannabis company. The focus of the deal is developing a line of cannabis-infused beverages that will hit the market on Dec. 16th ( when such drinks will be legalized in Canada).All in all, the deal should provide Hexo stock with a nice catalyst. TAP will leverage its extensive marketing and logistical capabilities on behalf of HEXO's products. TAP's creative skills should help HEXO develop compelling products. The partnership really does look like a win-win.This is what the CEO of Molson Coors of Canada, Frederic Landtmeters, had to say about the deal: "We look forward to partnering with HEXO, a recognized leader in the medical cannabis space in Canada that will bring robust production capacity, a track record of innovation, and, most importantly, shared values when it comes to doing business the right way and earning the trust of consumers."But ultimately this is about more than just Canada. Because of the U.S. Farm bill, Hexo will be able to launch CBD-based drinks in eight states next year. Key AdvantagesThe TAP deal illustrates a main benefit of HEXO: the company's high production output. Note that it has about 30% of the Quebec market.Another critical factor is that HEXO acquired Newstrike Brands Ltd for $197 million. As a result of the deal, Hexo boosted its annual capacity by about 150,000 kilograms.Now it's true that Hexo stock is not without its issues. The company's last earnings report was a major disappointment. It revenue came in at 13.02 million CAD, representing a quarter-over-quarter drop of about 9%. while the Street was looking for $14.8 million.But the cannabis industry is still in the early stages, so choppy results are normal. Then again, the industry's fundamentals remain bright. That is why companies like TAP, Altria (NYSE:MO) and Constellation Brands (NYSE:STZ) have invested billions in the category. The Bottom Line on Hexo StockWhen it comes to the cannabis space, I think the key is to focus on the dominant players. Size will certainly be essential, given the competitive environment. And HEXO looks well-positioned to perform well over the long-haul.Yet the volatility of Hexo stock price will likely remain high. That is why it's a good idea to take moderate positions - or dollar-cost average - to help mute the wide swings of HEXO stock.Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Cheap Dividend Stocks to Load Up On * The 10 Biggest Losers from Q2 Earnings * 5 Dependable Dividend Stocks to Buy The post Is Hexo Stock a Falling Knife Or Has It Reached a Good Entry Point? appeared first on InvestorPlace.
Hexo Corp (NYSE:HEXO) is another one of the many publicly traded Canadian cannabis stocks losing money. But it is desperately trying to create a brand name for its products in Canada and overseas and turn around its financial situation.Source: Shutterstock As you might suspect, Hexo stock is very speculative. It sports a $1.1 billion USD market value but has never made a profit.Its stated goal is to reach $400 million CAD in profit by the end of the year. Even with its recent Newstrike acquisition, which is also bleeding losses and has very little revenue, that does not seem very likely.InvestorPlace - Stock Market News, Stock Advice & Trading TipsCould that change? Let's look at this more closely. Heavy Losses Being Racked UpHEXO recently reported losses of C$24.9 million ($18.7 million USD) on net revenues of $31.9 million CAD ($23.9 million USD) for the 9 months ending April 30, 2019. That means that its losses represented 78% of revenue. * 10 Cheap Dividend Stocks to Load Up On HEXO lowered net income losses to 59% of sales in the April quarter. But cash flows were still $44 million ($33 million USD) in the red for the 9 months ending April. Hexo's Acquisition of Loss-Making NewstrikeHexo closed an all-stock deal to purchase of Newstrike Brands for its shares valued at $263 million CAD in May, after its third quarter ending April 30. This deal will start producing consolidated revenue for two months of its Q4 ending July. Hexo said at the time that with Newstrike it can now reach $400 million by end of July 2020.That seems almost incredible. Newstrike produced revenue of just $8 million in 2018 and had no revenue in 2017, according to Sedar, the Canadian version of US S.E.C. Edgar database. Newstrike had losses of CAD$ 20.2 million in 2018 and CAD$14 million in 2017.Combining Newstrike's $8 million sales with Hexo's estimated $45 million or so expected sales for the year ending July 2019 would only give the two a combined run rate of $53 million annually. This does not get HEXO close to its stated $400 million target for the year ending July 2020. Burn Rates Rise TogetherThe deal was very expensive for Hexo shareholders for two reasons. First, the combined cash bleeding cannabis firms will produce cash flow losses totaling at least $99 million CAD, including Newstrike's annual cash flow losses. For example, HEXO had negative cash flow of $44 million for its first 9 months and likely had another $15 million in cash flow losses in for its Q4 to July.Newstrike had $39 million CAD in cash flow losses for all of 2018, before it raised $141 million in cash to stem those losses. So the two together will burn $99 million of their combined cash balances unless their sales and cash flow turn around.Secondly, Newstrike shareholders ended up with 14.4% of the combined 246 million shares before outstanding options. At HEXO's price today of $4.48, the total market value of both companies is now $1.1 billion USD ($1.467 billion CAD). That means that Hexo paid $158 million USD ($211 million CAD) (14.4% x $1.467 billion CAD) for a company with only $8 million CAD in revenue that bleeds $39 million in cash flow.That's 26x revenue and 5.4x negative cash flow. How Far Can Hexo's Cash Go?Newstrike came with cash and securities. Newstrike had $106 million CAD in net cash and securities as of the end of December 2018. It likely has burnt through another $20 million as of July, considering its $40 million burn rate last year. (Newstrike never announced its March financials so it's not clear how much more losses HEXO has had to absorb.) That leaves $86 million.HEXO had $189 million CAD in cash and securities and $34 million in debt, leaving it with net liquidity of $155 million as of April. But as pointed out above, HEXO has likely burned through another $15 million in its Q4, so its net liquidity is likely about $140 million as of July. Combined the two have about $226 million as of the end of July.We pointed out above that the annual burn rate is at least $99 million, unless their sales and cash flow turn around. That means the combined $226 million in net cash and securities could only last two years unless its sales and cash flow turn around.HEXO has been selling new equity shares to finance its losses. In January, HEXO sold $57.7 million ($43.2 million USD) in HEXO stock at a price of $6.50 per share ($4.875 USD) to finance its losses. It also borrowed $33.7 million ($25.3 million USD). The U.S. stock price is now $4.48, down 8% from the secondary offering price. Investors' Appetite for Share Sales May Be WaningThis kind of cash flow drain for the two companies together is unsustainable for longer than a year or so.In HEXO's case, as with many of the marijuana stocks in Canada, there is not sufficient light on a path to cash flow profitability. Combining two loss making companies, despite all their synergies and prospects together, might not stem those losses quick enough.After one more year of $100 million CAD losses, investors in new equity raises by HEXO would want to see a clear path to cash flow profitability. A Non-Virtuous CircleHere is how that works: If the market suspects that the company is running out of money, as it will with one more year of losses (i.e. considering the $99 million CAD cash flow drain), HEXO's credibility will wane with investors. The equity price for the capital raise will likely be significantly below today's level without that clear path to profitability.That is probably why management started saying they expect to reach $400 million in sales, without a clear explanation of how it would be done in its presentation during the announcement of the Newstrike deal in March.By running large cash flow losses, HEXO runs the risk of a falling into a non-virtuous circle where it becomes very difficult to raise capital. What will happen is that within a year or so with continuing cash losses, the market will anticipate the company's need to raise capital.It will want the equity raise price to be lower to be able to price future potential cash flow drains with the new capital. This then becomes a non-virtuous circle of falling price because of an expected lower price needed for a capital raise. What Should You Do?Hexo and Newstrike have a lot of plans together to increase sales and produce synergies. But they will have to work hard to make sure not to burn through much of their cash balances over the next year. Otherwise they will have to raise equity at lower prices than today, diluting their shareholders even further.Defensive investors should look to see what management says in their reports for the July quarter. How much cash do they have, and debt? What is their plan to get to $400 million CAD in sales by July 2020, when right now their combined run rate of revenue is only about $50 million to $55 million?How will they stem an estimated $100 million in cash flow burn? In fact, will the burn rate rise as Hexo uses up its cash balances to pay for capex and other investments needed to get its infrastructure to $400 million in sales? * 7 Stocks to Buy With Great Charts All of this means shareholders should wait before buying HEXO stock before the July earnings and management's predictions about the combined company. Hexo has not revealed yet when it will announce those earnings.As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 15 Growth Stocks to Buy for the Long Haul * 5 More Cloud Stocks With Plenty of Potential * 5 Clean Energy ETFs to Buy for 2019 The post Hexoas Burn Rate Is Dangerously High appeared first on InvestorPlace.
There's no way to possibly buy every pot stock on the market; there are just too many of them to choose from. Therefore, you'll need to narrow your focus, and Canada is truly the epicenter of activity when it comes to legalized cannabis. While everyone else is focusing on well-known brands like Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB), I believe that Hexo (NYSE:HEXO) stock is a terrific way to build a position in Canadian cannabis.Source: Shutterstock Of course, not everybody agrees with me on this point -- what else is new? Critics are quick to point out that Hexo has run into a bit of potential controversy recently, which I will address momentarily. * 15 Growth Stocks to Buy for the Long Haul In any case, I'm always open to debate and never afraid of controversy, so let's open up this big can of worms and talk about exactly why I'm leaning bullish on Hexo stock.InvestorPlace - Stock Market News, Stock Advice & Trading Tips Big Cannabis Meets Big BeerEver since the U.S. government eased restrictions on hemp with the passage of the Farm Bill in December, I knew that large corporations would want to plant their flags in the cannabis market. Molson Coors (NYSE:TAP) was quick to move into the legalized cannabis space with a joint venture to sell pot-enhanced beverages with none other than -- you guessed it -- Hexo Corp.Interestingly, although Molson Coors is known as a beer manufacturer, the cannabis-infused beverages reportedly won't contain alcohol. I actually view this as a smart move, as the cannabis crowd and the beer crowd aren't necessarily the same people (though I'm sure there's some overlap there). In any case, the joint venture will be called Truss and these drinks are slated to begin selling on Dec. 16 of this year (the day when it's legal to consume these beverages in Canada, assuming regulators don't create any delays).Jay McMillan, the vice president of strategic development at Hexo, believes that the company is fully prepared for the Truss product launch:We'll have a very large supply so we'll be in a good position to be able to meet the demand of the marketplace and at the same time also ensure that we're meeting the variety that the marketplace wants.Mr. McMillan also said that Truss is looking into rolling out a CBD-enhanced drink in eight U.S. states by the year 2020. I feel that these products are the future of cannabis and will bolster the Hexo stock price in the long term; even if the naysayers can't see it now, they'll jump on the bandwagon after the HEXO share price is much higher than it is today. Don't Let the Controversy Stop You from Owning HEXO StockAmazingly, HEXO controls around 30% of the cannabis market in Quebec, a region which is projected to represent 20% or so of the Canadian market for marijuana. Of course, Hexo's partnership with Molson Coors could provide access to markets far beyond Quebec, so it's hard for me to imagine what the critics and short-sellers think will to happen to the HEXO stock price in the long term.Perhaps they're bearish because Hexo has run ads on Snap (NYSE:SNAP)'s Snapchat app. The ads contained cannabis-related content, thereby potentially running afoul of Health Canada's advertising guidelines. However, as Megan Henderson, the director of marketing and business development for HelloMD points out, there's a lot of gray area in Health Canada's guidelines.Hexo's Snapchat ads aren't any more controversial than similar ads run by Canopy Growth or Aphria (NYSE:APHA). Henderson feels that Health Canada isn't likely to mete out any severe punishment to Hexo (or Snap for that matter), and I tend to concur with that stance on the matter. The Takeaway on Hexo StockBring on the controversy, I say -- as well as the CBD-enhanced beverage revenues, as Hexo stock is a rock-solid entry point into the fascinating world of legalized Canadian cannabis.As of this writing, David Moadel did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 15 Growth Stocks to Buy for the Long Haul * 5 More Cloud Stocks With Plenty of Potential * 5 Clean Energy ETFs to Buy for 2019 The post Stake Your Claim in Canadian Cannabis with Hexo Stock appeared first on InvestorPlace.