4.1400 +0.01 (0.24%)
After hours: 6:07PM EDT
|Bid||4.1400 x 2900|
|Ask||4.1400 x 900|
|Day's Range||4.1000 - 4.2700|
|52 Week Range||3.7300 - 8.4000|
|Beta (3Y Monthly)||4.74|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||N/A|
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.
[Editor's note: This story will be updated each week with new stocks and analysis. Please check back often for Mark's latest take on marijuana stocks.]I heard someone say recently that technical analysis of marijuana stocks is like reading tea leaves. It is unfortunate that technical analysis has such a bad reputation, but I can totally understand why it does.The vast majority of technical analysts that I see seem to look at charts and mindlessly identify patterns without understanding what they are supposed to mean. Even worse, some analysts are proponents of bizarre methods like Elliot Waves and Gann theory. These techniques are like the Loch Ness Sea Monster, Bigfoot and UFOs. They may be fun to talk about, but they are not real.InvestorPlace - Stock Market News, Stock Advice & Trading TipsIn financial markets, there are certain levels that are more important than others with regards to the amount of supply and demand that exists at them. In addition, in financial markets prices are always doing one of three things. They are either going up, going down, or staying the same. When understood and applied correctly, technical analysis should be an illustration of these dynamics. * 15 Growth Stocks to Buy for the Long Haul Knowing where the important levels and trends are can help you profit. For example, suppose you want to buy a stock if it drops to $20. If there is support at the $21 level, the stock may never get to $20. It may get to $21 and rally. You would have missed out on a large profit because you didn't understand that the market dynamics made the stock getting to $20 unlikely. Marijuana Stocks: Aurora Cannabis (ACB)Aurora Cannabis (NYSE:ACB) is a Canadian-based company that grows are sells medical marijuana, indoor cultivation systems and hemp-related food products.ACB stock has been in a small downtrend since running into resistance at the $7 level. I would expect this level to continue to be resistance in the short term.There is resistance at the $7 level because it was a support level in February, May, and June. How does this happen? How does a support level become a resistance level? Few people consider this but I think that it is an amazing phenomenon. It is really a picture of mass psychology.Those who bought ACB at $7 were feeling pretty good when it went higher. But then when the stock broke that level, they were looking at a loss. They tell themselves that if it rallies back to $7 they will sell it and get out so they can break even.They shorts are happy that the stock went lower because they are looking at a profit. They tell themselves that if the stock gets back to $7, they will short more and add to their positions. Added to this are professional traders seeking to profit off of a clear level.You can see that there are now three different groups that are interested in selling stock at the $7 level. This supply creates resistance. Aphria (APHA) Aphria (NYSE:APHA) grows and sells cannabis.About a month ago, I pointed out that if the $6.30 level broke, this stock would probably trend lower. After the company reported earnings and rebounded, someone sent me a nasty email telling me I have no clue about Aphria.I must admit, I had to laugh. The stock lost 20% of its value in the two weeks after I talked about it. If this person could identify stocks that were about to move by 20% in two weeks I would most certainly subscribe to his or her newsletter. If I had a short position, I would have covered it the day before the earnings release. I never hold short positions going into an earnings releases because it is too risky.After the rally, APHA stock hit resistance at the $7.50 level. This level was also resistance in May and June. It will probably continue to be so in the near-term. * 7 Safe Dividend Stocks for Investors to Buy Right Now There is support at the $6.30 level. This level was support from May through July. It will probably continue to be support in the near-term. Cronos Group (CRON)Cronos Group (NASDAQ:CRON) grows and sell marijuana.You don't need to be a Market Guru to see that the $14 level is important for CRON stock. It was resistance in September and December of 2018. Then it became support from May through July before breaking and becoming resistance again over the past month.How does a resistance level become a support level? Those who sold it at the level believe that they have made a mistake when the stock trades higher. They tell themselves that if it falls back to the level, they will buy it back. This demand for stock at the level is what creates support.On Aug. 8, Cronos reported earnings, and the action in the stock was very weak. It opened around $15.50, which was the day's high. It sold off over the course of the day and closed near its lows. This is probably a bearish dynamic and it could be the start of a new downtrend. Canopy Growth (CGC)Canopy Growth (NYSE:CGC) grows and sells marijuana.CGC stock may have broken its recent downtrend. This means that the forces of demand may be equalizing with or about to overcome the forces of supply.In financial markets, prices are always doing one of three things. They either are rising, falling or staying the same. When prices are going up the forces of demand are in control of the market. When prices are falling the forces of supply are in control. When prices are staying the same the forces are equal.The break of a properly drawn trendline means that the leadership may be about to change. It takes some practice, but if you understand what trendlines illustrate you can profit. * 7 Stocks Under $7 to Invest in Now CGC has broken the downtrend that began in July. This could be a sign that it may rally as the demand forces take over. At the very least, it is an indication that it has stopped declining. Hexo (HEXO)Hexo (NYSE:HEXO) grows and sells medical marijuana.From April through August, HEXO stock lost about 50% of its value. Then it became oversold and found support at the $4 level. It has recovered nicely since then. The most recent close was $4.94.This stock illustrates an important dynamic about trading. When markets get to important support and are oversold, they tend to rebound and rally. This was the case here.When they get to important support and are not oversold they tend to spend time consolidating before breaking the level and trending lower.What does oversold mean? It is a measurement of momentum. It is where the current price is versus where it was X many days ago. When it reaches extreme readings to the downside it is considered oversold.That was the case here. HEXO was extremely oversold when it reached the $4 level in July. KushCo Holdings (KSHB)KushCo Holdings (OTCMKTS:KSHB) produces and sells packaging materials for companies in the cannabis industry.KSHB stock is testing support around the $4.30 level. This level was support in June and again in late July. On each occasion a large rally followed.If you are tempted to buy this stock, you may want to wait to see if the level holds. A potential strategy is to wait until the downtrend line breaks before buying it. This could be a signal that the forces of demand are about to equalize with or overcome the forces of supply. * 8 Dividend Aristocrat Stocks to Buy Now No Matter What While you won't get the exact low price, this will decrease the chances of buying it and getting run over if the stock continues to trend lower. Scotts Miracle-Gro (SMG)Among other things, Scotts Miracle-Gro (NYSE:SMG) manufactures and sells equipment and accessories for hydroponic growing.Over the past two weeks, SMG has been testing resistance around the $110 level. There is resistance around these levels because it is where the top was in late December 2017 and January of 2018.This is a good example of how markets have memories. Certain levels can be important for years, and sometimes even decades.After failing at the resistance, the stock traded all the way down to $57 in December of 2018 before recovering and rallying all the way back to current levels.If you are bearish on the long-term prospects of this company and are considering selling SMG stock, this would be a logical place to do so.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 * 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 7 Marijuana Stocks With Critical Levels to Watch 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.
Consumer packaged goods cannabis company Hexo Corp (NYSE: HEXO) announced Wednesday its dried flower cannabis products can now be purchased by consumers in Ontario. Hexo reached an agreement with Ontario's government to sell its products at the Ontario Cannabis Store. Consumers can purchase nine of its dried flower offerings in 3.5g and 15g SKUs, including the Helios dried flower which won Best Sativa at the O'Cannabiz 2019 Industry Awards.
Award-winning Helios dried flower now available to Ontarians GATINEAU, Quebec, Aug. 14, 2019 -- HEXO Corp (“HEXO” or the “Company”) (TSX: HEXO; NYSE: HEXO) is pleased to.
About a month ago, I wrote my first piece on newly public Canadian cannabis producer HEXO (NYSE:HEXO). I wrote that HEXO stock is interesting because the company is in the cannabis market, which is a non-cyclical growth sector. But I contended that HEXO stock wasn't compelling because HEXO had not yet proven that it was a good company.So I simply recommended that investors monitor HEXO stock but refrain from buying it. * 7 Safe Dividend Stocks for Investors to Buy Right Now Ever since my initial column was published, HEXO stock price has been exceptionally volatile. First, it dropped from $5 to $4 in just over a week. Then, it showed strong support at $4, and subsequently rebounded to $4.75.InvestorPlace - Stock Market News, Stock Advice & Trading TipsNow I'm doubling down on my initial thesis. There are a lot of marijuana stocks out there. Most of them won't make it. Probabilities and fundamentals suggest that HEXO will be one of the companies that won't survive. Until that changes, long-term investors should stay away from HEXO stock. HEXO Is a Fine CompanyAt its core, HEXO is a fine company in a really good sector.For all intents and purposes, HEXO looks just like many other Canadian cannabis companies. HEXO grows, distributes, and sells medical and recreational cannabis, mostly in Canada, although it also exports cannabis to many other countries. The company, which has ample growing capacity, is focused on lowering its production costs and is excited about the upcoming legalization of cannabis vapes and edibles in Canada in late 2019.HEXO also has a unique partnership with Molson Coors (NYSE:TAP) which focuses on creating cannabis-infused, non-alcoholic beverages.All in all, HEXO is very similar to Tilray (NASDAQ:TLRY), Cronos (NASDAQ:CRON). Aphria (NYSE:APHA), and most of the other cannabis producers.But that's not a bad thing. All of these companies are competing for the global cannabis crown, which will one day be worth a ton. The global tobacco and alcoholic beverage markets each generate several hundred billion dollars of revenue annually and support several companies with annual top lines of $50 billion-plus.The cannabis industry will one day reach a similar size, and, like the alcohol and tobacco sectors, it will eventually support several $50 billion-plus companies. HEXO could be one of those companies some day, but that scenario probably won't materialize. The Long Term Outlook of HEXO Stock Is UncertainThe reality is that there are a lot of cannabis companies today, and, as I mentioned earlier, most of them won't survive. As the market matures, it will consolidate around a few large players, as the global tobacco and alcoholic beverage markets did. After this consolidation occurs, a few marijuana stocks will be big winners, and the rest of the names will fall by the wayside.The internet industry went through a similar process. Marijuana stocks in 2019 feel very similar to dot-com stocks back in 1999. Today, everyone is convinced that cannabis will become the next big thing, just as everyone was convinced back in 1999 that the internet was going to become the next big thing.The masses were right back in 1999, since today the internet is everywhere. But, between 1999 and 2019, a lot of dot-com stocks disappeared. Only a few titans, like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG), became winners over the long-term.In other words, back in 1999, there were a lot of dot-com stocks. Most of them didn't make it to 2019. Only a few did. The few that did turned into huge winners. But an equally-weighted portfolio of dot com stocks assembled back in 1999 would've produced awful returns.Thus, when picking pot stocks in 2019, it's important to be selective. Don't expect every cannabis company to become a winner over the long-term. Most of them will be losers over the long-term.As a result, it's probably a good idea to only invest in cannabis companies that actually differentiate themselves by obtaining a large investment - see Canopy Growth (NYSE:CGC) - or with huge volumes and growth over the long-term, like Aurora (NYSE:ACB).Right now, HEXO has not yet meaningfully differentiated itself from the pack. This lack of differentiation is a reason to avoid HEXO stock for the foreseeable future. The Bottom Line on HEXO StockAt the risk of sounding like a broken record, I'll reiterate my thesis on HEXO stock.There are a lot of marijuana stocks out there. Most of them won't make it. So probabilities suggest that if you pick a random marijuana stock out of a hat, that marijuana stock won't produce good returns over the next decade. Because of that dynamic, investors have to be selective when picking pot stocks in 2019.In other words, they should only pick marijuana stocks of companies that have meaningfully differentiated themselves. HEXO has not done that. Consequently, investors should stay away from HEXO stock until the company finds a way to meaningfully differentiate itself.As of this writing, Luke Lango was long AMZN, GOOG, CGC, and ACB. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Real Estate Investments to Ride Out the Current Storm * 7 Marijuana Penny Stocks to Consider for Those Who Can Handle Risk * 7 Safe Dividend Stocks for Investors to Buy Right Now The post Why HEXO Stock Still Isn't a Compelling Investment appeared first on InvestorPlace.
Hexo Corp. (NYSE:HEXO) grows, produces and distributes medicinal marijuana. The company is based in Canada, and HEXO stock recently made the leap to the NYSE.Source: Shutterstock Hexo stock has been one of the big names discussed in the marijuana stocks space, but before you decide whether or not to invest, read on. What HEXO Wants You to KnowA good way to find out about a company is to read its investor presentation. Normally this can be easily found on a company's investor relations page. The following are some highlights from HEXO's presentation.InvestorPlace - Stock Market News, Stock Advice & Trading TipsHexo has three overall strategic priorities. First is operational scalability. This means that management will make sure the internal operations will be able to support the rapid growth that they expect the company to make.The second priority is product innovation. The company prides itself on being an innovative market leader, and it is committed to stay in this position. * 7 Stocks Under $7 to Invest in Now Third is its brand leadership. The company believes its strengths are having an established retail distribution in Canada, its focus on partnerships, its ability to grow at a lower cost than its competitors, and its experienced management. What You Should KnowInvestor presentations can give valuable insights, but you have to be somewhat skeptical. Remember that this is a presentation that management put together for investors. It goes without saying that they are always going to show the company in a good light. Along that line, if a company was increasing profits you can bet that this fact would be on one of the first pages of the presentation. Such is not the case with HEXO.HEXO is losing a lot of money and it doesn't appear that this will change anytime soon. In 2017 the annual loss was almost $12.5 million. The $23.5 million loss reported in 2018 was almost twice as much. Analysts predict this years losses will be similar.HEXO and other marijuana companies will face some challenges over the next few years. This industry is in a consolidation stage and I believe that many of the larger growers will not survive. This is how industries that boom quickly have historically evolved.Within a few years of cars being invented, there were about 200 companies that made them. Then there were the Big 3. Similar dynamics happened after the birth of the airline industry, the radio industry, and many others. What's Next for HEXO Stock?Like most other marijuana stocks, the price of HEXO stock has trended lower. From July 19 through July 26, it dropped 20%, from $5 to $4.At that point it became oversold and found support at the $4 level. Since then it has traded in a range between $4 and $4.40 and it isn't oversold now. If you want to buy this stock this would be a logical place to do so because it has held these levels for two weeks.Another possible buy strategy would be to wait until it breaks out of the top of the range. The idea behind this is that once it trades above this level, it will be in an uptrend. Buy it on the way up. This may sound counter intuitive because you won't get the lowest price, but the risk-to-reward ratio could be better.As of this writing, Mark Putrino did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Large-Cap Stocks to Sell Right Now * 7 Stocks Under $7 to Invest in Now * 7 Marijuana Stocks With Critical Levels to Watch The post If You Like Hexo stock, This May Be A Good Time To Buy It appeared first on InvestorPlace.
The cannabis industry continues to deliver storylines, both negative and positive, that leave investors scratching their heads about which pot stocks to buy. One recent story has shined a light on Hexo (NYSE:HEXO), which could end up hurting Hexo stock holders. Source: Shutterstock Hexo, the largest company by market share in Quebec, Canada's second-largest province by population, is facing additional scrutiny after The Friendly Bear, a short-seller research firm released a report July 29 suggesting it was using aggressive promotion tactics on Snap Inc's (NYSE:SNAP) Snapchat in violation of Canada's strict advertising laws regarding minors. The Friendly Bear went as far as suggesting Hexo could be Canntrust 2.0, a reference to Toronto-based CannTrust (NYSE:CTST), who've been forced to cease cannabis sales while Health Canada decides whether to suspend or revoke its license as a result of an audit that found the company was growing pot in five unlicensed rooms at its Pelham, Ontario, grow-op. InvestorPlace - Stock Market News, Stock Advice & Trading Tips Hexo Stock and RegulationsLet's be clear about one thing. Any advertising violations, which Hexo vehemently denies, are not the same thing as growing illegal pot. People could go to jail over the CannTrust issue. * 7 S&P 500 Dividend Stocks to Buy With Yields of at Least 3% "We're in uncharted territory," said Trina Fraser, a cannabis lawyer with Brazeau Seller Law, about the Health Canada probe. "The potential for people to go to jail certainly exists. The potential for significant fines to be levied certainly exists."Anyone who's invested in cigarette companies knows you don't go to jail for advertising violations. Until proven otherwise, Hexo's reputation is entirely intact, in my opinion. However, the incident should make investors question Hexo's valuation. Hexo Stock ValuationAs I write this, the Hexo stock price is $4.70, well below $10, the share price I predicted it would hit in my May article about the company. At its current price, it has a market cap of $1.14 billion. As InvestorPlace's Ian Bezek recently stated, Hexo is nowhere near generating the CAD$400 million ($302 million) in revenue it's projecting by the end of 2020; it's currently at an annual run rate of C$70 million.That would imply it's trading at 16.3 times sales. Not nearly as high as Beyond Meat (NASDAQ:BYND) at 59 times sales, but pricey nonetheless. However, consider these two points before dumping on Hexo's current valuation.First, the Motley Fool's Keith Speights wrote an excellent piece July 28, using a back-of-the-napkin calculation to determine Hexo's future valuation. Speights hypothesized that since the Canadian adult-use recreational marijuana market is projected to reach $5 billion by 2024, and Hexo has 30% market share in Quebec, a province that accounts for 21% of Canada's population, it should have 6.3% market share for the entire country. He then upped that to 7% to account for its market share outside of Quebec. I like the way he's worked backward from the total market estimate. While it might turn out to be lower than $5 billion, the odds of Hexo losing market share in Quebec is unlikely. So, that works out to revenue of $350 million by 2024, or 3.3 times sales based on its current valuation. That's the first floor on HEXO. The Molson Coors FloorThe second floor is the 50/50 joint venture with Molson Coors (NYSE:TAP).As I stated in July, the Truss partnership with Hexo is ready to go when the legalization of cannabis-infused drinks happens in October, and distribution rolls out in December after the required 60-day waiting period. "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," Hexo's VP of Strategic Development, Jay McMillan said in an interview at the World Cannabis Congress in Saint John, New Brunswick, in June. What's that worth to Hexo stock? I believe that cannabis-infused drinks, edibles and vape concentrates will be far more lucrative on a global basis than the dried flower. The revenues generated from Truss could be significantly higher than Hexo's dried flower sales. And that doesn't take into consideration the real possibility that Molson Coors could partner with Hexo in the U.S.So, I don't think it's out of line to suggest the drinks portion could be worth at least $175 million (half the $350 million estimate by 2024 for dried flower) to Hexo. Add that to the $350 million and you get a current valuation that's just 2.2 times sales. Does Molson Coors act as a floor on Hexo stock?I think it does. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 8 Dividend Aristocrat Stocks to Buy Now No Matter What * 7 Stocks to Buy to Ride the Vegan Wave * 4 Safe Stocks to Buy Amid Trade War Turbulence The post Molson Coors May Be the Only Thing Propping Up HEXO Stock appeared first on InvestorPlace.
Cannabis stocks keep getting hammered in what has been one of the worst sell-offs for the sector in the past two years. From speculative upstarts through to the industry leaders, everyone's shares have been wilting. If anything is going to change the mood, however, it could be positive earnings. That seems to be the case with Aurora Cannabis (NYSE:ACB) whose shares popped more than 10% after it gave a sneak peek at its fourth quarter results on Aug. 6. ACB stock, overall, is up 5% this month, compared to a 2.1% gain in the pot-stock exchange-traded fund ETFMG Alternative Harvest ETF (NYSEArca:MJ).The Aurora Cannabis preview of results due out on Sept. 15 finally gave investors a sign that at least one marijuana company is building a more sustainable business. In a world where rivals like Hexo (NYSE:HEXO) and Canopy Growth (NYSE:CGC) keep growing production capacity far in excess of demand while losses mount, Aurora may be set to buck the tide.InvestorPlace - Stock Market News, Stock Advice & Trading Tips On Track to Profitability (Sort of)In its preliminary Q4 results, Aurora surprised the market. It confirmed that production is strong, near the high end of its range. That's not so important though, as there isn't demand for as much marijuana as Aurora is producing. What is important, however, is that Aurora generated more revenue than analysts had expected. This speaks to some combination of either higher profit margins than anticipated, or more sales volume. Either outcome, of course, is a plus for ACB stock. * 10 Cyclical Stocks to Buy (or Sell) Now All this adds up to Aurora being on pace to generate positive adjusted EBITDA for the fourth quarter, which is one type of profitability. But make no mistake, this is still not equal to net income. EBITDA is earnings before interest, taxes, depreciation, and amortization. It's a big positive step for a marijuana company to achieve positive EBITDA. Most aren't even close to it yet. But it's another hurdle to get to profitability.To be sure, Aurora does have plenty of those other costs. It has interest, for example, because it has quietly accumulated a rather sizable debt load. This has led analysts such as Christopher Carey of Bank of America to criticize ACB stock due to its balance sheet and cash burn. Aurora has also pumped out tons of new ACB stock shares to raise money. Its share count is up from around 400 million at the start of 2018 to a billion now. That's some serious dilution. It's a good sign that Aurora is reaching positive EBITDA, but it needs to get to positive net income as well sooner or later, or the share dilution will only get worse. Italy Deal: A Plus, and a MinusRecently, Aurora announced a deal to be the only official supplier to Agenzia Industrie Difesa, an agency of the Italian government. This agency will distribute medical marijuana around the country. Aurora anticipates finalizing the deal next month. Notably, Aurora competed against four other bidders for the contract, but was the only one that could meet all of the government's requirements. * 5 Cheap Stocks to Buy Now That the Fed Cut Rates On the one hand, this deal is a clear positive for Aurora. It's no secret that the Canadian marijuana market is sagging due to massive oversupply. Marijuana producers are all trying to become the biggest and most well-known as fast as possible. But the demand picture hasn't nearly kept up with supply. Legalization didn't unleash unlimited consumer interest. Click to EnlargeSo Aurora has validated its business model of focusing on the global market outside of just the U.S. and Canada. On the other hand, the Italy deal may be way too small to matter. Aurora's contract authorizes it to distribute a minimum of 400 kilos of medical marijuana over the next two years. That's a minimum, so it could be a lot more. But to put 400 kilos in two years in perspective, however, Aurora is now producing nearly 30,000 kilos of product per quarter. It will take a ton of 400 kilo-type deals to mop up that sort of supply. ACB Stock VerdictInitiatives such as the contract in Italy should help differentiate Aurora from its competition. So far, however, Aurora has not achieved that much with overseas dealings. It's only managed $4 CAD million ($3.03 million) or so in quarterly revenues from outside of Canada so far, which puts international sales in the single digit percentage range of the company's entire revenues.At least for now, Aurora remains highly dependent on Canadian sales. And there simply aren't enough consumers to achieve the ambitious growth goals that Aurora and its peers are pursuing within the Canadian market. If Canadian consumption doesn't pick up quickly, other markets need to come online. Otherwise, the sector will keep trading lower.ACB stock is positioned better than many of its peers, as the company's preliminary Q4 numbers demonstrate. But it's hard to get especially excited about any of these Canada-based marijuana stocks until the supply glut starts to reverse itself. Aurora looks better than many of its peers, but the sector is in trouble.At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 8 Dividend Aristocrat Stocks to Buy Now No Matter What * 7 Stocks to Buy to Ride the Vegan Wave * 4 Safe Stocks to Buy Amid Trade War Turbulence The post Aurora Cannabis Pulls Ahead of Peers After Sharing a Peek at Q4 Results appeared first on InvestorPlace.
The first half of this year has been a roller coaster ride for pot stock investors, and particularly for those in Toronto-based Hexo Corporation (NYSE:HEXO) stock. After dipping below $5 per share at the start of the year, Hexo stock rallied up to $8.40 in late April, but has since slumped back down to $4.52.Source: Shutterstock Despite the recent bear run, here are four key reasons why Hexo might be a good long term bet. Growing RevenuesWhile the sales Hexo reported for the third quarter of 2019 may have fallen short of analysts' lofty expectations, the numbers are still amazingly strong.InvestorPlace - Stock Market News, Stock Advice & Trading TipsYes, the company is burning cash, with a negative operating cash flow, and it suffered a net loss of 4 cents per share. But at this early stage, the stock market is not looking for bottom-line results. Instead, top line revenue growth, production rates and market share are the factors that will drive the Hexo stock price. * 5 Cheap Stocks to Buy Now That the Fed Cut Rates Using these parameters, Hexo's forecast that it will double its revenue this year and will surge to $300 million by the end of 2020 will be the key driver in Hexo stock. Hexo Stock Is a Leader of the PackIn early stage growth cycles, size does matter. And Hexo is slowly emerging as a leader of the pack. Even at today's depressed Hexo stock price, it has a market cap of over $1 billion and has clearly established itself as a leading supplier to several Canadian provinces.Apart from recreational and medical marijuana, Hexo has also diversified into other areas, such as its award-winning line of elixir sprays. Putting Hexo clearly in the big league as a credible national distributor, Hexo has also partnered with Molson Coors Canada, owners of the Truss Beverages startup, to produce a cannabis-infused canned drink.In terms of increasing scale, Hexo's recent acquisition of Newstrike brands has given size to Hexo stock, making it a key player in the pot stock sector. Newstrike started cultivating marijuana in December 2016 and has since scaled capacity up to 42,000 kgs annually. The $260 million all stock deal also addressed some concerns that Hexo was merely a takeover target rather than a credible standalone player. Combined, the new Hexo will command an annual production rate of over 100,000 kgs by year end. Broader Investor BaseHexo has transferred its stock market listing to the New York Stock Exchange from the smaller NYSE American exchange effective last month. The shares are now swimming in the adult section of the pool and may appear on the radar of more institutional portfolio managers. Marijuana Mania and Swing State VotersIt's election season. For the rest of this year and most of 2020, national medial will be sprinkled with sound bites from the candidates about their views on legalization of marijuana at the U.S. federal level. Seeking to capture the key 20-something sway voters in states like Ohio, Michigan and Florida -- and witnessing the huge tax revenue reaped by the state of Colorado in the years since legalization -- most Democratic candidates are decidedly pro-pot.New Jersey Senator Cory Booker last month introduced the Marijuana Justice Act, which would remove the drug from the federal list of controlled substances and expunge past convictions. Supporters of legalization note that African-Americans are almost four times more likely to be arrested for marijuana possession than whites, even though rates of use are similar."It's not enough to legalize marijuana at the federal level -- we should also help those who have suffered due to its prohibition," Booker said.Other 2020 presidential candidates quickly endorsed the Act, including Bernie Sanders, Elizabeth Warren, Kamala Harris and Kirsten Gillibrand.Even the uber-cautious Beto O'Rourke, who often hedges when asked about contentious issues, has supported unequivocally the federal legalization of marijuana. O'Rourke believes that legalization is a matter of practicality and racial justice. African Americans and Latinos are imprisoned at disproportionate rates compared to whites for minor marijuana offenses.And on the Republican side, although President Donald Trump has remained largely silent on the issue, many analysts believe he will push for federal legalization - and use that message to clinch the electoral vote in the must-win swing states."By supporting cannabis, Trump may be able to incrementally broaden his appeal with swing voters without alienating his base," according to Piper Jaffray analyst Michael Lavery at a recent conference on marijuana legalization.The specter of any type of credible federal legalization of marijuana under the next presidential administration could rocket Hexo stock well past the $10 mark.Yes, there may still be some downside to Hexo stock price in the weeks ahead. Yes, there may still be losses in Q32019.But projecting out for the rest of the year and into 2020, Hexo looks like an opportunity to buy on the dips.As of writing, Theodore Kim did not own any position in Hexo. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Internet Stocks Getting Hammered * 6 Big Growth ETFs to Buy For the Second Half of 2019 * 5 Cheap Stocks to Buy Now That the Fed Cut Rates The post 4 Reasons to Buy Hexo Stock Despite the Rough Ride appeared first on InvestorPlace.
The marijuana market has created an appealing opportunity for risk-tolerant investors who are willing to wait out the near-term turbulence. However, while deciding to invest in the cannabis boom might seem like a no-brainer, choosing a winner in the space takes a bit more analysis. Recently, Canadian marijuana firm Hexo Corp (NYSE:HEXO) has gained a lot of attention and made many traders' short list.Source: Shutterstock Here's a look at the case for and against Hexo stock. Pro: Hexo Stock Is Seeing Market Share GrowthRight now, Hexo controls roughly 30% of Quebec's marijuana market. That figure is likely to remain constant or rise over the next few years as the firm currently has a multi-year supply agreement that will keep its position relatively stable. As Canada's recreational pot market grows and regulations ease, Quebec will likely represent about 20% of the nation's overall marijuana market, giving Hexo a huge growth runway. With those figures in mind, Hexo stock could eventually capture between 7%-10% of Canada's overall marijuana market.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 10 Stocks to Buy on the Trade War Dip On top of that, Hexo has the potential to grow outside of Canada as well. The firm partnered with Molson Coors Brewing (NYSE:TAP), which looks likely to provide a large international growth runway as the marijuana market around the world develops. Plus, Hexo CEO Sebastien St-Louis has been open about his plans to partner with big names across a variety of industries in order to drive growth for HEXO stock in the years ahead. Pro: Analyst RecommendationsOf the 14 analysts who cover Hexo stock, 10 recommend buying the stock, three say to hold and only one says it's time to sell. Bank of America Merrill Lynch analyst Christopher Cary said that although he is expecting the Canadian cannabis market to struggle this year and next, HEXO is still likely to outperform the market.Plus, HEXO is a common purchase among cannabis fund managers further suggesting that the company is a market-beating bet. Pro: It's on SaleAnother reason investors might be interested in considering the Canadian marijuana company is then fact that Hexo's stock price is trading more than 50% lower than its April highs. Hexo stock only recently gained notoriety as one of the top-tier marijuana investments when the firm left the NYSE American exchange and joined the New York Stock Exchange, putting it on the same playing field as other marijuana heavyweights like Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB).The industry as a whole has lost some of its momentum, and HEXO has found itself burdened by some controversy that further depressed its share price. However, if you're willing to wait out near-term volatility, HEXO looks relatively cheap making now a good time to take a position. Con: Still ExpensiveDespite the weakness that the marijuana sector has experienced recently, it's important to note that cannabis stocks are still expensive when you compare them to the rest of the market. According to Charles Schwab, Hexo shares trade at 44 times the company's sales, a sky-high multiple when you compare it to the healthcare sector's average of 2.21.Part of the reason for HEXO's elevated multiples is the fact that the industry has a lot of potential growth on the horizon, but that doesn't take away the risk that investors are taking on by buying in an already-hyped-up industry. As the old adage goes, what goes up must come down, and eventually the marijuana industry's multiples will have to come back down to earth. Con: Management UncertaintyAny time upper management walks away from a company, investors are going to question their reasoning. That's even more the case with a young company on the rise like Hexo. In July, co-founder Adam Miron announced his departure from his role as chief branding officer.Miron said he will remain a part of the company as a board member and that he was ready to move on now that the firm has become "and established company." Perhaps it means nothing, but Miron's decision to walk away certainly raises a few red flags from an investment standpoint. Con: Marijuana Market UncertaintyAny time you're buying into a young industry you have to take into account the uncertainty that comes with it. The marijuana industry is a young one with a lot of regulatory concerns. Navigating such a complicated regulatory environment requires cannabis companies to make decisions based on future policy predictions.For HEXO we've already seen that play out as the firm defended itself against critics who chastised it for advertising its products using social media. Bottom LineIf you're looking for a marijuana stock to add to your portfolio, Hexo stock isn't a bad pick. The firm looks likely to benefit from the rising tide in the marijuana industry, and management's efforts to secure big-name, cross-industry partnerships looks like a good way to create growth avenues in the future. There's likely to be a great deal of turbulence over the next few years, but those risks appear to be industry wide.As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Stocks to Buy on the Trade War Dip * The 5 Highest-Rated Dow Stocks Right Now * 4 Cybersecurity Stocks to Buy for Long-Term Gains The post Should You Buy Hexo Stock? 3 Pros, 3 Cons appeared first on InvestorPlace.
[Editor's note: This story was previously published in March 2019. It has since been updated and republished.]Traffic stats don't lie: among investment categories, few have the draw of legal marijuana. And within this broad segment, companies specializing in cannabidiol, or CBD, have generated significant buzz. But what exactly is this three-letter acronym, and how can CBD stocks boost your returns?Let's start with basic definitions. Cannabidiol represents one of several cannabinoids, or chemical compounds found in the cannabis sativa plant. But unlike the most famous cannabinoid tetrahydrocannabinol (THC), CBD does not trigger any psychoactive effect. In other words, users can enjoy this compound's benefits without getting high.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThis opens up profound opportunities for marijuana stocks that have exposure to CBD. First, since this compound inherently lends itself to medicinal use, it tends to be treated favorably by legislation. Most states allow CBD use for therapeutic purposes. Given political and public sentiment, it's not inconceivable that all states will eventually green-light cannabidiol.Second, CBD has the potential to help solve a huge societal problem. Turn on the news, and you'll eventually find stories about the raging opioid crisis. What is less reported is that pharmaceutical companies contributed to the problem with highly addictive painkillers. Since CBD is not physically addictive, it could be a viable replacement for many addictive opioids.Finally, the U.S. may be the leader of the free world, but it stymies itself with antiquated laws. Our neighbors to the north became the first G7 nation to legalize recreational weed, while we still classify cannabis as a Schedule I narcotic. But growing legal momentum, especially with CBD-based medication, suggests we're turning a corner. * 10 Stocks to Buy on the Trade War Dip In the meantime, here are four CBD stocks to consider adding to your portfolio: Tilray (TLRY)Source: Shutterstock It's confession time: I'm very disappointed with how Tilray (NASDAQ:TLRY) and other CBD stocks have performed this year. For TLRY stock, shares are down over 38% since January's opening price.That said, I think we have some encouraging news. First, TLRY stock popped up over 7% on Friday's session. More importantly, shares are finding strong support at the psychologically significant $40 level. Recall that in late May to early June, TLRY fell below that mark. Since then, however, shares have only briefly dropped below $40.That to me communicates that TLRY stock is ready for a comeback. Fundamentally, I believe the shift in sentiment is well justified. Recently, the company shipped a bulk package of CBD into the U.K. Not only did this represent a significant departure from the North American cannabis market, British demand is incredibly strong. For instance, patients in the U.K. have requested CBD prescriptions from their doctors as an alternative to typical pharmaceutical products.Plus, Tilray has a production facility in Portugal, where they have successfully distributed CBD to other European countries, including Croatia and Germany. That's a big plus, not only for TLRY stock but for other CBD stocks as well. Aurora Cannabis (ACB)Source: Shutterstock On paper, Aurora Cannabis (NYSE:ACB) is a winner. Year-to-date, stakeholders of ACB stock are sitting on a 29% profit. That's not bad at all, considering that the benchmark S&P 500 index is up only 18%.But like many other CBD stocks, Aurora Cannabis is only a winner of the first quarter. Since the end of March, ACB stock has shed an alarming 30%. Is there any hope for this once high-flying cannabis play?One of the big reasons why many investors dumped ACB stock is the financials. Although Aurora Cannabis has many potential catalysts in the pipeline, this is part of the problem: stakeholders must hang their thesis on the term potential.On the other hand, what's real in the here and now is cash burn. Like other fancied CBD stocks that are now suffering volatility, Aurora is in a race against time. Management must convince prospective buyers that they have the financial stability necessary to wait until their catalysts start turning. * 7 Stocks the Insiders Are Buying on Sale Admittedly, CBD stocks are a risky play. But similar to Tilray's narrative, multiple international markets are coming around to medicinal marijuana. With Aurora's dominating international presence, I believe you can trust ACB stock. Hexo (HEXO)Source: Shutterstock Most investors realize that marijuana stocks of all stripes are ridiculously volatile. But even with that understood caveat, Hexo (NYSE:HEXO) has truly taken shareholders on a wild ride.Between the opening volley of this year to the end of April, the Hexo stock price skyrocketed nearly 131%. But from the first of May, shares have plummeted nearly 44%. Earnings season wasn't too kind on marijuana stocks. Thus, questions about fiscal stability dogged the sector.But despite the ugliness, I think Hexo stock has serious potential. And I'm not just saying that. Recently, I put skin in this game by buying up a stake. Like other shareholders, I'm feeling the pain from this wild investment. Still, my encouragement to you (and to myself) is to hold on.For one thing, Hexo stock received a credibility boost when it moved over to the New York Stock Exchange. In every other sector, this is just a natural progression for a company on the rise. But for Hexo, it represents collective legitimacy that lifts other marijuana stocks.Further, growing mainstream acceptance of CBD stocks is crucial for this market to eventually tap into traditional forms of financing. It also encourages other non-CBD related companies to partner with names like Hexo. Charlotte's Web (CWBHF)Source: Shutterstock Most CBD stocks hail from Canada, which is absolutely no surprise. Since our northern neighbors beat us to the legalization punch, they should get the glory. But a few companies call the U.S. home, and one of them is Charlotte's Web (OTCMKTS:CWBHF). And while CHWBHF stock doesn't have the same pedigree as the other marijuana stocks on this list, it still carries weight.That's because Charlotte's Web scored a massive coup recently when it announced a deal with grocery market giant Kroger (NYSE:KR). Kroger has just started carrying Charlotte's Web products. Moreover, they will expand their CBD offerings to 1,350 stores covering 22 states. Obviously, this is a massive victory for both CWBHF stock and CBD stocks overall.I'm not just excited about the headlining print. If you look at the 22 states where Kroger will sell CBD, many of them are conservative. We're talking places like Arizona, Kentucky, Montana and Texas. If these states can accept a marijuana derivative, it shouldn't take much for the rest of the country to follow suit. * 7 Stocks to Sell Amid an Escalating Trade War This is also the reason why CWBHF stock has taken a massive leap in the markets. Although I don't like chasing shares near their all-time highs, I think Charlotte's Web is a worthy candidate.As of this writing, Josh Enomoto is long HEXO stock. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Stocks to Buy on the Trade War Dip * The 5 Highest-Rated Dow Stocks Right Now * 4 Cybersecurity Stocks to Buy for Long-Term Gains The post 4 CBD Stocks to Buy for Mainstream Marijuana Profits appeared first on InvestorPlace.
As if the marijuana sector couldn't disappoint me more, companies like Hexo (NYSE:HEXO) seemingly find new ways to frustrate me. I'm not just saying that from a point of theoretical commiseration. Recently, I bought Hexo stock, and in hindsight, that wasn't the right move.Source: Shutterstock Still, I'm staying true to my convictions. Consistently, I've mentioned that while HEXO and the usual suspects -- Tilray (NASDAQ:TLRY), Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON) -- represent transformative investments, they're also incredibly volatile. You should be ready for anything. Therefore, I'm not panicking because of the Hexo stock price.Nevertheless, I can sympathize with those who are eyeing the sell button. In just a little over two weeks, the Hexo stock price dropped double digits. Fundamentally, the markets took a dim view on a recent executive reshuffling. In July, management disclosed that chief branding officer Adam Miron is stepping away from his role but staying on as one of the board of directors.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 10 Cyclical Stocks to Buy (or Sell) Now It's an unusual move, and the timing could haven't been worse. After all, marijuana stocks are struggling to regain control of the narrative after a series of disappointing earnings releases. Thus, it's no surprise that the Hexo stock price stumbled like it did.If that wasn't bad enough, HEXO may have pushed the government watchdog agency Health Canada too far. Apparently, the marijuana firm advertised on Snap's (NYSE:SNAP) popular Snapchat app using provocative language and imagery. Because Snapchat is heavily associated with impressionable teens, the move may not sit well with Health Canada.But despite these admittedly detracting troubles, I'm still holding the course with Hexo stock. Don't Let the Noise Deter You From Hexo StockGenerally, it's important to understand that as of this writing, we don't have any evidence that HEXO did anything illegal. For instance, bearish reports compare the company with another troubled name in the sector, CannTrust (NYSE:CTST).But the difference here is that CannTrust got pinged for unlicensed growing. That went against Health Canada's clear and long-established guidelines. As a result, CannTrust fired CEO Peter Aceto with cause. I don't know the specifics about Canadian labor laws. But in the U.S., you typically don't fire someone with cause unless you're absolutely sure of misconduct.For what it's worth, HEXO denies wrongdoing with the Snapchat fiasco, claiming that they follow all social media regulations. In my opinion, it's a silly thing to do with limited upside. Thus, I'm leaning toward believing their management team, but I'll wait for Health Canada to render final judgment.Adding support to HEXO's case is that with Canadian social media advertisements, the regulations are open to interpretation. For one thing, social media platforms have internal safety features to prevent inappropriate ads reaching minors. As long as HEXO obeyed the rules as they claimed, they can offer a legitimate rebuttal.Plus, Health Canada's guidelines on what determines provocative or inappropriate language and imagery is somewhat vague. The guidelines are nowhere near as transparent as cannabis growing procedures. Therefore, comparing Hexo stock with CannTrust is a wild stretch.On the other point regarding Miron's exit, I'm not terribly sure how that impacts the Hexo stock price longer term. It could be something related to a critical event, or it could be nothing at all. At this point, it's just speculation, and I don't want to do anything brash on non-news. The Good News Outweighs the BadAt this juncture, I think it's appropriate to consider the reasons why you should invest in Hexo stock. First, earlier this year, HEXO acquired Newstrike Brands. This gives the company access to a premium indoor facility that can churn out approximately 150,000 kilograms of high-grade cannabis. The buyout also expands HEXO's coverage throughout Canada.Second, HEXO has an ongoing partnership with Molson Coors Brewing (NYSE:TAP) to develop cannabis-infused drinks. According to Forbes, such beverages already represent big business, and it's only increasing in scope. This partnership helps both parties effectively tap into this growing phenomenon. Cannabis drinks may also act as a gateway to other legal marijuana-based products.Finally, Hexo stock offers a silver lining to the U.S.-China economic conflict. With the number one and two economies of the world apparently on the verge of a currency war, the U.S. desperately needs whatever alternative revenue sources they can get.Enter weed. The marijuana industry owns the fastest-growing job market. That's an impressive feat considering that, at least right now, unemployment is at multi-year lows. If the Trump administration wants to keep that momentum alive -- especially before the 2020 elections -he has an easy lever to pull. (Though it's fairly unlikely he'll pull it, it is a possibility.) * 3 Steps Every Investor Should Take Before the Next Stock Market Crash So don't give up on Hexo stock yet. It just might surprise you.As of this writing, Josh Enomoto is long Hexo stock. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Cyclical Stocks to Buy (or Sell) Now * 7 Biotech ETFs That Should Remain Healthy * 7 of the Hottest AI Stocks to Buy Now The post Ignore the Noise: Hereas Why Iam Still Confident in Hexo Stock appeared first on InvestorPlace.
Hexo (NYSE:HEXO) may be a relatively unknown name for many American investors. HEXO stock just moved up to the New York Stock Exchange from a lower-tier listing last month. Unfortunately, investors haven't given Hexo a warm welcome.Source: Shutterstock While moving to the NYSE boosts Hexo's credibility, as our Josh Enomoto pointed out, it hasn't fixed the company's other problems. Overall, HEXO stock has fallen about 40% since its spring peak, and is down more than 10% since moving up to a major stock exchange. * 10 Stocks to Buy on the Trade War Dip Honestly, that's not a terrible performance, given the slump that pot stocks are in right now. But Hexo has some specific hangups that should make investors think twice before buying.InvestorPlace - Stock Market News, Stock Advice & Trading Tips Hexo Management Seems Overly OptimisticIn Hexo's latest earnings release, the company stated that it is on track to ramp up to C$400 million ($302 million) in revenues next year. This seems rather ambitious, as the company reported just C$16 million in gross revenues this quarter, suggesting annual sales are running around C$60-C$70 million. It's a huge jump to try to grow revenues something like six or seven fold in just one year.The last quarterly results were not especially positive either. If you're a HEXO stock bull, it's tempting to look at production and see a favorable trend. Hexo's production soared from 4,938 to 9,804 dried kilos between the quarter endings Jan. 31 and the quarter which ended in April.However, despite doubling production, sales barely budged. Hexo's recreational sales grew from 2,537 kilos to 2,759 kilos, a roughly 10% move. Meanwhile, medicinal kilos sold dropped from an already low 152 kilos down to 145. Notably, the price per gram for recreational marijuana dropped sharply. It fell from C$5.83 to C$5.29 over the latest quarter. As a result, the company managed little revenue growth. Canadian Marijuana Simply Isn't a Fast-Growing MarketIn my recent article discussing Canopy Growth (NYSE:CGC), I offered a detailed look at the latest marijuana supply and sales data from the Canadian government. It's not a pretty picture.Since marijuana was legalized last fall, the amount of finished and in-progress inventories has more than doubled. Meanwhile, monthly sales volumes are only up by roughly half. Suppliers are flooding the market, but demand just isn't there.Companies like Hexo seem determined to increase their growth capacity as much as possible, regardless of whether the end market can absorb all the marijuana or not. This, unfortunately, has led to mounting losses across the industry. And Hexo may have another issue as it tries to figure out a way to increase demand. Hexo Overly Aggressive Advertising?Recently, well-known short selling research firm Friendly Bear took aim at Hexo. Friendly Bear suggested in their report that an anonymous source had tipped them off to the fact that Hexo advertises aggressively on Snapchat (NYSE:SNAP). Friendly Bear said that Hexo may be pushing the envelope in terms of what is permitted. That's because Canada has extensive restrictions on marijuana advertising and strictly forbids anything aimed at minors.The company responded, saying that it hasn't been investigated by any regulators. It further notes that it hasn't advertised on Snap's platform in Quebec. Additionally, outside of Quebec, it relies on Snap's age verification system to ensure that it doesn't advertise to children. Friendly Bear, however, suggested that Snap's age verification system is unreliable and thus Hexo could end up in hot water.It's a story worth watching if you own HEXO stock. So far, the stock has largely shrugged off the negative report. But if Health Canada or another agency gets involved, that could change in a hurry. If you doubt that, just look at what happened to CannTrust (NYSE:CTST) with its scandal recently. The marijuana industry remains new and is still figuring out its operational framework. At this point, management teams need to be extra careful to make sure they comply with all the regulatory structures in place. HEXO Stock VerdictIt's tempting to want to rush into all these marijuana stocks down here. The sector has certainly gotten battered in recent months. At some point, all these stocks will rip higher, and HEXO stock will take part in the rally. But it could have significantly farther to fall before things turn.As far as Hexo goes in particular, there are specific reasons for caution. Let's see how the advertising situation plays out, for example. More broadly, the questions around advertising speak to the demand shortfall. Hexo, and the other producers, are making way more marijuana. But demand simply hasn't been there.Look at Hexo's last quarter; they produced nearly twice as much product, but sales barely budged. That might explain why Hexo's former Chief Brand Officer, Adam Miron, just left the company. One thing's for certain, Hexo needs to figure out to get a lot more sales and quickly. Otherwise they will miss next year's expectations, and investors will sell the stock down even farther.At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Stocks to Buy on the Trade War Dip * The 5 Highest-Rated Dow Stocks Right Now * 4 Cybersecurity Stocks to Buy for Long-Term Gains The post Why It's Not Time to Buy Hexo Stock Yet appeared first on InvestorPlace.
This year, life has come at Hexo (NYSE:HEXO) stock fast. After opening the year around $3 a share, the Canadian cannabis company doubled by early February and by early May, the shares resided over $8. Since then, HEXO stock has been drubbed.Source: Shutterstock After hitting a 52-week high of $8.40 in early May, HEXO stock was cut in half, tumbling to around $4 before surging 10% last week to close around $4.40. The cannabis company, like several of its rivals, has found itself mired in controversy in recent weeks.Last month, the company said that co-founder, Adam Miron is stepping away from his role as chief branding officer, but HEXO looked to assuage skittish investors by saying Miron will stay on as a "key" member of the board of directors.InvestorPlace - Stock Market News, Stock Advice & Trading Tips"Building HEXO has been one of the greatest privileges of my life," said Miron in a statement. "I am a builder. What I see today is an established company with amazing leadership across all functions. I would like to thank the entire team and all our supporters for making this possible."That's a lot of public relations speak right there and investors saw through it, sending HEXO stock tumbling on the news. Aside from the executive shuffling, HEXO stock faces another hurdle: even with the recent swoon, it's not cheap. At almost 34x earnings, it's actually expensive. Remember, HEXO is a small-cap stock and small caps are usually pricier than large caps, but at 34x earnings, HEXO stock is richly valued relative to the small-cap Russell 2000 Index, which has a price-to-earnings ratio of 16.74x. Looking For Good NewsBank of America Merrill Lynch analyst Christopher Carey "expects an underdeveloped supply chain will continue to crimp Canadian cannabis companies, and while the market appears to be bracing for that, his estimates for 2019 and 2020 are still below consensus," reports Barron's. "Yet he still thinks in this environment that his Buy-rated stocks can outperform." * 10 Buy-and-Hold Stocks to Own Forever Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC) and yes, HEXO, are the name that analyst likes in the cannabis space. Additionally, some active managers like HEXO stock. As I've noted several times this year, the universe of U.S.-listed cannabis exchange-traded funds has swelled from one at the start of the year to five at the end of July.Three of the four new cannabis ETFs are actively managed funds, meaning there is a manager with discretion over the fund's holdings and that the fund is not beholden to an index's components. All three of those active marijuana ETFs own shares of HEXO stock. Given that two of those funds debuted last month, the managers likely got good pricing on HEXO as the stock was punished in July.While those funds are not excessively allocated to HEXO stock, managers' allocations to the name indicate the stock has some fans in the "smart money" crowd. Bottom Line on HEXO StockOver the near-term, HEXO needs to steer clear of controversy and deal with rumblings from the short seller The Friendly Bear that asserts HEXO is headed for similar problems to CannTrust Holdings Inc., which saw its shares drubbed after running afoul of regulators.The Friendly Bear claims HEXO could draw the ire of Canadian regulators because of its social media ads may be consumed by minors. HEXO denies that and investors have dealt with the accusations with aplomb, mostly, over the past few days. Still, between the debate with a short seller and the frothy valuations, HEXO stock can come in a bit more before investors need to take the bait.As of this writing, Todd Shriber did not own a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Generation Z Stocks to Buy Long * 5 Growth Stocks to Buy After the Rate Cut * 5 Dependable Dividend ETFs to Invest In The post Hexo Stock Is Almost Worth Buying Now appeared first on InvestorPlace.
After a huge rally to start the year, Hexo (NYSE: HEXO) has come crashing back down to earth. The stock is now down 48% in the past three months. Cannabis investors may be puzzled as to what has changed the market's mind about HEXO stock so definitively.Source: Shutterstock Several factors have been weighing on Hexo shares in recent months. But at the end of the day, this type of extreme volatility is exactly what cannabis investors should expect in the near-term. Here are four reasons investors have been dumping HEXO stock. 1\. The Market Is Getting Real About Cannabis ValuationsLong-term growth stocks are always the most difficult to value because of their combination of high expectations and unpredictability. Hexo and other cannabis stocks offer long-term investors one of the highest potential growth opportunities in the market. But the shares are already priced with high expectations in mind.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 A-Rated Stocks Under $10 Hexo, for example, trades at a 33.8 price-to-sales ratio. That PS ratio is down from above 90 three months ago. Long-term investors must continue to balance realistic valuation based on fundamentals and long-term opportunities for growth in the cannabis market. 2\. Hexo Cannabis Pricing Is Under PressureHexo's fiscal third-quarter earnings report was relatively solid in terms of numbers. However, Hexo already has much lower cannabis prices than most of its peers. The company's CEO warned investors that pricing would be under further pressure in the months ahead.Bank of America analyst Christopher Carey said the pricing pressure Hexo is facing isn't a case of market competition. Instead, he says the pressures are coming from the Canadian province of Quebec, where Hexo holds about a 30% market share. 3\. Hexo Stock Is Battling New Quebec RestrictionsAs if pricing pressures weren't enough, Quebec is also imposing new cannabis restrictions. On July 24, Quebec unveiled a new draft of legislation that bans certain cannabis edibles, including chocolates, candies and desserts. The reasoning for the move is to protect children from cannabis abuse.Quebec also has proposed measures to ban cannabis additives intended to modify the smell, taste or color of products. Finally, Quebec is proposing a ban on any cannabis products intended for topical use. 4\. Guidance May Be Too HighFollowing its earnings report, Hexo issued fiscal 2019 revenue guidance of C$400 million. Consensus analyst estimates are calling for C$324 million. Carey is one of the guidance skeptics."While certainly HEXO has capacity to hit this figure, we are unsure the market can withstand this much product, with the total Canadian cannabis retail market currently at a sub $1bn annualized run rate (though more stores should expand the market)," Carey says.He is projecting revenue of C$310 million, well below both company guidance and Wall Street consensus. Long-term investors should keep in mind that even Carey's conservative projection represents a staggering 436% year-over-year growth. The Bottom Line on Hexo StockEvery time I write about cannabis stocks, I give the same advice. Cannabis stocks like Hexo are high-risk/high-reward speculative investments. No matter what, cannabis investors should be anticipating major volatility to continue.Unfortunately, it's way too early to determine with any degree of certainty which handful of cannabis stocks will ultimately dominate the space. Hexo is certainly off to a good start."We think Hexo is a good operator, with a model positioned for future growth (int'l) and challenges (price pressure)," Carey says.Rather than gambling on one or two cannabis companies, long-term investors should consider reducing risk by betting on the cannabis group as a whole. Investing in five or six of the top cannabis stocks, including HEXO stock, Canopy Growth Corp (NYSE: CGC), Aurora Cannabis (NYSE: ACB), Cronos (NYSE: CRON) and others, helps leverage the power of diversification. Ten years down the line, chances are the two or three dominant players in the cannabis space will come from somewhere within that group.As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 A-Rated Stocks Under $10 * 8 Monthly Dividend Stocks to Buy for Consistent Income * 7 Disruptive Biotech Stocks to Buy for 2025 The post These Are the 4 Reasons HEXO Stock Is Tanking Right Now appeared first on InvestorPlace.
Cronos (NASDAQ:CRON) stock is down about 43% since March. Although up more than 22% year-to-date, the Canadian marijuana stock has fallen in the past five months from a high of $24.37 a share down to $13.81 as of this writing. With confidence in the cannabis sector waning, investors are thinking twice before placing a bet on the industry.Source: Shutterstock But is Cronos stock different? Many of the company's peers have experienced material headwinds. Cronos has several key advantages, including a strategic investment from tobacco giant Altria Group (NYSE:MO).The caveat is that Cronos stock trades at a substantial valuation to its marijuana stock peers. In an overvalued sector, investors are taking a big risk paying such a high premium. So what is the verdict? With the next earnings report coming out this month, read on to see if CRON stock is a buy today.InvestorPlace - Stock Market News, Stock Advice & Trading Tips A Closer Look at CRON StockFor the first quarter of 2019, sales were $6.47 million, a 120% increase from the first quarter of 2018. With ramp-up in production and infrastructure, the company posted higher operating losses than in the prior quarter. But with plenty of cash from the Altria investment (more below), the company can afford to sustain these operating losses.The question is not the current performance of Cronos, but growth potential in non-Canadian markets. Cronos has exposure to markets outside North America, but less so than peers such as Aurora Cannabis (NYSE:ACB). The company has supply agreements with pharmaceutical companies in Germany and Poland, and is working on obtaining a license in Colombia. Israel and Australia are additional markets. But for all intents and purposes, CRON stock is a play on the North American cannabis growth story.With regards to the United States, we are years away from full legalization. While many states have legalized recreational marijuana, federal bans are still in place. Until Congress passes legislation such as the SAFE Banking Act, banks will not provide the industry financial services. Without access to basic banking, the American cannabis sector cannot scale. But once marijuana is fully legal across all 50 states, the market is up for grabs. Thanks to the Altria investment, Cronos has plenty of capital to scale into a major marijuana purveyor.Like competitors Canopy Growth (NYSE:CGC), Cronos has a deep-pocketed strategic partner. Altria Group bought a 45% stake in the stake in the company via a $2.4 billion private placement. Warrants give them the option to acquire an additional 10%. With the Altria partnership, Cronos gets the expertise and infrastructure of a tobacco company to help scale up operations. Dilution, Valuation Among CRON Stock RisksLike its marijuana stock competitors, Cronos has engaged in dilutive equity and debt offerings to fund operations. The Altria deal alone was highly dilutive, increasing the share count by about 82%. The issuance of warrants to Altria bumped up dilutive securities nearly threefold to 110.5 million equivalent shares. The issuance of dilutive securities minimizes potential upside for those entering the stock today. One positive is the high exercise price of the Altria warrants. The warrants have a strike price of $19 a share, an approximately 38% premium to the current trading price.Even among its peers, CRON stock trades at a high valuation. Shares in the marijuana stock trade at an Enterprise Value/Sales (EV/Sales) ratio of 217.6. Here are the EV/Sales ratios of the company's main competitors:Aurora Cannabis (NYSE:ACB): EV/Sales of 54.26Canopy Growth (NYSE:CGC): EV/Sales of 54.28Hexo (NYSE:HEXO): EV/Sales of 32.8Tilray (NASDAQ:TLRY): EV/Sales of 68.6Even among a richly-valued sector, CRON stock trades at a substantial premium. While the partnership with Altria may give them a leg up once U.S. federal marijuana laws are relaxed, it likely does not justify the current premium.Cronos has more room to fall if investors continue to bail out of the cannabis space. With upside impacted by the Altria warrants, paying a substantial valuation premium for CRON stock does not seem worthwhile. There Are Better Ways to Play the Cannabis Growth StoryWith full commercial marijuana in the United States years away, there is plenty of time to place your bets on the cannabis sector. With the market overvalued, it may pay to wait things out until a screaming buy emerges. This is especially the case with Cronos.While the company may see parabolic growth in the next few years, much of this is reflected in the current share price. The partnership with Altria gives the company a solid strategic partner, but the highly dilutive nature of the deal minimizes potential upside. Investors may find opportunity betting on the cannabis sector. Cronos is the not the best marijuana stock out there. Take a pass on CRON stock.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 * 7 A-Rated Stocks Under $10 * 8 Monthly Dividend Stocks to Buy for Consistent Income * 7 Disruptive Biotech Stocks to Buy for 2025 The post There Are Better Pot Plays Than CRON Stock appeared first on InvestorPlace.
Despite the many bullish notes from analysts on Hexo (NYSE:HEXO), the HEXO stock price continues to fall. Many think the company could soon be regarded by industry analysts as a top-tier marijuana stock.Source: Shutterstock However, HEXO stock has tumbled since April, and its U.S. equity now trades at record lows. Hexo Corp stock looks to have a bright future, but investors may want to wait before buying HEXO .Of the smaller, under-the-radar marijuana companies based in Canada, this has become one of my favorites. Its strength in its home province of Quebec gives it a strong base.InvestorPlace - Stock Market News, Stock Advice & Trading TipsMoreover, its alliance with Molson Coors (NYSE:TAP) should be valuable and provide a positive catalyst as cannabis-based beverages become legal in Canada and hit the market later this year. * The 10 Best Stocks to Invest in for August Hexo's WoesNonetheless, since Hexo peaked at $8.40 per share on April 29, the stock has continuously declined. The current price of around $4.25 per share makes HEXO stock a penny stock and puts it within striking distance of its 52-week low. More prominent marijuana stocks such as Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) have also fallen.Hexo likely unnerved the owners of HEXO stock by reporting that its revenue fell in Q2 versus Q1. Still, the drop has seemed like an overreaction. Investors seemed to ignore that the company's revenue increased by 1,250% year-over-year in Q2.For the current fiscal year, analysts, on average, forecast a revenue increase of over 1,000%. They predict that the company's growth will fall to a mere 452% in fiscal 2020. Many investors will probably see the recent quarter-over-quarter decline as an anomaly rather than a trend. Hexo's Credibility Is SurgingAs another InvestorPlace columnist, Josh Enomoto, stated, Hexo gained a "massive credibility boost" by switching from the NYSE American stock exchange to the New York Stock Exchange. There, it joins Canopy Growth and Aurora Cannabis. HEXO's association with those companies should boost its image.Furthermore, another InvestorPlace writer, Tom Taulli, believes the company can survive the intense competition in the cannabis sector by boosting its production. He thinks that HEXO's acquisition of Newstrike Brands, along with an upcoming 323,000 sq. ft. facility in Greece, should boost its output. Don't Buy HEXO YetThat said, it could be difficult for investors to know when to buy a tumbling equity like HEXO. Currently, it trades at a forward price-earnings (PE) ratio of 51.5. For a cannabis company, that appears to be a reasonable valuation, since the price-sales ratios of some marijuana stocks are in the triple digits.However, HEXO's forward price-earnings ratio is well ahead of the average S&P 500 forward PE ratio. Even the hottest stocks only stay at stratospheric multiples for awhile. One has to wonder if the sector's elevated multiples will eventually sink. If the multiples of the sector's largest equities drop, HEXO could continue its swoon. The Bottom Line on HEXO StockInvestors should hold off on buying HEXO stock until the equity finds a price floor or a catalyst. HEXO has taken steps to expand its production and enter new markets. It will work closely with Molson Coors to develop cannabis-based beverages. Given these attributes, Hexo Corp stock could enter the top tier of Canadian marijuana stocks.However, the valuations of the cannabis sector have begun to fall below their previous stratospheric levels. Hexo's multiple has remained comparatively modest, but its valuation remains well above the S&P 500 average. Moreover, HEXO is not trading near an established price floor.HEXO looks poised to become one of the more prestigious marijuana stocks. Still, until the price stops falling, traders should avoid buying 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 * 7 5G Stocks to Connect Your Portfolio To * 7 Stocks to Sell This Summer Earnings Season * 6 Upcoming IPOs for July The post Hexo Stock Has a Future, but You Don't Want to Own It Just Yet appeared first on InvestorPlace.