2.5600 +0.02 (0.79%)
After hours: 7:59PM EST
|Bid||2.5000 x 2900|
|Ask||2.5700 x 1800|
|Day's Range||1.9500 - 2.7000|
|52 Week Range||1.5600 - 8.4000|
|Beta (3Y Monthly)||4.93|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||N/A|
Despite the big three-day bounce in the cannabis sector, bearish investors remain plentiful, as the list of stocks with the highest borrowing costs for a short sale is littered with those in the marijuana business.
A wave of disappointing earnings caused a bloodbath in marijuana ETFs last week. However, talks of an end to the federal embargo on marijuana could turn this segment around.
Hexo Corp (TSX:HEXO) (NYSE: HEXO) said Friday that it decided to respond to false information that has been circling around regarding the licensing at its facility in Niagara, Ontario. In November 2018, prior to the company’s acquisition of Newstrike Brands Ltd, the UP cannabis cultivation facility was licensed by Health Canada. The facility's Block B was included In the license application, and Hexo said it thought Block B was licensed.
After HEXO (HEXO) released horrible preliminary FQ4 revenue numbers, the company came out with an innovative product to crack the low prices of the illegal cannabis market. The company had built the investors up on FY20 revenue targets of C$400 million that have now been withdrawn. The stock still can’t be touched at lows below $2, but the ability to innovate in the face of an adjusting market is encouraging for the long term.Value BrandThe biggest issue facing the Canadian recreational cannabis market is the still vibrant illegal market. The lack of retail stores in Canada is contributing to a market unable to undercut legal cannabis on supply that combines low prices with easier access to customers to still cover nearly 50% of the market.To address this market reality, HEXO quickly developed the Original Stash brand to combat the illegal market with a low-price option. The value brand sells 28 grams (1 oz) at black market prices. The retail price in Quebec was listed at C$125.70 including sales taxes, equivalent to C$4.49 a gram.A survey from Abacus Data found that: * 15% of Canadians say they have purchased dried flower since legalization and 4% purchased capsules. * 55% purchased in a physical retail store, 28% in a legal online store. * But 1 in 5 say they purchased on "another online store or website" and 31% purchased from "another source" such as black market.Stats Canada lists the Q difference between legal and illegal cannabis as nearly double the price. The illegal prices are now C$5.59 per gram. On the FQ4 earnings call, the CEO claimed the value product was 10% below the black market price and actually profitable.Whether the initial rollout has been extremely successful or not is unknown at this point. What is known it that HEXO found a solution to lead the market for the time being.Upside Potential The stock has taken a beating as the company pulled FY20 estimates for revenues of $300 million to analyst estimates now below $90 million. The numbers start to appear far too low with Cannabis 2.0 and the value brand hitting the market at the end of calendar 2019.HEXO cut 200 employees and closed some cultivation facilities to cut costs. The company forecasts reaching EBITDA positive in 2020, but the inability to hit previous FY20 financial targets has the market very skeptical, especially with a new CFO.The biggest problem is that any failure to reach EBITDA positive on target will require massive stock dilution to fund losses. The company has just enough cash to finish their existing Belleville facility for Cannabis 2.0 products and cover cash flow losses over the next year or so. HEXO already needs to raise additional capital via at-the-market stock offerings to provide a capital cushion.Consensus VerdictAs far as the cannabis producer's verdict on the Street, it is a toss-up among analysts, as TipRanks analytics exhibit HEXO as a Hold. Out of 13 analysts polled in the last 3 months, 2 are bullish on Hexo stock, 8 remain sidelined, and 3 are bearish. (See HEXO price targets and analyst ratings on TipRanks)TakeawayThe key investor takeaway is that HEXO has made some crucial steps to turn around their business. The analyst estimates appear too conservative now, but the Canadian cannabis company needs to prove out the new value brand concept and start the Molson Coors beverage JV on a solid footing before the stock will turn appealing to new investors.For now, investors should safely watch from the sidelines.To find better ideas for cannabis stocks trading at fair value or better, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
HEXO Corp (TSX: HEXO; NYSE: HEXO) (“HEXO” or the “Company”) is providing additional information about licensing at its facility in Niagara, Ontario. In November 2018, prior to HEXO Corp’s acquisition of Newstrike Brands Ltd., the UP Cannabis cultivation facility in Niagara was licenced by Health Canada and production from that facility began shortly after. In October 2018, Health Canada requested additional information for the application, pertaining specifically to the building where Block B is housed.
Amid a cash crunch, Hexo (NYSE:HEXO) stock continues its sell-off. The Gatineau, Quebec-based marijuana producer has seen its cash dwindle as investors have turned on the sector amid oversupply and vaping-related issues. As a result, a company that once came close to becoming profitable now looks more like a sinking ship. Unless and until Hexo stock can improve its cash situation and establish a bottom, investors should stay away.Source: Shutterstock I'm forced to offer a mea culpa on Hexo stock. I had considered HEXO one of my favorites of the non-top-tier marijuana stocks.After all, they have a strong base in their home province of Quebec, which constitutes about 21% of Canada's population. Also, they established an alliance with Molson Coors (NYSE:TAP) to produce cannabis-infused beverages following their recent legalization in Canada. On top of that, they had been on track to turn a profit.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe latest earnings report changed that. HEXO plummeted by 23% in one day as the company dramatically lowered fourth-quarter guidance and withdrew guidance completely for fiscal 2020. * 7 Silver and Gold Stocks to Buy That Offer Contrarian Upside The actual earnings release for the fourth quarter later in the month led to a further decline. The stock price has now fallen by more than 46% in a little more than a month.Outside of the company, the vaping crisis has contributed to its problems. Though the latest evidence points to black-market vape pens, the entire industry has suffered.Moreover, the Canadian market faces a massive oversupply. Thanks in part to high taxes and tight regulation, many consumers continue to turn to the black market. As Josh Enomoto mentioned, illegal weed makes up about 60% of the market. Now, the company ceased production at one facility and took 200,000 sq. ft. offline at its main facility in Gatineau, Quebec. HEXO Low on CashTop executives have left the company, including the CFO, who left soon before Hexo issued guidance. The timing for this is not fortuitous as the company faces a cash crunch. It currently holds about CAD$139.51 million in cash. Since it lost CAD$81.56 million in the last quarter, the company needs to find funding quickly.As Wayne Duggan pointed out, the CAD$70 million it raised through a 7% dilution will not get it through a quarter as its current burn rate. The CAD$30.26 million in long-term debt is not high, considering its CAD$776.76 million in equity.Still, without a dramatic cut in losses, that option appears limited as well. Further, the deal with Molson Coors is not the kind of investment that Constellation (NYSE:STZ) has made in Canopy Growth (NYSE:CGC). Hence, Hexo is not equipped to weather this crisis as well as Canopy or other top-tier weed stocks.Have I given up all hope? Not yet. However, it appears to have entered a "blood in the streets" moment. The question has become whether Warren Buffett-like investors will buy into this crisis. I think maybe, but not yet. Hexo stock trades near its 52-week low. Only rarely are such points a good time to buy. Unless it finds a floor somewhere above $0 per share, investors probably should watch HEXO instead of buy. The Bottom Line on Hexo StockUnless and until the HEXO finds a floor, investors need to stay on the sidelines. The outlook for Hexo stock has turned dramatically negative over the last few months. Hexo look poised to become profitable a few months ago. Its substantial market share in Quebec and deal with Molson Coors appeared to point to a bright future.However, thanks to a marijuana supply glut and concerns over vaping, instead, the company faces a cash crunch. With the Hexo stock price now below $2 per share, further dilution is not much of an option.Also, even with low liabilities, debt financing can only help them sustain quarters like the previous one for a limited time. Hexo is not dead yet. However, if it saves itself, it will not happen without more pain.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 Silver and Gold Stocks to Buy That Offer Contrarian Upside * 7 Earnings Reports to Watch Next Week * 5 Online Retail Stocks to Buy on the Dip The post Hexo Stock May Be Fast Approaching Its Blood-on-the-Streets Moment appeared first on InvestorPlace.
On Oct. 28, Quebec-based cannabis producer Hexo (NYSE:HEXO) reported subdued financial results for its fiscal fourth quarter. Wall Street was not pleased with the numbers, primarily because Hexo's management issued Q1 guidance that indicated that its revenue would not increase. Since the quarterly report, HEXO stock has been volatile and has dropped. On Nov. 14, its share price hit a 52-week low of $1.80.Source: Shutterstock In 2019, most marijuana stocks have been extremely volatile. In 2019, Hexo stock price has tumbled about 47%. I do not expect Hexo stock to rise meaningfully any time soon. Hexo's Earnings Failed to ImpressHexo's Q4 sales came in at CAD $15.4 million, up from $13 million in the previous quarter. Yet analysts, on average, expected the company to post sales of CAD $16.04 million. Over 90% of the cannabis that HEXO sold was used for recreational purposes.InvestorPlace - Stock Market News, Stock Advice & Trading TipsMost cannabis companies are burning through loads of cash and losing money as if there was no tomorrow. Their cash flows are far from predictable. In Q4, Hexo posted a net loss of CAD $56.7 million. Its loss in Q4 of 2018 was $10.5 million. * 7 Silver and Gold Stocks to Buy That Offer Contrarian Upside When Hexo reports its Q1 earnings in January 2020, investors are likely to look at the company's revenue mix. In Q4, over 80% of its total sales came from dried flower. In recent months, the price of dried flower has been decreasing, and consumers have not been loyal to any particular brand. If those trends continue, investors may decide that Hexo stock is overvalued. Canada's Cannabis Industry Faces a Wide Range of IssuesThe Canadian cannabis industry is currently facing several issues, ranging from health worries in the wake of deaths that may be related to vaping to regulatory issues to risky business models and investments to concerns about rich stock valuations. All these issues have an effect on the commercial success of legal cannabis as well as on the competitiveness of a company like Hexo.It is also important to remember that weed is an agricultural commodity. In late 2018, during the initial weeks of legalization in Canada, Canadians spent about $40 million on legal weed. However, since then, legal sales of the drug haven't really been as strong. In fact, they have been much less robust than initially anticipated.There may be too many cannabis companies in Canada, which is a relatively small market. On the other hand, the black market, with its lower prices, is still thriving in Canada, accounting for close to 50% of the nation's total recreational sales.The U.S. federal government regards marijuana as an illegal substance. Yet recreational cannabis is legal in 11 states. More states allow cannabis to be used for medicinal purposes.However, no one knows when (or if) the federal government will legalize cannabis. And sales outside of North America are not big enough to meaningfully boost Hexo stock or other weed names. Yet Hexo Stock Has an Important PartnerCanada recently legalized cannabis-based food and drinks. But these new products are not expected to hit shelves until Dec 16.In August 2018, Hexo and Colorado-based Molson Coors (NYSE:TAP) announced a joint venture called Truss. Molson Coors is the third- largest brewer in the world with a market cap of about $12 billion.Truss is a stand-alone entity with an independent management team. Molson Coors owns a controlling 57.5% interest in the JV. Hexo owns the remaining 42.5%. The new JV is currently developing a range of non-alcoholic cannabis drinks that will be marketed in Canada beginning in mid-December.Hexo's management has recently said that the company will "have a very large supply… [and] be able to meet the demand of the marketplace." Truss is also likely to sell CBD-infused drinks in the U.S. as of 2020.The rollout of edibles and drinks may help expand Hexo's margins. Prior to the JV announcement in Aug. 2018, Hexo stock price was hovering around $3. Therefore, if the company is able to capitalize on the legalization of cannabis food and drinks, the Hexo stock price may move toward that level again, versus its current price of $1.85. So Should Investors Buy Hexo Stock Now?I am not expecting most of the marijuana stocks to rise much in the coming weeks. I think that their high valuations may fall further in coming months.And the longer-term technical charts of most marijuana stocks, including Hexo, are telling investors to exercise caution. Their trend lines and support and resistance levels are especially weak. If you are considering investing in Hexo stock, you may want to start building a position between $1.50 and $2 and look to hold the stock for several years.Hexo stock would likely hit strong resistance at $2.50. Only after the stock is able to push through and stay above $2.5 and $3 can Hexo shareholders begin to relax.Those who already own Hexo stock may consider hedging their positions with at-the-money (ATM) covered calls. Such a hedge would not only enable them to participate in an up move by HEXO, but also provide some downside protection.As of this writing, Tezcan Gecgil holds covered call in TAP stock (Nov. 15 expiry). More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Silver and Gold Stocks to Buy That Offer Contrarian Upside * 7 Earnings Reports to Watch Next Week * 5 Online Retail Stocks to Buy on the Dip The post Will It Get Worse Before It Gets Better for Hexo Stock? appeared first on InvestorPlace.
Hexo (NYSE:HEXO) stock is nearing the danger zone. Since Nov. 7, the HEXO stock price is down 10%. That's the continuation of an ongoing slide. In the last six months, the stock is down over 70%.Source: Shutterstock Some of this drop is due to investors' ongoing retreat from cannabis stocks. HEXO for the most part has not been tainted by a particular scandal. However, like all the cannabis stocks, they have yet to show a profit. And with full legalization still some time away in the U.S. (not to mention the unknowns regarding regulation), investors are backing away from this industry.However, a greater concern regarding HEXO is investors struggling to understand exactly what the company is and where it fits in the cannabis sector. And that is leading to the larger question of whether or not the company will be acquired. As I look at HEXO, I see acquisition as not only probable, but likely.InvestorPlace - Stock Market News, Stock Advice & Trading Tips HEXO Is the Goldilocks of the Cannabis SectorThe term "Goldilocks" is colloquially used to describe an economy that is not too hot and too cold. If you'll indulge me, I'm borrowing the Goldilocks word to describe HEXO. I believe that the company is in an interesting space in the cannabis sector. It's not large enough to compete with the big producers like Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB). However, the stock is not so small as to be irrelevant. * 10 Cheap Stocks to Buy Under $10 The cannabis sector is about to embark on a consolidation phase. As the cannabis market emerged, many companies popped up. Many have and will fail. Others, like Canopy and Aurora have a lot of cash that ensure they will be part of the next stage of the business cycle. HEXO Is Not a Significant ProducerHEXO is not a major producer of cannabis. And frankly, their attempt to increase their production capacity is causing problems to the company's balance sheet. During their 2019 fiscal year, the company purchased 25 million CAD of dried cannabis to keep up with demand. The company subsequently wrote down that purchase to 8.1 million CAD.Write-downs like that are one reason that the company continues to report steep losses even as revenue is slowing. For example, in their most recent quarter, HEXO was expecting net revenue to come in around 14 million CAD to 18 million CAD after accounting for returns and retroactive inventory adjustments. HEXO Has Some Compelling PartnershipsBut HEXO has never been a major cannabis producer. And they haven't wanted to be. Instead, HEXO has focused on trying to form partnerships to get products to market. This is presenting two opportunities for HEXO stock to grow in the short term. But it's these same opportunities that make HEXO a desirable addition for another cannabis company.HEXO has a joint venture with Molson Coors Brewing (NYSE:TAP). The venture, called Truss has a partnership to produce Flow Glow, which is essentially cannabis-infused water (albeit in miniscule amounts). But HEXO is not alone in this space. Tilray (NASDAQ:TLRY) has a partnership with Anheuser-Busch (NYSE:BUD) and Canopy has its much publicized partnership with Constellation Brands (NYSE:STZ).And in May 2019, HEXO made an acquisition of its own with its 263 million CAD purchase of Newstrike Brands. Newstrike is the parent company for Up Cannabis, a brand that is gaining traction in Canada and could provide some growth. One of the reasons HEXO made this deal was the opportunity to increase its production space. * 7 Food Stocks to Buy Now But here again, chasing production is a double-edged sword. As I pointed out above, trying to increase their cannabis supply is part of what's leading to write-downs and losses. Those losses are beating up the stock price. In fact, the 1.8 million square feet of cultivation space that HEXO gained from the Newstrike deal is currently shuttered as part of their cost cutting plan. HEXO Has a Limited Path to Growth on Its Own MeritsHEXO is an intriguing cannabis company because it looks like it's at least attempting to get its balance sheet right. But being financially responsible is not giving it the opportunity to be a major player on the production side. And it may find that there just isn't a niche in which they can find a truly competitive advantage.But they are not insignificant, and they may very well prove to be a takeover target as the industry begins to consolidate. As recently as November 2018, Hexo CEO Sebastien St-Louis announced the company was on sale for the right price. However, with HEXO stock sinking below the $2 mark, there may be no time like the present for companies who are looking to buy the cannabis firm.As of this writing, Chris Markoch did not have an interest in the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Cheap Stocks to Buy Under $10 * These 10 Stocks to Buy Make the Perfect 'Retirement' Portfolio * 5 Streaming Stocks to Buy for Huge Upside Over the Next Decade The post HEXO Stock Is Primed for an Acquisition Now appeared first on InvestorPlace.
It's been a rough 2019 for Canopy Growth (NYSE:CGC) stock. But the launch of the company's "Cannabis 2.0" products next month could change that. Canopy and the pot space at-large could rebound if sales of beverages, edibles, and vapes live up to expectations.Source: Jarretera / Shutterstock.com But is this enough to move the needle for Canopy Growth stock? Even after a nearly 65% decline from its 52-week high, shares trade at a high valuation. Strategic partner Constellation Brands' (NYSE:STZ) multi-billion dollar investment provided a cash cushion. However, as the company burns through cash, Canopy could eventually need additional capital infusions.The pot space is betting big on "Cannabis 2.0". Does this mean its time to buy ahead of launch? Don't bet the ranch. While the shellacked share prices of pot stocks could rebound, all bets are off regarding upside.InvestorPlace - Stock Market News, Stock Advice & Trading TipsBut before we get to what will be, let's review what was. No Escaping a Terrible QuarterShares of Canopy Growth dropped to a two-year low yesterday after the company reported a weaker-than-expected $374.6 million net loss in its fiscal second quarter. It seems consumers lost interest in cannabis in the period, leading CGC to report $47.9 million in charges, including a $15.9 million inventory write-down.To be sure, net revenue in the quarter tripled YoY to $76.6 million, compared with $23.3 million in the same quarter last year, but it was off from Q1's $90.5 million.What happened? Acting CEO Mark Zekulin blamed Ontario's slow intro of pot retail stores as the biggest contributor to the miss. The province is the country's biggest market , so that's gotta hurt. He's been quite vocal with authorities about green lighting more legal locations, but it seems to be falling on deaf ears -- "Eh?"."Why it's not just happening right away, I do not know," Zekulin told BNN Bloomberg.He isn't expected to be "acting" much longer, as Canopy is reported to be zoning in on a permanent replacement for ousted co-founder and former CEO Bruce Linton.Now, as I was saying … let's take a closer look at CGC stock, and see why Cannabis 2.0 may not be enough to save the stock. * 7 Large-Cap Stocks to Give a Wide Berth Cannabis 2.0: Reality vs. Hype for CGC StockCanada legalized recreational marijuana sales last year. The "2.0" of legalization came just last month, with the regulatory green light for CBD- and THC-infused drinks, edibles and non-flower products.With Canopy's launch of Cannabis 2.0 products coming on schedule for early December, we are getting a clearer picture of the new product launches. A few weeks ago, Barron's took a look Canopy's upcoming products. The company is launching 13 cannabis-infused drinks, a line of cannabis-infused chocolate, as well as vape products.Is there demand for these products? Some 60% of cannabis users, and 80% of non-users want to try out infused beverages. With the drinks offering a low-THC buzz, they could be an alternative to alcoholic beverages like beer and wine.Cowen analyst Vivien Azer is bullish about Cannabis 2.0's impact on the industry. She projects these products could produce $2.3 billion CAD ($1.7 billion) in annualized sales by next year. But will this translate into revenue growth for Canopy? The company faces heavy competition in the beverage, edibles, and vapes space. Competitors like Hexo (NYSE:HEXO) have beverage launches of their own. Meanwhile, in its earnings report, the company said it used $404.7 million in cash, mostly for its operations, along with the construction of its manufacturing and beverage production facilities.While beverages are a big part of the Canopy Growth stock story, the company is pursuing other growth opportunities. Recently, Canopy announced a partnership deal with Drake. But this celebrity "cannabis wellness" venture may not be a slam dunk. Canopy's past celebrity partnerships have failed to pay off. These sorts of deals are good PR, but probably won't move the needle.Regulatory red tape remains a big headwind. A lack of retail locations makes it tough for companies like Canopy to unload swelling inventories. There's a lot at play for the future of CGC stock, and not all of it hinges on "Cannabis 2.0".With these risks and opportunities, is Canopy Growth stock priced for a contrarian bet? Let's look at valuation, and see if today's price presents a strong entry point. Canopy Growth Stock Richly Priced Relative to PeersUsing the enterprise value/sales (EV/Sales) ratio, CGC stock remains more expensive than most of its peers. Canopy trades at an EV/Sales (trailing 12 months) of 26.5x. Aurora Cannabis (NYSE:ACB) trades at trailing 12 month (TTM) EV/Sales ratio of 20.6x. Aphria (NYSE:APHA), Tilray (NASDAQ:TLRY), and Hexo all trade at lower TTM EV/Sales ratios than Canopy. Only Altria (NYSE:MO) backed Cronos Group (NASDAQ:CRON) trades at a higher valuation (TTM EV/Sales of 37.6).But Canopy's premium to ACB, APHA, TLRY, and HEXO could be justified. Like Cronos, Canopy is backed by a deep-pocketed partner. This provides the cash necessary to sustain operations as it scales to profitability. * 7 Great High-Yield Stocks With Payouts Over 5% As seen in my recent Cronos analysis, strategic partners can be a doubled-edged sword. With Cronos, Altria has incentive to drive the company's share price lower, allowing it to take it over on the cheap. The same situation could occur with Canopy Growth stock. If shares fall further, Constellation can step in and acquire a larger share of the company at lower prices.Constellation also has the opportunity to capture much of Canopy's potential upside. The beverage giant holds multiple tranches of warrants. The first tranche allows them to buy 88.5 million shares at $50.40 CAD a share. The second and third tranches allow them to buy 51.3 million additional shares at higher prices. With declines in the CGC stock price, Canopy extended the warrants' expiration date to November 2023 for the first tranche and November 2026 for the second and third.These warrants are priced at higher levels than Canopy's current trading price. But if the company rebounds, Constellation stands to reap much of the upside. Tread Carefully With CGC StockEven after falling from $52.74 per share down to below $20 a share, CGC stock is not cheap. High expectations for Cannabis 2.0 continue to be priced into shares. Investors today can make a bet that infused beverages and edibles pay off. But it's important to note the impact of Constellation's de-facto control of the company.So what's the play? Buy Canopy Stock if you're willing to stomach the risks. But other pot names selling at lower valuations may enable you to make that bet at a more reasonable price.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 * 10 Cheap Stocks to Buy Under $10 * These 10 Stocks to Buy Make the Perfect 'Retirement' Portfolio * 5 Streaming Stocks to Buy for Huge Upside Over the Next Decade The post 'Cannabis 2.0' May Not Be Enough to Save Canopy Growth Stock appeared first on InvestorPlace.
A trader knows when to get out. An investor knows not to get in. A plunger is better off in Las Vegas. Tilray (NASDAQ:TLRY) and the other cannabis stocks were for plungers. Traders who paid close attention, and who got out at the first sign of a reversal, made money. Plungers were taken to the cleaners.Source: Shutterstock At its opening price of $21.26 per share on Nov. 13, Tilray was down 80% over the last year, and its market capitalization is down to $2.1 billion. The promises of easy profits from mass marijuana growing were a puff of smoke, one that like any other high faded with the dawn.The latest quarterly report, with a loss of 50 cents per share on revenue of $51.1 million, was the last straw for the stock, and perhaps for the whole group.InvestorPlace - Stock Market News, Stock Advice & Trading TipsIt's time to look for a new fad. Start Abandoning the FieldInvestorPlace has been following the pot investment fad since it started. The latest verdict of Luke Lango on Tilray stock was devastating. It may take another 20% of losses for the stock to find its footing, he wrote on Nov. 6.Since then the shares are down almost 10%. * 7 Tech Stocks to Buy for the Rest of 2019 Brad Moon warned investors this was coming a month ago. Tilray fell 13% after rival Hexo (NYSE:HEXO) disappointed. "Investors hate uncertainty," he wrote. I would add that plungers confuse promise with reality. Traders buy the rumor and sell the news, good or bad.Tilray was the first cannabis company to list on a U.S. exchange, a year ago in July. It started at $17 and went as high as $214, with a brief intra-day run to $300, before the fall. Traders made out like bandits. They followed charts with each trade, adding with each rise, taking profits with each fall, getting out entirely at the first sign of trouble.The trouble, as I recently explained about Aphria (NYSE:APHA), is that companies like Tilray, Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) bet on a demand explosion that hasn't come. When it became clear that Canada was slow-walking legalization, and that U.S. states weren't rushing to follow Colorado and Washington into recreational pot, they figured things like creams or CBD oil would soak up the crop.These were patent medicines, in the view of the medical establishment. They were fads. People tried them, and most put them away. What Happens Now?There may be a legal pot market. It may be profitable. But it will be much smaller, and grow much more slowly, than the boosters have suggested.Tilray may not live to see that day. It had just $184 million of cash at the end of June. That's enough to get through, at most, another year of losses. With the other pot suppliers also sitting on product surpluses, losses look certain.What happens next will be a slow, grinding consolidation phase, something we've seen in the oil patch over the last five years. Those with capital will buy up those without at fire-sale prices, until supply lines up with demand and profits can flow. The Bottom Line on Tilray StockThe question is how big those eventual profits may be.I wouldn't touch Tilray on a bet right now. I've suggested Canopy, because Constellation Brands (NYSE:STZ), which holds a big position, can backstop it. Others have suggested Aphria, due to its lower production costs. David Moadel has suggested that Aurora might reward patient investors.Investors should have patience with profitable stocks that are out of favor. Don't have patience with unprofitable ones. You may want to wait to find a buying opportunity in one of these names as the market turns and more of it starts to light up.What say I? Thanks, but no thanks.Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Tech Stocks to Buy for the Rest of 2019 * 7 Biotech Stocks to Buy With Plenty of Power in the Pipeline * 5 Stocks to Buy That Are Set for Monster Growth in 2020 The post Tilray Stock Has Fallen and Canat Get Up appeared first on InvestorPlace.
Thanks to both Canadian legalization as well as the 2018 farm bill here in the states, North America has essentially become "little Amsterdam." Moreover, favorably shifting public sentiment in the U.S. has made cannabis-infused beverage companies like New Age Beverages (NASDAQ:NBEV) intriguing for both consumers and investors alike. Particularly, NBEV stock appeals for the underlying broad mixture of cannabis and general health-related drinks.Source: monticello / Shutterstock.com Still, cannabis stocks are infamous for their volatility. Due to myriad challenges, along with questions about the industry's financial viability, several investors have dumped out of their positions. Despite New Age Beverages stock not being a pure cannabis play, shares have not received an exemption from the pain. Naturally, investors remain unsure how to approach NBEV.Further adding to the pressure, New Age will release its third-quarter earnings results on Nov. 14 before the opening bell. Since Q2 2017, the company has failed to deliver positive earnings per share. As such, investors will likely want to see some meaningful pathway toward profitability for NBEV stock.InvestorPlace - Stock Market News, Stock Advice & Trading TipsGiven the rough waters of the broader cannabis industry, it's difficult to guess how the markets will respond on Thursday. Still, legal cannabis products, especially cannabis-infused beverages are incredibly popular. With that, here are three arguments for and against New Age Beverages stock: Pros: Strong Projected Growth for Cannabis BeveragesCannabis-based beverages, specifically cannabidiol or CBD-infused drinks, will be huge in the U.S. According to research firm Zenith Global, this market will hit a value of $1.4 billion at the end of 2023. To put this into context, Zenith projects CBD beverages to reach $227 million at the end of this year. * 7 Tech Stocks You Should Avoid Now In addition, companies like New Age have the opportunity to convert curious newcomers to cannabis-based products and therapies. According to an August 2019 Gallup poll, 14% of Americans say they use CBD. While impressive, this figure also leaves an ample opportunity for New Age to advantage, potentially lifting NBEV stock.Not only that, High Yield Insights performed a study revealing that the most popular CBD products are baked goods. Coming in second place are CBD gummies. While not beverages, these are consumable formats with which everyone is familiar.Therefore, it's not a stretch to assume that the folks who like CBD edibles will eventually make the switch to CBD-infused beverages. That's a potential net positive for New Age Beverages stock. Pros: American Market Wide Open for NBEV StockRecently, I interviewed Marty Sumichrast, chairman and co-CEO of cbdMD (NYSEAMERICAN:YCBD). In our long-format discussion, Sumichrast mentioned that the U.S. market is wide open. Furthermore, he argues that Americans prefer CBD to tetrahydrocannabinol (THC)-based botanicals.Combined with the company's impressive array of products, this dynamic places cbdMD in a position to become the dominant CBD brand in the U.S.As a shareholder of YCBD, I wish them well. However, because the U.S. market is so open without an established dominant player, it allows companies like New Age to carve out a niche in a specific sub-segment like CBD-infused beverages. Pros: New Age Beverage Stock Isn't a Pure Cannabis PlayAlthough heavily associated with CBD, NBEV stock isn't purely a CBD investment. And right now, I'd say that fact offers some key advantages.Namely, New Age hasn't followed its cannabis peers in aggressive fiscal maneuvering. Although the company hasn't been profitable in a while, you can clearly see the pathway to eventual profitability. Primarily, NBEV features strong revenue growth and reasonable expenses.Also, New Age has a relatively solid balance sheet, highlighted by nearly $84 million in cash and only $13.4 million in long-term debt. Combined with its long-term capital lease obligations, these liabilities amount to $60.5 million.Simply put, management isn't making wild swings. At this point, that's a positive for NBEV stock. Cons: Legal Uncertainty in U.S. CBD MarketDespite much potential, New Age hasn't yet entered the CBD-infused beverage space in the U.S. Why? Management has blamed a "murky" legal environment.I don't fault them. Under the 2018 farm bill, industrial hemp and hemp-derived products are legal for individuals to purchase. But that doesn't necessarily mean that CBD is legal. After all, cannabis is still considered a Schedule I drug.How do American companies get around this tricky situation? CBD derived from hemp is permissible under the farm bill. However, CBD from any other source -- even if it contains less than 0.3% THC as mandated by the law -- is illegal.Even when you have everything right, CBD laws are still very confusing and perhaps contradictory. Because of this uncertainty, New Age Beverages stock risks losing momentum to competitors. Cons: Too Many AssumptionsAs enticing as CBD beverages are, nobody really knows how the market will respond. Though enticing for those looking for a non-offensive way to enjoy cannabis, CBD-infused drinks could end up becoming a fad.More critically, CBD itself could also become a fad. While I don't think this will be the case, I concede that the medical community is hesitant about endorsing CBD. Further research is necessary for medical professionals to feel comfortable prescribing cannabidiol or other cannabis-based therapies.Until that happens, NBEV stock has a fundamental risk associated with it. Cons: Big-Name CompetitionAs with most good ideas, NBEV isn't the only one pursing cannabis-infused beverages. Several players are involved in the CBD beverage space, most notably the joint partnership between Molson Coors Brewing (NYSE:TAP) and Hexo (NYSE:HEXO).Depending on how popular CBD-infused beverages become, other big players might enter the space. This could either be positive for New Age Beverages stock (i.e., a buyout) or it could be negative. Frankly, if larger players enter the space, they could use their leverage to build out a new brand.Also, the fact that NBEV is stalling in the U.S. market isn't a great confidence booster. Final AssessmentNew Age Beverages stock is a risk, but a compelling one. With the right amount of luck, shares can take off thanks to its powerful CBD brand. And because the U.S. market is ripe for the taking, the possibilities are endless.However, NBEV stock falls short because of the legality issue of CBD. And while I'm enthusiastic about CBD-infused beverages, the industry has question marks about viability.Ultimately, though, a lot of the bad news is baked into the price. If you can stomach the risk, NBEV stock is worth a careful, measured shot.As of this writing, Josh Enomoto is long YCBD and HEXO. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Large-Cap Stocks to Give a Wide Berth * 7 Potential New Stocks That Should Not Go Public * 5 Chinese Stocks to Buy Surging Higher The post 3 Pros, 3 Cons for New Age Beverages Stock appeared first on InvestorPlace.
Aurora Cannabis (NYSE:ACB) stock has slowly cratered this year. Shares have fallen from a 52-week high of $10.32 on March 19 to $3.73 at the close Nov. 6. High hopes for the "cannabisphere" have not lived up to expectations.Source: Shutterstock Despite oversupply, Aurora plans to ramp up production more than 3-fold to 500,000 kilos/year. Yet this is much more pot than the market can bear. With continued operating losses, the road to profitability seems miles away. But with the stock price bottoming out, we are getting closer to a reasonable price for ACB stock. * 7 Beverage Stocks to Stock Up On With the next earnings release expected next week, is now the time to take a position? Not so fast! Aurora Cannabis stock has fallen far, but additional downside could be on the table.InvestorPlace - Stock Market News, Stock Advice & Trading Tips Headwinds Continue to Plague ACB StockHeading into earnings, Aurora Cannabis stock faces many issues. Cowen's Vivien Azer is bearish on upcoming results. She believes a bulk of last quarter sales were a one-time event. Last quarter, Aurora sold C$20 million worth of pot into the wholesale market. Assuming this event is not repeated, she anticipates sales to fall 24% quarter-over-quarter.Azer is also concerned with the company's convertible debt due in March. In prior analysis, I have discussed Aurora's convertible debt issue. The current share price is far below the conversion price. Because of this, the company will need to find alternative ways to refinance the debt. Aurora could issue new convertible notes. They could also raise equity. Either situation will be dilutive for ACB stock.Analyst consensus for future revenue is also falling. Previously, Seeking Alpha analysts estimated sales of $775.2 million for the fiscal year ending Jun 2021. This has since fallen to $652.7 million.But this could be darkness before the dawn. Next month is the start of "Cannabis 2.0," when marijuana products such as edibles and beverages hit Canadian shelves. The rollout of these high-margin products could be a saving grace for the pot space.Will "Cannabis 2.0" move the needle for ACB stock? Unlike peers such as Hexo (NYSE:HEXO), Aurora is not as tied to the recreational space. Their efforts have been focused on the prosaic medicinal end of the business. This has allowed them to diversify globally. As InvestorPlace's Tom Taulli recently wrote, Aurora has made big inroads in Europe and Latin America.Building a business in more regulated medical marijuana may not be as sexy as a cannabis-infused drink. But long-term, it may provide the company with stability to withstand Darwinian competition in the pot game. Aurora Stock Cheaper Than Peers (But It's No Bargain)Using the enterprise value/sales (EV/Sales) metric, ACB stock is cheaper than many of its pot stock peers. Aurora trades at a trailing twelve-month EV/Sales of 25.37. In comparison, Canopy Growth (NYSE:CGC) trades at a current EV/Sales ratio of 18.63. Pot stocks like Aphria (NYSE:APHA) trade at much lower valuations (EV/Sales of 4.6). But Aurora Cannabis stock remains cheaper than Cronos Group (NASDAQ:CRON). CRON continues to trade at a high EV/Sales ratio (335.56).For the pot stocks, trailing EV/Sales may not be the best metric. Applying EV/Sales to estimated FY21 revenue gives us a EV/Sales valuation of 6.3. Canopy's future EV/Sales ratio (using FY21 estimates) is 7.7. This also demonstrates the market giving ACB stock a discount relative to peers like CGC.But using forward sales is not an exact science. With revenue estimates continuing to fall, it's tough to see where Aurora and its peers will be a year from now.On an absolute basis, Aurora Cannabis stock is expensive. Recently, InvestorPlace's Will Healy compared Aurora's price-to-sales (Price/Sales) ratio to that of the S&P 500. According to Healy, the average Price/Sales ratio for the S&P 500 is 2.2. By comparison, Aurora trades for 20 times current revenue.This premium is unsustainable. With the pot industry troubles, I am doubtful ACB stock will "grow into its valuation." Shares have more downside from here, even if projected growth continues. Bottom Line: Wait For Cannabis 2.0 to Play OutIt's tough to predict short-term moves in the pot space. Most of the current news is priced into shares. ACB stock is no exception. Investors understand the company's headwinds, and have acted accordingly. But in the next few months, the industry's prospects could change.If Cannabis 2.0 turns out to be the gold mine it has been touted as, Aurora Cannabis should reap some benefit. While not as levered to edibles and beverages as its peers, improved demand for legalized marijuana (in whatever shape or form) will quell fears of oversupply.The fortunes of Aurora stock could turn on a dime, so don't short this stock. Don't buy it either, considering the murky waters in the short-term. Keep pot stocks like ACB on your radar, but take your time before making a move.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 Stocks to Sell Before They Roll Over * 5 Beaten-Up Stocks to Buy That Could Be Saved By An Acquisition * 4 Startup Stocks Getting Smashed The post Has Aurora Cannabis Stock Bottomed Out? Not So Fast! appeared first on InvestorPlace.
GATINEAU, Quebec, Nov. 05, 2019 -- HEXO Corp. (TSX: HEXO; NYSE: HEXO) (“HEXO” or the “Company”) announces that on October 29, 2019, it filed its annual report for the fiscal.
It was an ugly October for shares of Canadian cannabis producer HEXO (NYSE:HEXO). Early in the month, the company announced preliminary fourth quarter fiscal 2019 numbers that fell short of expectations. At that time, management also withdrew its full-year fiscal 2020 revenue guide amid mounting cannabis market challenges and uncertainties.Source: Shutterstock Later in the month, HEXO proceeded to report actual fourth quarter numbers that were roughly in-line with expectations, but also included a first-quarter fiscal 2020 guide that was unimpressive.HEXO stock sunk from $4 at the beginning of October to $2 by the end of the month. Zooming out, the 50% haircut in October is part of a bigger downtrend in HEXO stock which started about six months ago. During that stretch, the HEXO stock price has dropped from $8 to $2. Unfortunately for bulls, I don't see things getting better anytime soon.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 Earnings Losers That Were Hit Hard This Season During this whole sell-off, I've sounded a bearish tone on HEXO stock for one very simple reason: this seems like just another overvalued, undifferentiated pot stock with greatly limited visibility to sustainable growth and profitability in the long run. This bearish rationale remains true today. So long as it does, HEXO stock will continue to trend lower.As such, I don't think it's time to buy the dip. Instead, investors should continue to stay away. Beware the Gold Rush HypeThe big picture backdrop on HEXO stock projects to remain bleak. In short, emerging growth markets are like a gold rush in that everyone wants to move into the market to strike it rich, but only very few do. The most notable example? The internet.Back in the late 1990s, the internet was the world's hottest emerging growth market, birthing thousands of companies like Boo.com, Webvan, Pets.com, Kozmo, and Geocities.Most of those companies were valued as if they were going to strike it rich in the internet gold rush. But they didn't. Of the thousands of dot-com companies that were launched during the late 1990s, only a handful -- like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) -- survived and thrived over the long-term.The same logic can be applied to the cannabis gold rush of the late 2010s. There are hundreds of cannabis companies out there. All of them are saying the same thing: there is a $200 billion global cannabis market opportunity out there, and we are best positioned to dominate that market because of X, Y, and Z.But, the harsh reality is that the cannabis market will not sustain hundreds of cannabis producers. Instead, the market at scale will consolidate around a few very large players -- see the tobacco and alcoholic beverage markets, which are essentially oligopolies. The rest will go bankrupt.In other words, there are two types of pot stocks out there. One type is pot stocks that could take over the world, and the other type is pot stocks that could go under. About 5% of pot stocks belong in that first group. The other 95% belong in the second group. That's simply how market consolidation works. Nothing Special About HEXOAt this point in time, HEXO belongs more in the bucket of "pot stocks that could go under," than "pot stocks that could take over the world."That's because there's nothing special about HEXO. The company isn't big. Revenues were under $50 million last year. Growth is relatively muted. Revenues are expected to rise just 4% quarter-over-quarter next quarter. There isn't any multi-billion dollar support from a consumer staples giant, which companies like Canopy Growth (NYSE:CGC) and Cronos (NASDAQ:CRON) have. The numbers aren't terribly impressive, with gross margins weak and losses piling up.Considering 95% of this space projects to go under, "nothing special" means that HEXO stock belongs in the group of "pot stocks that could go under." So long as Hexo stock remains in that group, shares won't rebound from their secular downtrend.HEXO is just an another undifferentiated, overvalued pot stock with limited long-term growth visibility. So long as the numbers reaffirm this bleak reality, Hexo stock will remain weak, and investors should stay away.As of this writing, Luke Lango was long CGC. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Earnings Losers That Were Hit Hard This Season * 6 Tech Stocks Better Than the FAANGs * 7 Retail Stocks to Avoid for the Holidays The post Why It's Best to Keep Avoiding HEXO Stock appeared first on InvestorPlace.
On the other hand, we saw a series of bad news coming out of major cannabis companies. MedMen Enterprises Inc. (CSE: MMEN) (OTC: MMNFF) tumbled on a substantial growth in its net losses, which came in at $82.9 million for the fourth quarter, more than double the loss reported in the same period last year.
Canadian cannabis producer HEXO Corp. (HEXO) has taken a pummeling in the market recently. In the last 6 months it has seen its share price drop from $7.81 to its current price of $2.19, with the last month alone being especially violent as the stock has shed more than 40% of its value.It wasn’t long ago that the company was predicting substantial growth figures for F2020, but it has now withdrawn its rosy outlook of CA$400 million revenue. This follows the fourth quarter adjusted net loss of CA$43.73 million. Figures for the whole of 2019 are just as gloomy, revealing a net loss of CA$67.6 million.So, what’s gone wrong? The Canadian cannabis industry has, as a whole, been experiencing problems lately – supply shortages, regulatory issues, delay on derivatives reaching the market – have all played their part, but the problems with Hexo appear to be more specific.The recent resignation of newly appointed Chief Financial Officer, Michael Monahan, was a sign of trouble. Although the resignation appears to be unrelated to the recent report, CEO Sebastien St-Louis presented Monahan’s appointment as a bit of a coup, and now must contend with putting out another fire.Another sign indicating all might not be well was the recent announcement of job cuts – 200 of them - among those senior management positions. This has raised the question whether Hexo has a cash flow problem and for how long it can stomach the losses before caving in. This follows a recent $70 million cash injection from private investors, including from the pockets of founder and CEO St-Louis. Maybe this indicates a vote of confidence in the company’s ability to tun things around. Time will tell.In a report following the recent earnings report, BMO’s Tamy Chen noted, “HEXO believes its cash balance ($134mm including the $70mm financing) will be sufficient for the next 12 months and expects to achieve positive EBITDA in calendar 2020 if total store count reaches 700 in Canada, from ~500 currently”, adding, “Based on our revised model, which includes this restatement, HEXO could make it through F2020 but would need $90mm of funding in F2021 [...] Until there is better visibility into HEXO's ability to "rightsize" its operations to reaccelerate revenue growth and improve margins, we remain on the sidelines."Chen reiterated a Market Perform rating on HEXO stock along with a C$3.00 price target, which implies a slight upside from current levels. (To watch Chen's track record, click here)Chen is not alone in playing it safe on the embattled cannabis producer, as TipRanks analytics exhibit HEXO as a Hold. Out of 13 analysts polled in the last 3 months, 2 are bullish on HEXO stock, 8 remain sidelined, and 3 are bearish. Yet, consider that the 12-month average price target of C$4.20 reflects healthy upside potential of nearly 46% from where the stock is currently trading; in other words, optimism circulates among analyst sentiment even amid apprehension. (See HEXO stock analysis on TipRanks)
Back in July, I wrote that Aurora Cannabis (NYSE: ACB) had a cash burn problem. In the past week, it has become painfully clear HEXO (NYSE: HEXO) stock has one too.Source: Shutterstock The HEXO stock price has tanked another 22.8% in the past two weeks. Unfortunately, analysts are not recommending investors buy the dip just yet. * 7 Stocks to Buy in November The honeymoon period for cannabis stocks is over. HEXO stock clearly has near-term issues with its balance sheet and will remain a risky bet until something changes. While HEXO may ultimately play a big role in the cannabis boom, investors need to be very careful with HEXO stock at this point.InvestorPlace - Stock Market News, Stock Advice & Trading Tips HEXO's Cash IssuesOn Oct. 23, HEXO announced a C$70 million ($53.4 million) private placement in the company. The unsecured convertible debentures pay an 8% interest rate payable quarterly. If fully converted, the private placement could add about 22.1 million new shares of HEXO stock, a roughly 7% dilution.The following day, Hexo announced it is laying off 200 employees. Those employees represent about 24% of the company's 822 total employees reported earlier this year. In a statement, the company said the layoffs are a necessary adjustment based on its updated 2020 outlook for revenue growth.In addition, HEXO announced it is suspending production at its Niagara facility and at 200,000 square feet of its main Gatineau location. The company said the suspension is due to "current market conditions in Canada."Finally, this week Hexo reported its delayed fiscal fourth-quarter earnings report. The numbers weren't pretty. HEXO reported negative free cash flow of C$119 million, down from -C$43 million in the third quarter. To make matters worse, HEXO reported just C$136 million in cash at the end of the quarter.To look at the situation another way, HEXO had a little more than one quarter's worth of cash remaining at the end of the fourth quarter, assuming its cash burn stops accelerating. The company subsequently potentially diluted current shareholders by 7% to get another C$70 million in cash. That's less than a single quarter's worth of cash burn at the current rate. Analyst's Take on HEXO StockLike other Canadian cannabis producers, HEXO clearly seems to be having a cash crunch. Bank of America analyst Christopher Carey says fourth-quarter earnings confirmed that the company has major near-term challenges.Carey says HEXO stock investors have to face the reality that the company is not operating optimally at this point. In a weaker-than-expected market, that inefficiency is getting exposed.Carey says the layoffs, private placement and production cuts are potential near-term solutions. But they fail to change the underlying causes of the problems. In addition, the pricing of the offering suggests raising capital may prove difficult in coming quarters."The key data point, in our view, is that the offering was priced at a discount to the trading price of Hexo's CAD shares (e.g. C$3.16/share conversion vs. a trading price at press release of C$3.31/share), e.g. converts are already in the money, effectively making the convertible debenture more like an equity offering that pays an 8% coupon," Carey says.HEXO stock is already down 73.4% in the past six months. Carey says there will likely be additional downside for the stock given HEXO is unlikely to get anywhere near consensus Wall Street revenue growth expectations in the near-term."With visibility on go-forward revenue already low (BofAML FY20e revenue of C$122mn is -28% vs consensus), it is difficult to become constructive on shares," he says. How To Play HEXO StockSince I wrote about Aurora's cash burn problems back on July 22, ACB stock is down another 46.3%. Unfortunately, HEXO stock now appears to be in a similar situation.I'm a long-term bull on cannabis stocks. But the early 2018 rally in many of the cannabis plays was irrational and expanded their valuations way beyond where they had any business being.The cannabis business is still in its infancy. Picking long-term winners and losers at this point in the game is little more than betting on roulette numbers at the casino.Instead, I recommend investors pick a basket of at least three or four of the top cannabis brands to make a play on the business as a whole. HEXO could ultimately survive this cash crunch and emerge as one of the long-term global cannabis winners. At the same time, things could also easily go from bad to worse if HEXO has difficulty raising additional cash.Even if you plan to ultimately add HEXO stock to your cannabis basket, I would recommend not doing so at the current time.Instead, consider building your cannabis portfolio around Canopy Growth (NYSE: CGC) and Cronos (NASDAQ: CRON), two stocks with relatively stable cash positions and deep-pocketed partners.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 Buy-and-Hold Stocks to Play Investing's Biggest Trends * 7 Stocks to Buy in November * 5 Strong Buy Stocks Under $5 With Massive Upside Potential The post HEXO Stock Has a Cash Problem appeared first on InvestorPlace.
A stock like Hexo (NYSE:HEXO) is going to look intriguing to some investors. After all, the HEXO stock price has dropped 73% in a little over six months.Source: Shutterstock That plunge itself could draw in investors who try to time bottoms, particularly those who are bullish on the long-term opportunity in cannabis. Certainly, in retrospect it now looks like marijuana stocks were in something close to a bubble. But the nearly three-quarters reduction of Hexo's market capitalization suggests its valuation has been corrected to at least some extent.Meanwhile, Hexo stock was a bit late to last year's cannabis stock boom, spending much of 2018 as a seemingly hidden gem in the industry. With apparently indiscriminate selling of marijuana stocks in the last few months, an investor could easily argue that it's again being overlooked.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 Triple-A Stocks to Buy in November But upon closer inspection, that contention falls apart. I argued last month that HEXO was in a precarious position ahead of its fiscal fourth quarter earnings, but the news has been far worse than even I imagined. This is a company in legitimate trouble at the moment. Hexo stock is plunging because the market is paying attention to it. Concerning Revenue NewsThe Hexo stock price sits at its lowest level since late 2017 -- and for good reasons. One of those reasons is the company's disappointing top-line performance.On Oct. 10, Hexo negatively preannounced its Q4 sales. Its net revenue guidance of C$14.5 to C$16.5 million was well below analysts' average estimate. The HEXO stock price fell 36% in three sessions, and it hasn't recovered since.The company's actual net revenue for the quarter came in at C$15.4 million, in the middle of the preliminary range. And its revenue did increase 19% versus its previous quarter.But 19% growth is nowhere near what HEXO had originally projected. The company said in June that, thanks to harvests from a new greenhouse, its sales would double in Q4 versus Q3. Adding to the concern, HEXO has withdrawn its guidance for its fiscal 2020 which ends in June.The company had originally projected C$400 million of sales in FY20, which at the time suggested 600%-plus growth year-over-year. Its Q4 performance suggests that its actual FY20 sales will be far worse.Its disappointing top-line performance is due partly to industrywide pressures. Retailers have opened locations more slowly than expected, partly due to a backlog of application approvals by the Canadian regulator. A bull could argue that those delays won't necessarily badly hurt the outlook of HEXO stock.But Hexo's problems go way beyond revenue, though its weaker sales amplify issues elsewhere in the business. Why Is HEXO Cutting Back?HEXO actually is shutting down facilities and laying off about 200 employees. Part of the issue seems to be that the company's acquisition of Newstrike Brands earlier this year was overly ambitious.Regardless, HEXO isn't acting like a company with a massive long-term opportunity that simply has been delayed a quarter or two. Rather, it looks like Hexo is responding to the fact that the Canadian market seems to be poised to become massively oversupplied. Its prices already are falling, which in turn means that Hexo's production capacity will become much less valuable.There's been an exodus of top executives as well, with the chief financial officer leaving earlier this month for family reasons, and the chief marketing and manufacturing officers being dismissed as part of the announced layoffs.That alone is concerning. But so is the reason why HEXO is cutting costs. Cash Burn and the HEXO Stock PriceHexo is trying to focus on profitability over revenue growth, partly in order to satisfy investors. As I noted when discussing industry giant Canopy Growth (NYSE:CGC), the market seems to be demanding profits from marijuana stocks at this point, though even Aphria (NYSE:APHA) stock has fallen despite delivering those profits.But HEXO is also emphasizing profitability in response to the company's increasingly worrisome cash position. According to its Q4 filing, Hexo closed the quarter with C$139 million in cash. And it raised another C$70 million through a convertible debenture issuance last week.That said, it had only C$64 million of cash reserves as of the October filing. The company on its Q4 earnings conference call did guide for positive EBITDA, excluding some items, in fiscal 2020. But it also projected C$100 to C$110 million of capital expenditures.In other words, its free cash flow is going to be sharply negative in fiscal 2020 even if it meets its EBITDA guidance. And as a Bank of America Merrill Lynch analyst noted after the Q4 report, that means the company likely will have to rely on selling Hexo stock through the market to raise money.That would create a near-term overhang much like the one facing Aurora Cannabis (NYSE:ACB). In Aurora's case, the problem is convertible bonds that have to be repaid in cash. But for both companies, fears of further stock issuance in the near-term can prevent investors from buying shares. Add that problem to a clear "falling knife" stock chart, and Hexo stock price clearly can keep falling. Taking a Step BackConsidering all of these issues, it's clear that HEXO still looks dangerous at the lows. Yes, the stock has fallen sharply, but that doesn't mean it's cheap. After all, other marijuana stocks have declined by similar amounts. CGC and ACB both are down over 60% from their 52-week highs. Cronos Group (NASDAQ:CRON) has lost two-thirds of its peak value, and Tilray (NASDAQ:TLRY) has dropped 81%.I'm personally hardly ready to jump into the carnage of marijuana stock. But even if I were, Hexo stock would hardly be my first choice. Top executives are exiting. The company is cutting back while its rivals are targeting profitable growth. Concerns about its balance sheet are real, and will be amplified if margin pressures lead to disappointing FY20 results.There simply are a number of very real risks facing Hexo stock at the moment. If the counterargument is that the stock has fallen farther than other cannabis stocks, that's an awfully flimsy reason to buy Hexo stock.As of this writing, Vince Martin has no positions in any securities mentioned. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Buy-and-Hold Stocks to Play Investing's Biggest Trends * 7 Stocks to Buy in November * 5 Strong Buy Stocks Under $5 With Massive Upside Potential The post Hexo Stock Is Far Too Dangerous at This Point appeared first on InvestorPlace.
At first glance, the final fiscal Q4 results should have HEXO (HEXO) shareholders running for the exit. The Canadian cannabis company is making moves to ultimately position itself for survival, but the numbers were so horrible that investors need to question where the ultimate bottom takes place in the stock.Final Numbers Weren’t Any BetterJust a few weeks ago, HEXO guided the market to expect FQ4 revenues in the C$14.5 million to C$16.5 million range versus previous expectations were revenues double those amounts. The horrible guidance was backed up with actual revenues of C$15.4 million and weak guidance for FQ1 that ends this week of only C$14.0 million to C$18.0 million.The company had to recently cut 200 positions and close some cultivation facilities due to the substantial weakness in sell through. HEXO produced 16,824 kg of dried cannabis and only sold 4,009 kg in FQ4.Investors can probably easily deduce a huge problem occurs when production nearly quadrupled from the February quarter while kg sold were only up 50% in the period. The end result was operating expenses soaring to C$46.9 million due in part to including the operations of the acquired Newstrike Brands while sales were virtually flat when stripping out the C$2.8 million in sales from the acquired company.The company had an absurd C$60.7 million loss in the quarter. While these amounts include non-cash charges of stock-based compensation and inventory impairment charges, an investor doesn’t exactly need to scrub the income statement to determine the ongoing cost structure. With so many moving parts including the creation of the Up brand to provide a low-cost brand to attack the black market, the best solution is to just sit on the sidelines waiting to review the next quarterly results and guidance.Survival Is KeyWhile previously warning investors that over supply issues would impact the Canadian cannabis industry, the expectation wasn’t that HEXO would lead the charge to cut cultivation. After quarter end, the company suspended cultivation at the Niagara facility and part of the Gatineau facility. The end result is a new target for nearly 50% less annual production at around 80,000 kg.Along with cutting 200 employees and raising another C$70 million in convertible debt, the company is positioning for survival. The key here is whether big players in the industry like Aurora Cannabis cut back on cultivation or they push forward in order to take market share from HEXO.The company ended the last quarter with C$135 million in cash for a total cash balance of over C$200 million now. HEXO has made the correct moves to right the ship and better align costs with more realistic sales forecasts considering the slow rollout of retail stores, but the departure of more executives including a couple of CMOs leaves limited executive talent surrounding the CEO that got the company into this jam.Analyst RatingsOver the past week, HEXO has been hit with not one, not two, but three separate "sell" ratings from Wall Street analysts following the release of its fiscal fourth-quarter results. One of these analysts, CIBC's John Zamparo, believes the stock could drop further to C$2.50 (12% downside)."Even after heavy investment in operations, HEXO's cash requirements remain significant. We estimate nearly $200MM is needed in F2020, which roughly matches the company's pro forma cash balance when including last week's financing (but excludes ~$30MM in available debt). Our primary concern on this stock is that as balance sheet strength and profitability gain importance among investors, HEXO is quickly burning through cash (which we assess in detail herein) and is likely over a year away from becoming EBITDA-positive," Zamparo said.Overall, Street-wide caution circles the cannabis player, as TipRanks analytics model HEXO as a Hold. This boils down to 2 "buy," 7 "hold," and 3 "sell," ratings in the last 3 months. (See HEXO stock analysis on TipRanks)TakeawayThe key investor takeaway is that HEXO is still a stock to avoid. The company is reporting quarterly numbers nearly three months after the quarter close and the major shakeup in the executives, business plan and operations leaves the stock untouchable even with the market valuation down to $600 million. HEXO needs to clean up the income statement and show a path to much higher revenues before the stock is a buy above $2.To find better ideas for cannabis stocks trading at fair value or better, visit TipRanks’ Best Stocks to Buy tool, a newly launched feature that unites all of TipRanks’ equity insights.
Hexo reported steeper losses as it deals with Canada's troubled recreational rollout, while U.S. retailer MedMen's losses narrowed.
Hexo Corp. (TSX: HEXO) (NYSE: HEXO) posted a fourth-quarter adjusted net loss of CA$43.73 million ($33.5 million) Tuesday, sending the cannabis company's stock lower. "The increase in net loss was primarily due to the significant scale of operations and increased stock-based compensation expense due to higher cannabis market value, increased R&D expenditures and an impairment loss on inventory," according to Hexo. The company's net loss for 2019 as a whole was CA$67.6 million.
Canadian cannabis company Hexo Corp.'s U.S.-listed shares fell 6.5% in premarket trade Tuesday, after the company's fiscal fourth-quarter loss widened from the year earlier. Gatineau, Quebec-based Hexo said it had a net loss of C$56.7 million ($43.4 million), or 28 cents a share, in the quarter, wider than the loss of C$10.5 million, or 5 cents a share, posted in the year-earlier period. Revenue net of excise taxes came to $15.4 million, up from C$1.4 million a year ago. The company said revenue from adult-use cannabis came to C$14.1 million, up from C$11.9 million a year ago, while medical cannabis revenue came to C$957,000, down from C$1.09 million a year ago. The company sold 4,009 kg equivalent in the quarter, up from 2,759 kg equivalent in the year-earlier period. The average gross selling price of adult-use dried gram and gram equivalents fell to C$4.74 from C$5.45 a year ago. The company confirmed that it has suspended cultivation at its Niagara facility and in 200,000 sq. ft. of its Gatineau facility, as part of a cost-cutting program announced last week that included 200 job cuts. The company said it expects first-quarter 2020 revenue to range from C$14.0 mln to C$18.0 million. It it is targeting positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in calendar 2020. Adjusted EBITDA is an adjustment of an adjusted number that has nothing to do with actual profit. MKM analyst Bill Kirk said Hexo had better sequential revenue growth than peers at about 18%. "We believe HEXO has taken the steps necessary to now deliver on heavily revised 2020 plans: 1) they are not assuming much change in revenue performance until 2.0 rolls out; and 2) headcount restructuring adjusts bloated cost structure," Kirk wrote in a note to clients. "We still contend, the problems faced by HEXO are more related to delays (versus expectations) than structural issues." Hexo shares are down 32% in 2019, while the ETFMG Alternative Harvest ETF has fallen 19% and the S&P 500 has gained 21%.