After a tumultuous period late-last year, publicly-traded marijuana companies have once again captured the limelight. Among the extensive options investors have, two names, Hexo (AMEX:HEXO) and Aurora Cannabis (NYSE:ACB), piqued most people’s interest. The question now is, should investors gamble on HEXO stock or take the more proven ACB?
On surface level, both companies feature similar characteristics. Primarily, the two cannabis rivals have outperformed in the markets so far this year. Even their performance stats are neck-and-neck. For instance, on a year-to-date basis, ACB stock is up slightly over 80%, while Hexo has skyrocketed over 86%.
In addition, both organizations call Canada home, and obviously both are attempting to capture their home country’s market share. From an investor psychology perspective, HEXO stock and ACB stock have similar price points. Therefore, they both appeal to the same category of speculators looking to make a quick buck.
Finally, the two companies specialize in cannabidiol, or CBD. This typically non-psychoactive compound derived from the cannabis sativa plant offers health benefits but without marijuana’s addictive properties. A CBD revolution alone could drive either Hexo stock or ACB to the moon.
Still, does anything distinguish them? Let’s take a deeper look, beginning with HEXO stock:
CBD-Infused HEXO Stock Has Potential
Like other weed firms, analysts mostly focus on production capacity when discussing HEXO stock. Luckily, management recognizes this and have responded accordingly. Last month, Hexo made headlines when it acquired Newstrike Brands in an all-equity transaction.
Valued at $263 million, the deal gives the acquiring company 470,000 square feet of production space. With the additional capacity, this could boost revenue to $400 million by July of next year. For context, Hexo’s trailing-twelve month (TTM) revenue is $16.5 million.
But what really intrigues me about HEXO stock is its joint venture with Molson Coors Brewing (NYSE:TAP). Together, the two will develop non-alcoholic, CBD-infused beverages for the Canadian market.
Aside from the numbers, the deal is similar in principle with Altria Group’s (NYSE:MO) investment in Cronos Group (NASDAQ:CRON). Both Molson and Altria recognized the growing trend in CBD and legal marijuana, and jumped at the opportunity to partner with key players in the segment.
However, Molson’s venture is more promising because CBD beverages are an inoffensive way to consume botanicals. Unless you’re peeing on your neighbor, there’s no reason why anyone would complain about someone drinking cannabidiol.
On the other hand, smoking or vaping the stuff is inherently offensive. Altria and Cronos will have to figure out a way to mainstream their CBD platform. But for Molson and HEXO stock, the opportunity is turnkey so long as legal momentum continues its path.
Smart Strategies Bolster ACB Stock
As I mentioned earlier, most analysts who cover marijuana firms focus extensively on production capacity. This emphasis makes perfectly logical sense. After all, you can’t take market share if you don’t have any supply to feed demand.
This is one of the reasons why several critics blasted ACB stock when the underlying company acquired Whistler Medical Marijuana. While Aurora Cannabis bought out several other production facilities, the Whistler deal raised eyebrows for the wrong reason. With an annual production capacity of only 5,000 kilograms, this figure paled in comparison to the usual six-figure digits.
So why Whistler? Because this is a company that specializes in differentiated cannabis products. A particular factor driving ACB stock is that its management team is smart. They know that the low-hanging fruit in this segment is gone. Currently, the industry emphasizes capacity. But later down the road, customers will seek distinctive products.
Whistler’s genetic bank features multiple cannabis variations that address specific ailments and symptoms. And that’s really the future of legal marijuana. Patients won’t care for just any batch of weed. Instead, they’ll buy strains that most effectively addresses their medical issues.
In other words, Aurora is covering both the quantity and quality angle.
Which One to Pick: Hexo or ACB?
The cop-out answer is to buy both. While they’re technically competitors, the marijuana market is young. In this case, a rising tide lifts all boats. Plus, their resemblance to each other probably translates to a similar ebb and flow.
From a safety and stability standpoint, I believe the consensus is that ACB stock is the ideal choice. Aurora’s management has a well thought out strategy that involves capturing nearer-term and longer-term catalysts. Plus, their TTM revenue is nearly $92 million, which is a far cry from Hexo’s haul.
That said, Hexo has a much stronger balance sheet. I also like that this company isn’t stretching itself excessively like its rivals to capture industry demand. However, their one deal with Molson could turn out to be a game-changer.
As a result, I’m going to go against the grain on this one and give the slight edge to Hexo. Still, over the next several years, I genuinely believe you can’t go wrong with both.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
