You know you’re writing too much about marijuana when a search for sector players like Hexo (NYSEAmerican:HEXO) brings up your own articles. And you really know you’re going overboard when other analysts cite your work as expert opinion. But this “anything goes” dynamic really points to the broader opportunity in HEXO stock.
If I wrote about an established blue-chip name like Altria (NYSE:MO), I could probably search for days before my last article on the topic comes up. Everyone talks about Altria. Adding one more opinion on the subject is like relieving yourself in the Pacific Ocean. It matters, but only in the technical sense.
On the other hand, discussing HEXO is like relieving yourself in the jacuzzi. It matters, especially if the jacuzzi water didn’t originally have a yellowish tint.
What’s the point about my biological analogies, you ask? Small actions can have a big impact on young markets. That sentiment applies to both directions, as the HEXO stock price recently demonstrated.
On a year-to-date basis, shares of the cannabis firm are still at astonishingly elevated levels. However, since the April 29 close, Hexo stock has dropped 24% in the markets.
Part of the reason why the equity collapsed involves the same motivation for why other marijuana stocks have gone volatile: good ol’ fashioned profit taking. With Hexo stock doubling a little over a month ago, early investors bailed out.
Secondly, as InvestorPlace contributor Ian Bezek pointed out, HEXO and other cannabis players have a credibility issue. You can’t have a market capitalization in the billions and revenue in the millions indefinitely.
But once the profit taking in Hexo stock fades, I’d consider going long for one reason: cannabidiol.
We’ve passed the infancy stage of the cannabis revolution, which is participation. Of coure, this low-hanging fruit didn’t last because growing marijuana isn’t rocket science. Companies now are differentiating themselves through marijuana specialties, such as mass production or cultivating medically effective strains.
How does HEXO distinguish itself from the pack? The answer is cannabidiol, or CBD.
This isn’t a new argument. In fact, it’s quite an old one. As our own James Brumley noted early this year, CBD-infused beverages represent a crowded market. It’s also a very modestly sized one in terms of revenue. Thus, critics have argued that this trend is a fad.
On the surface, this circumstance bodes poorly for the HEXO stock price. The underlying company inked a promising venture with Molson Coors (NYSE:TAP) to produce CBD-infused beverages. But that potential dies if this niche fails to take off.
Admittedly, early signs don’t look encouraging. However, this is still a very young market where a series of small actions can spark something massive.
I’m especially intrigued with CBD’s medicinal potential. According to Harvard Health Publishing contributing editor Peter Grinspoon, some evidence exists for the cannabis plant’s therapeutic claims. Dr. Grinspoon even cites research on marijuana’s impact on traumatic brain injuries.
The obvious caveat is that more evidence is necessary to establish CBD as a genuine therapeutic platform. Still, that’s what makes CBD, and indirectly Hexo stock, an exciting proposition. We don’t yet fully understand marijuana because mainstream research on the plant is still relatively scarce. But the fact that at least some positive data exists is undeniable.
That’s also why I don’t think CBD-infused beverages is a fad. This isn’t a flavor of the week. Instead, the mainstreaming of CBD could eventually catalyze a paradigm shift in cannabis perceptions.
Patience Could Go a Long Way with Hexo Stock
While Dr. Grinspoon’s article is a recommended read, I especially encourage you to read the comments section.
One caught my eye. A reader claimed that her mother suffered from severe pain, requiring opioids to cope. But with CBD and other cannabis-related medicines, she is able to enjoy a better quality of life.
Rather than blast someone for using unproven alternative therapies, Dr. Grinspoon instead encouraged the weening off opioids. In my opinion, that’s very telling coming from a medical doctor deeply embedded in the mainstream health care system.
If you ask me, it appears medical professionals prefer natural CBD products over exotic pharmaceutical concoctions.
But this is not a license to jump aboard Hexo without fully appreciating the risks. The HEXO stock price can just as quickly rise or erode. Like I said, it’s a young market: an unwelcome stream can put an immediate damper on your relaxing jacuzzi.
But if you drill down into the science and data, it’s more likely that any surprises will be positive ones. Therefore, I’m interested in taking any significant dips in HEXO as longer-term buying opportunities.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.