Why Hexo Stock Is a Promising Buy Now

HEXO’s tie to the U.S. is a bigger deal than first thought. 

The former co-CEO of Canopy Growth (NYSE:CGC) has had a lot to say about the cannabis industry since his sudden departure July 8. One of his comments could ultimately benefit Quebec-based Hexo (NYSEAMERICAN:HEXO) and HEXO stock. Here’s why.

Hexo Stock Is a Much More Promising Cannabis Play Now
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Bruce Linton wasn’t shy about his outing from his role of co-CEO at Canada’s largest cannabis company. 

While the company’s board attempted to spin the move as a mutual decision, Linton told CNBC that he was in fact fired from the company. 

“I think stepping down might not be the right phrase,” he told CNBC, referring to the language in the company press release. “I was terminated.”

Constellation Brands (NYSE:STZ) CEO Bill Newlands suggested that Linton wasn’t the right guy to take Canopy Growth to the next phase. Linton’s an entrepreneur at heart, so he’s probably not wrong to want more of an operational, globally trained business executive, who can take the company to the next level. 

“Our board was uniform,” Newlands said. “We needed a different leader to take us to the next phase of growth.”

Although Constellation wasn’t happy about Canopy’s $39 million loss in its most recent quarter, it denies that had anything to do with Linton’s ouster. 

Whatever the reasons, semantics aside, Linton had something interesting to say about the future direction of the global cannabis industry that could really help HEXO stock. 

It starts with “United” and ends with “America.”

Go South Young Man

The fact that Linton quarterbacked the tentative acquisition of Acreage Holdings (OTCMKTS:ACRGF) before he was summarily turfed says all you need to know about where he thinks the big money is in the cannabis industry. 

He wouldn’t have agreed to spend $3.4 billion on a deal for Acreage if he didn’t think the U.S. government would legalize cannabis on a federal level within the seven-year limit required by the proposed tie-up between the two companies. 

Already, Acreage is making plans to buy other U.S. companies in preparation for the eventual merger. Big money lies south of the border and Linton knows it. 

“Anybody who’s dumb enough to launch a new cannabis company in Canada, I don’t know what they’re doing, they should have been at it six years ago. Canada is done,” he told Bloomberg TV. “You’re going to end up with a few winners and a whole bunch of people who wonder why they started.”

You might wonder what this has to do with Hexo and the U.S. market?

Cannabis-Infused Drinks a Big Growth Area

There is absolutely no possible way that Molson Coors (NYSE:TAP) didn’t have a plan for south of the border when it entered into a 50/50 joint-venture with Hexo to make cannabis-infused drinks for the Canadian market last August. 

Hexo’s VP of Strategic Development, Jay McMillan, recently stated that Truss, the name of the joint venture, is going to be ready to sell cannabis-infused drinks on Dec. 17, the first day they can be legally sold in Canada. 

“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,” McMillan said in an interview at the World Cannabis Congress in Saint John, New Brunswick, in June. 

The joint venture can move production from one type of product to another based on consumer preference. Think of it as the beverage version of “Fast Fashion.”

More importantly, it’s going to give Molson Coors an understanding of consumer preferences in a smaller market before jumping into a much bigger one south of the border. It plans to have CBD-infused beverages in eight states by 2020. 

However, I wouldn’t be surprised if it was readying for the launch of cannabis-infused products the minute the federal government legalizes cannabis. Having worked with Hexo north of the border, I’d be surprised if the joint venture didn’t extend to the U.S. over time. 

With America being a much bigger market, Hexo could be on the precipice of a serious value-enhancement to HEXO stock.

The Bottom Line on HEXO Stock

If you’re unsure about whether HEXO will follow Molson Coors into the U.S. market, you could always buy both stocks to ensure you’re capturing any gains both stocks achieve as a result of their participation in cannabis-infused drinks. 

As an aside, both Canopy Growth and Cronos Group (NASDAQ:CRON) are ideally positioned for the U.S. market given their significant investments from Constellation Brands and Altria (NYSE:MO).

Who knows? Molson Coors could end up owning a big piece of Hexo in the future. 

Only time will tell.

At the time of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/07/why-hexo-stock-is-a-promising-buy-now/.

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