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.
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.
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.
Big Cannabis Meets Big Beer
Ever 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 Stock
Amazingly, 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 Stock
Bring 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.