HEXO (NYSE:HEXO) stock remains in an uncertain position in the Canadian marijuana market. It has not achieved the top-tier status of Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), Cronos Group (NASDAQ:CRON), or Tilray (NASDAQ:TLRY).
However, HEXO also retains significant market share in the key Canadian province of Quebec. The company also holds a crucial partnership that separates it from the dozens of marijuana equities that are now considered penny stocks. For those who can stomach the risk and uncertainty of Hexo stock, these benefits could eventually turn HEXO into one of the more lucrative marijuana stocks.—
One example of the company’s lack of stability came on Friday. After only five months on the job, HEXO CFO Michael Monahan announced that he was resigning for personal reasons. Stephen Burwash, who had been the company’s Vice President for Strategic Finance, was promoted to CFO. The news likely weighed on Hexo stock price yesterday, bringing it to the lower end of its recent range.
One of my complaints about Hexo stock in my recent column hinged on the equity’s inability to find a bottom. Since I made that observation in August, Hexo stock price has not changed much, staying around $4 per share.
Why Hexo Stock Could Rise
Despite the challenges facing HEXO, its core business is keeping it afloat for now. Hexo retains a 30% market share in its home province of Quebec, which has 21% of Canada’s population.
Moreover, Hexo stock may also benefit from the company’s focus on the cannabis beverages niche. HEXO has partnered with Molson Coors (NYSE:TAP) to form a joint venture, Truss Beverages. Truss will sell cannabis-infused beverages in Canada beginning in December, when such drinks become legal in the country.
InvestorPlace columnist Thomas Niel described Truss as “make or break” for HEXO. Truss could easily become a new, successful niche for Hexo stock. Assuming Truss succeeds, it could lead to other deals for HEXO that will increase its market share in Canada and help it to expand overseas.
HEXO Is Facing Steep Risks
However, the outlook of Hexo stock is still quite uncertain. Even if a failure of Truss does not “break” Hexo, it would undoubtedly devastate HEXO stock.
Furthermore, the agreement that formed Truss allows Molson Coors to purchase up to 11,500,000 shares of Hexo stock for $6 per share until 2021. However, with Hexo stock price now below $4 per share, the question is whether Truss will take the equity high enough to make that deal meaningful.
The potential of the company’s international business is also uncertain. The biggest wild card for that business is the United States. If the pace of cannabis legalization in the U.S. accelerates, Hexo will undoubtedly use its proximity to the U.S. and its partnership with Molson Coors to sell its cannabis products south of the border.
However, in many respects, legalization in the U.S. has not progressed as rapidly as many had expected. Also, a Colorado State University study recently indicated that those who comply with state laws could still be at risk of being prosecuted under federal law
The U.S. legalized hemp late last year. Also, the so-called “cannabis banking law” easily passed the House. However, neither of these developments has helped HEXO a great deal. For HEXO stock to climb meaningfully, marijuana will have to be legalized throughout the U.S. But that probably won’t happen in the near-term.
The Bottom Line on Hexo Stock
For investors open to higher risks, Hexo stock holds a great deal of potential. Despite the company’s lack of market leadership, its significant market share in Quebec and its partnership with Molson Coors make HEXO worth considering. Hexo stock price could get a short-term boost when cannabis-infused beverages become legal in Canada in December.
Still, investors do not know how the company’s beverage division will perform. Moreover, to take off in the longer term, Hexo will probably need legalization of cannabis in the U.S., which remains elusive
Hexo stock continues to hold great potential. However, the owners of HEXO stock will have to tolerate both short-and long-term uncertainty.
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.