Canadian cannabis producer and seller Hexo (NYSE:HEXO) isn’t the biggest or most famous competitor in the sector. Moreover, Hexo stock doesn’t have the highest volume of all cannabis stocks. On the other hand, the shares are easily affordable.
Indeed, I suspect that its low price point is what makes Hexo stock attractive to some traders. I fully understand the appeal because not every investor has a large-sized account that can accommodate more expensive stocks.
In December of last year, I covered Hexo stock for InvestorPlace. At the time, I warned, “With [the] Hexo stock price at $2.225, the shares might seem like a steal … but I don’t want the market to steal investors’ hard-earned capital.”
So, does “cheaper” mean “better” in the world of cannabis stocks? Let’s check up on Hexo stock to see how the shareholders have fared since my late-2019 warning. Then, we can decide whether Hexo shares are a bargain today, or just dead money.
A Closer Look at Hexo Stock
Nowadays, long-term investors would gladly turn back the clock to the days when Hexo stock traded above $2 per share.
At the close of the markets on Oct. 16, Hexo stock was priced at around 75 cents. That’s less than half of the Hexo share price from when I made the bearish call in December.
It’s a textbook example of the difference between buying a prime dip and trying to catch a falling knife. Or, to approximate a famous quote from Warren Buffett, price is what you pay but value is what you actually get.
My point is that just because a stock is low in price, this doesn’t mean that it’s necessarily a good value. When it comes to Hexo stock, we can’t just blame the long-term price decline on the novel coronavirus.
After all, the share price started its relentless descent in April of 2019. With the current trajectory of Hexo stock, it shouldn’t be too surprising if the it revisits its 52-week low of around 35 cents at some point in the future.
Not Necessarily a Game Changer
On Oct. 12, Hexo stock posted an 11% intra-day gain and closed out the trading session with a still impressive 5% gain.
Hopefully, Hexo stock traders didn’t get caught up in the hype as the share price declined over the following several days. Nevertheless, the price pop raised more than a few eyebrows and drew some attention to Hexo.
However, if you’re looking for a game-changing company-specific catalyst, you might be disappointed. The reason for the Hexo stock price spike appears to be the the official installation of Trent MacDonald in the company’s CFO position.
Unfortunately, MacDonald isn’t famous for having high-profile cannabis-market experience. Rather, he served as the CFO at Rx Drug Mart, a pharmacy network operator, and also was the vice president of finance at Indigo Books & Music (OTCMKTS:IDGBF).
As I see it, the most important news item pertaining to Hexo comes from the highest levels of politics. It’s not specific to Hexo, but it’s significant to the cannabis market generally.
If you had a chance to watch the 2020 vice presidential debate earlier this month, you might have noticed that Democratic Sen. Kamala Harris made a bold statement about how she and presidential candidate Joseph Biden would address the marijuana legalization issue.
“We will decriminalize marijuana and we will expunge the records of those who have been convicted of marijuana,” Harris declared. This comes on the heels of an earlier statement by Harris made at a virtual town hall presentation:
“Under a Biden-Harris administration, we will decriminalize the use of marijuana and automatically expunge all marijuana-use convictions and end incarceration for drug use alone… This is no time for half-steppin’.“
And so, the cannabis industry might have a champion in the form of Biden and Harris. Or, it might not. We don’t know yet whether Biden and Harris will win the election.
Plus, even if they win, there’s no telling whether Harris will keep her pro-marijuana promises and whether Congress will stonewall any efforts in that regard. All in all, there are too many “ifs” here to confidently take a long position in Hexo stock.
The Bottom Line
Hexo could still have it’s big “marijuana moment” in 2020 as the year isn’t yet finished. I wouldn’t bet on a turnaround in Hexo stock anytime soon, though, since there’s no catalyst on the horizon that’s sufficiently certain and game-changing.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.