It’s been a crappy year for Hexo (NYSE:HEXO) shareholders. They’ve seen Hexo stock drop below $1, putting the cannabis company’s New York Stock Exchange listing in jeopardy.
Like many companies that get in this position, Hexo’s been forced to do an 8-for-1 reverse stock split to meet the NYSE’s listing requirements. The move will be rubber-stamped with a vote by shareholders in December.
HEXO stock closed out 2019 at $1.59 a share.
Down 60% year to date through Nov. 4, its fourth-quarter 2020 results didn’t help the cause. On the top line, gross revenues did grow 17% on a sequential basis and 76% over last year to 36.1 million CAD. However, further down the income statement, it delivered a staggering 106.2 million CAD operating loss in the final quarter of the year, significantly higher than its operating loss a year ago.
There’s very little to get excited about at Hexo right now, making a bargain-basement stock buy extremely risky.
However, it does have one exciting piece of news involving its Truss Beverage partnership with MolsonCoors’ (NYSE:TAP) Canadian division – Molson Coors owns 57.5% while Hexo owns 42.5% — that should encourage long-time shareholders.
Here’s why.
Truss Goes High Tech
On Oct. 2, the maker of cannabis-infused drinks opened its state-of-the-art facility in Belleville, Ontario, to local bigwigs.
The beverage company houses 40 employees in 186,000 square feet of warehouse space once used by Sears Canada as a distribution center. Hexo bought the two million-square-foot industrial building in partnership with Olegna Holdings in September 2018.
Hexo took a 25% interest in the joint venture and signed a long-term lease for 500,000 square feet in the building, with Truss occupying part of Hexo’s space.
“This facility is the first of its kind in the world, we think. This scale and this kind of technical sophistication, we believe it’s the first. These are a step up in terms of quality, It’s different than anything else before around the world,” Truss Beverage chief executive officer Scott Cooper told The Belleville Intelligencer.
“We brought in a lot of beverage experts from MolsonCoors so a lot of expertise has gone into getting where we are. This really is our grand opening.”
All five Truss Beverage brands range in cannabis content from 2.5 milligrams to 10 mg — are produced at the facility in both bottles and cans. It has the ability to produce 6.6 million gallons with the possibility of doubling capacity in the future.
In the company’s Q4 2020 press release, Hexo referenced Truss’s progress in 2020.
“We are commanding significant market share in Quebec and this year we made major strides by launching Truss cannabis infused beverages in Canada in addition to our initial foray into the U.S. with Molson Coors, a world-class partner,” said Sebastien St-Louis, Hexo CEO and co-founder.
Other Partnerships to Drive Hexo Stock Higher
I don’t think investors give Hexo enough credit for some of the partnerships it’s struck beyond its core cannabis product.
For example, it owns 60% of Neal Up Brands, a joint venture with Toronto-based Neal Brothers, to make and market cannabis edibles. Neal Brothers might not be a household name in the U.S., but here in Canada, its snack line is very popular with Canadians.
The Neal Up Brands partnership came to be due to its 2019 acquisition of Oakville-based Newstrike Brands for 263 million CAD in Hexo stock. Newstrike shareholders owned 14% of Hexo after the completion of the deal in May of last year. The company issued 35.4 million shares of its stock at the time. Those shares are now worth about one-tenth of the value at the time the acquisition was completed.
For those Newstrike investors that didn’t sell and are still holding, you better hope and pray that Truss Beverage and Neal Up Brands come through for Hexo.
Oh, and one last thing.
My InvestorPlace colleague, Josh Enomoto, recently discussed why the pandemic could help its Truss CBD USA joint-venture — it owns 42.5% with Molson Coors owning the rest — sell more products.
That’s a third and possibly the most lucrative of its joint ventures, suggesting the risk-to-reward profile at 63 cents is firmly in the speculative investors’ favor.
I’ve been waiting for Hexo to reach its potential for some time. Thanks to this trio of joint ventures, 2021 could be the year it actually does.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
