It’s been an interesting few years for HEXO (NYSE:HEXO), and Hexo stock looks to be on the move again.
In 2018, Canada became the first G7 country to legalize adult-use cannabis federally with the adoption of the Cannabis Act. That was enough to send the stock market skyrocketing with a host of companies, licensed manufacturers, and producers joining the fray.
The hoopla, unfortunately, led to outsized valuations for several Canadian cannabis producers. Hexo was one of the major beneficiaries of all the hype. However, since that time, both the industry and the company have gone through some necessary bubble bursting.
But is this the ideal time to buy the dip?
I believe so. There are silver linings here that are too good to ignore. Sales are improving at a decent clip. Meanwhile, Canada’s cannabis industry is getting better with every passing day.
Shares are up 46.83% in the last six months. So, I would suggest that the company is finally moving in the right direction. With momentum going in their favor, this is just the right time to catch the upswing.
The Canadian Market and HEXO Stock
Canada’s relatively young cannabis market has already suffered several setbacks, and that’s why the euphoria surrounding the sector has died down somewhat.
Startups and entrepreneurs that flocked to the sector due to legalization got burnt pretty substantially when they learned that the market was not as lucrative as previously believed.
I am not here to puncture holes in that narrative. Like several others, I also believe that the Canadian market is highly inflated. However, with that in mind, it’s important to understand that the sector has also made progress this year.
Licensed cannabis store sales hit an all-time high of $244 million CAD in August, up more than 50% from January sales. Many have chalked this up to people buying more weed because they are at home, and while I don’t doubt that, there is more to the story here.
Dispensary openings in Ontario, home to almost 40% of Canada’s population, are increasing. The administration has learned from its regulatory debacles and is clearing the path to increase retail locations across the country.
I expect the Canadian government to aggressively back the industry because several other players have now emerged all over the world. It’s no longer a one-horse race. We’ve witnessed two-thirds of all states legalize medical cannabis in the United States.
Mexico is also ramping up legalization; most of Europe, a market projected to be worth €1.5 billion by 2023, is also pot-friendly.
Hexo Is Doing Well in the Space
Despite the positive news emanating from the Great White North, not every company is reaping the benefits. Indeed, several Canadian cannabis producers are worse off than a year ago—That’s why Hexo stock has captured my attention.
On a consolidated basis, fiscal Q4 saw an increase in revenues of 22.7% sequentially. Undoubtedly, a lot of that has to do with the pandemic. There has been a large rise in marijuana sales since the stay-at-home orders have been put in place. But there is also a flip side to that argument.
Disposable incomes are down, and whatever bump you see in sales will likely dissipate within the forthcoming quarters. Time will tell if the increase in sales is part of a secular trend or just a passing phase.
Hexo’s adult-use beverage business will be a significant contributor to its bottom line in the forthcoming quarter. As the cannabis industry continues to evolve in Canada, the introduction of cannabis beverages is a much needed shot in the sector’s arm.
Sensing that opportunity, the company has launched Truss Beverage, a joint venture with Molson Coors (NYSE:TAP). According to the Hexo, it has sold more beverages than any single competitor in Canada.
Not a Winner Yet, but It’s Getting There
HEXO stock is certainly in a better place than it was at the start of the pandemic. In fact, shares are on a bull run over the last six months. Much of that has to do with the improved outlook of the Canadian cannabis industry and its own revenues, which are soaring after a very long time. The beverage business is another reason to be optimistic.
Even in a pandemic and a recession, Hexo is performing well.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
