Politically and ideologically, 2021 is looking to be the year of green. Most notably, President Biden’s election will presumably usher in a wave of legislation that supports environmental causes. With Democrats controlling Congress, it seems like a sure bet. Further, the administration may bolster a different kind of green, which would be hugely beneficial for Hexo (NYSE:HEXO) stock which has recently seen an intriguing setup.
While you don’t want to bet too heavily on political winds, it’s hard to ignore some blatantly obvious catalysts. Primarily, who holds the highest office of the land does have bearing on specific sectors. For instance, Biden signed an executive order bringing us back under the Paris Agreement. Though this move may be more symbolic than anything, it clearly sends a positive message for some industries, such as renewable energy and electric vehicles.
But the question is whether the White House will endorse measures that will benefit HEXO stock. On the surface, there’s much to be encouraged about. Prior to the elections, then-Vice President nominee Kamala Harris pledged that the Biden administration would decriminalize marijuana at the federal level. As well, it would “expunge the criminal records of people convicted of marijuana-related offences in the past.”
Additionally, some states in the recent election cycle legalized cannabis to varying degrees, including conservative ones like South Dakota. If such measures pass there, they could pass anywhere in the U.S.
HEXO Stock Narrative Still Cloudy
Unfortunately, the upside narrative isn’t quite so clear cut for HEXO stock. Shares have been on a wild ride, projecting toward the moon until some recent volatility cut the rally short. But the gains pale in comparison to the losses relative to prior highs.
Make no mistake about it: while the company posted record revenue of CAD 41.3 million ($32.5 million) in the first fiscal quarter of 2021, it has a credibility challenge to overcome. Is there enough juice here to get HEXO stock high again (and stay that way)?
Oversaturation Fuels Volatility
As with all other speculative markets, cannabis is a wild one. A major contributor to the prior volatility was oversaturation of the sector. With so many competitors and a relatively low barrier to entry, it was hard to distinguish one brand from another. After all, weed is weed, not that I would know or anything, because I don’t.
The point is, don’t invest in HEXO stock with money you can’t afford to lose. Yes, I do own shares but that should not be construed as an endorsement. Just like you, I have some money set aside for speculation.
But if you understand what you’re getting involved in, HEXO stock is appealing because of its inroads into the U.S. market with cannabidiol (CBD)-infused beverages. Per Bloomberg, Verywell, a non-alcoholic CBD beverage under Truss CBD USA, which itself is part of a joint venture between Hexo and Molson Coors Beverage (NYSE:TAP), is launching in cannabis-friendly Colorado as a testing ground.
If it does well there, HEXO stock could be back in business so to speak. And I believe the Verywell brand has a very good chance of gaining traction.
Gaining Advantage With CBD Branding
CBD is setting up to be a huge market in large part because it’s marketed as “CBD” as opposed to “cannabis.” It’s straight out of the playbook of Toyota (NYSE:TM). Years ago, rich snobs wouldn’t buy a Toyota because it’s a Toyota. But swap out the “lowly” logo for a Lexus one and voila! … Sales boomed.
Only in America, folks.
But it’s not just marketing; it’s in the numbers as well. On the conservative end of the scale, Hemp Business Journal forecasts that the CBD market for both adult and medicinal use will hit $647 million by the end of next year.
On the more aggressive front, Visual Capitalist anticipates that the CBD beverage market alone will be valued at $1.1 billion in 2022 and $1.4 billion in 2023. The truth could end up being somewhere in the middle, which would still be a good place for HEXO stock.
Pricing Could Also Be a Factor
According to the aforementioned Bloomberg report, Verywell will command a “suggested retail price of $3.99 for a 12-ounce can and $14.99 for a four-pack — a premium to beer, but priced competitively compared to other CBD drinks.”
Still, you might be thinking that four bucks for a can might be too much. You’re talking about encroaching on the territory of Starbucks (NASDAQ:SBUX) — its premium stuff, not the leftover garbage that is its regular house coffee, yuck!
However, consumption habits changed dramatically during the pandemic, and likely in favor of HEXO stock. According to online grocery ordering and delivery service Mercato, unit sales at its health foods division — including vitamins, supplements, vegan, gluten-free, and vegetarian items — gained 1,112% from January to July 2020.
As you know, health products carry a premium, suggesting that the pandemic has ushered in a new collective consciousness toward overall wellness. And that bodes well for CBD-infused beverages, which from day one the underlying industry has been promoting CBD’s holistic benefits.
Again, please don’t treat this as a battle cry for HEXO stock. It’s still risky as all heck. However, this may be one of those cases where the narrative could justify the capital uncertainty.
On the date of publication, Josh Enomoto held a long position in HEXO.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.