Although the year has been kind to cannabis companies, HEXO (NASDAQ:HEXO) stock has remained a pariah. Shares of the cannabis producer are down 60% in the year thus far. And the bleeding is not going to stop if the latest news is any indication.
It might not be clicking with the general public, but HEXO wants to take advantage of the good news surrounding the cannabis industry by issuing fresh equity. The company will offer $40 million in new stock — a significant amount. If this stock offering reaches $40 million before Jun. 10, 2023, it will be terminated at that point.
The market opinion on HEXO is refusing to budge. This could be due to a growing sense among investors that management is refusing to show the financial responsibility needed to turn around the company’s fortunes. Even by Canada’s economy and marijuana industry standards, the company is a chronic underperformer. It constantly posts bottom-line losses. And its cash flow is in such a bad state that it doesn’t have enough to cover its expenses regularly.
Meanwhile, Tilray (NASDAQ:TLRY), the world’s largest marijuana producer, has picked up $193 million of HEXO’s remaining debt. The deal opens up the possibility of the company gaining a significant stake in its competitor. Regardless of what happens, the company will have to pay interest on this amount, an additional burden on an already frail balance sheet.
HEXO has failed to turn a profit for long periods and it would be a stretch to say that its finances are stable. The company relies on dilutive share sales to pay off debt while still struggling with profitability.
External Catalysts Can Only Help so Much
Cannabis, known colloquially as marijuana, is an ever-changing industry with many ups and downs. One day it’s trending on social media and the next, it’s falling out of favor with the public. This makes it difficult for cannabis companies to be consistently profitable.
Ultimately, a company has to stand on its own feet and not rely on external catalysts for its success. It should be able to identify its strengths and weaknesses to progress properly. Investors do not see that with HEXO. Its quarterly reports are bleeding red ink and the company hasn’t displayed a strategy to alleviate the situation.
HEXO Stock Is Not a Buy
Despite the company promising to make its operations cash flow positive, it is highly unlikely that this will happen by early 2023.
HEXO announced a series of changes to its operations and strategic development in December 2021. It planned to become cash-flow positive before the end of the fiscal year 2022, but the company pushed the timeline back three months. Considering the state of affairs, it will be no surprise if the company decides to extend the timeline again.
All in all, HEXO is struggling to compete in terms of profitability. Now is not the time to take the plunge and buy this stock.
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On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.