Where Will HEXO Be in 1 Year?

We all saw what happened when the popular Canadian pot stock Aurora Cannabis (NYSE:ACB) chose to initiate a reverse stock split in May. Aurora’s shares had started trading below $1 on the New York Stock Exchange (NYSE), which is against the trading compliance. To save its stock from getting delisted, Aurora opted for a 1-for-12 reverse stock split. It boosted the share price for a limited period, before the stock crashed this year. Aurora’s consistent unimpressive quarterly results added to the disaster. The company’s stock has…

slumped 59% so far this year, compared to the measly 1% gain of the industry benchmark, the Horizons Marijuana Life Sciences ETF.

Another Canadian pot company in the same boat as Aurora is HEXO (NYSE:HEXO), which received an NYSE listing warning in May when its shares fell and traded below $1 for 30 consecutive days. Now, to save itself from getting delisted, HEXO has proposed an 8-for-1 reverse stock split. This consolidation of its shares is subject to shareholder approval today, Dec. 11. In the face of mixed recent fourth quarter 2020 results and shares that are down 35% year to date, will this share consolidation help save the stock and give the company time to achieve profitability? 

Is HEXO set up for success?

Recreational cannabis products contributed 83% to HEXO’s fourth-quarter (ended July 31) total net revenue, which was up 76% year over year to 27.1 million Canadian dollars.

Cannabis derivatives, in particular, added to the top-line growth. Derivatives are additional recreational cannabis products that Canada legalized as part of the “Cannabis 2.0” legalization in October 2019. Cannabis. 2.0 products include vapes, edibles, concentrates, and beverages. HEXO offered its vape products across Canada to both recreational and medical consumers in July.

Additionally, it also launched cannabidiol (CBD) and tetrahydrocannabinol (THC) infused beverages during the quarter through Truss Beverage, a partnership venture with Molson Coors Canada (a business under the Molson Coors Beverage Company (NYSE:TAP) umbrella). These offerings, launched under five brands — Little Victory, House of Terpenes, Mollo, Veryvell, and XMG — brought in CA$1.9 million worth of sales in the quarter.

HEXO also created a business venture with Molson Coors to explore opportunities for offering non-alcoholic, hemp-derived CBD beverages in Colorado. The company kept all production and distribution within Colorado state lines, where recreational use of marijuana is legal. (The use of CBD in food and beverages is still federally regulated by the U.S. Food and Drug Administration.)

In July, HEXO marked its entry into the Israeli medical cannabis market by launching its products through an agreement with… 

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