Why is HEXO Corp. (HEXO) Trading Down 10% This Week?

Last Friday’s resignation of Hexo (HEXO) CFO Michael Monahan sent aftershocks across an already shaky cannabis sector, and so far the reactions on Wall Street have been mixed.

Monahan’s resignation seemed to catch investors by surprise, as his hiring was just recently announced back in May. However, the former CFO insists…

his resignation is for family reasons.

“Since joining HEXO Corp, it has become apparent that this job requires me to spend the majority of my time in Gatineau and in Ottawa. During this phase of rapid expansion, the chief financial officer should be working very closely with all team members, in person,” Monahan said in a statement.

“This isn’t possible for me at this time given my family’s needs and so I have decided to resign. I’ve had a very rewarding time at HEXO and I will continue to assist the company as a consultant to ensure a smooth transition.”

Nonetheless, shakeups within the C-suite tend to make investors uneasy, and analysts responded accordingly. The harshest reaction seemed to come from BofA Merrill Lynch analyst Christopher Carey, who downgraded the stock to underperform, cutting its price target from CA$9 ($6.76) to CA$4 ($3) per share.

“[A] departure that is so abrupt, from a person with CFO experience at other public companies, is concerning, and in our view will leave investors guessing ‘what don’t we know?’ for some time,” Carey said.

“Big picture: while there were already risks for Hexo, we felt they were balanced by a sound core operation and a new CFO who had a chance to regain Street credibility on forecasts/guidance by resetting the bar, with the potential that momentum regained in CQ120 with the launch of value-add formats,” Carey added.

Reacting to the price cut, HEXO stock was down 6.4% on Monday.

But other analysts have been more forgiving. On Monday, MKM Partners analyst Bill Kirk reiterated his buy recommendation of HEXO stock.

“We believe HEXO’s approach to be the working component of expert partners’ products has the best chance of creating a defensible brand (‘Powered by HEXO’),” Kirk wrote in a note to investors.

Kirk still believes that Hexo has the “best chance of creating a defensible brand.” Out of the 8 cannabis stocks that MKM Partners recently began covering, HEXO is one of the only two that received buy rating.

Part of Kirk’s fondness for HEXO comes from…

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