HEXO Corp: 95% Return in 2021 Already & More Could Be Coming

hexo stockThis Pot Stock Is Having a Great Start in 2021

Some investors like to set goals at the beginning of the year. For those who happen to have the pot stock HEXO Corp (NYSE:HEXO) in their portfolios, their 2021 goals recently got a lot easier to achieve.

HEXO is a consumer packaged goods cannabis company headquartered in Ottawa, ON, Canada. It started back in 2013 under the name The Hydropothecary Corporation. As Canada legalized recreational cannabis nationwide in 2018, the business changed its name to HEXO Corp.

The company has grown to become one of the biggest players in the legal marijuana business. Right now, HEXO operates about two million square feet of facilities in the Canadian provinces of Ontario and Quebec. The business has an annualized run-rate production capacity of 90,000 kilograms (198,416 pounds). (Source: “Corporate Presentation,” HEXO Corp, July 31, 2020.)

And because HEXO stock is listed on the New York Stock Exchange, it’s very convenient for U.S. investors to buy and sell the company’s shares.

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As for its share performance, we aren’t even one month into the new year and HEXO stock has already shot through the roof.

Why?

Well, HEXO has a joint venture (JV) with beer giant Molson Coors Beverage Co (NYSE:TAP) called Truss CBD USA. On January 13, the JV announced the launch of a new line of non-alcoholic, sparkling cannabidiol (CBD) beverages in the U.S. (Source: “Truss CBD USA, a HEXO Corp and Molson Coors Joint Venture, Launches Veryvell Sparkling CBD Water in Colorado,” GlobeNewswire, January 13, 2020.)

The new product lineup—called “Veryvell”—is a hemp-derived, adaptogenic, sparkling CBD water. At this point, the product is only available in Colorado.

“We are excited to launch Veryvell in Colorado through Truss CBD USA, in collaboration with our partner, Molson Coors,” said HEXO’s co-founder and chief executive officer, Sebastien St-Louis, in a press release. (Source: Ibid.)

“Our joint venture with Molson Coors Canada saw Truss Beverage Brands become the number one choice for consumers in Canada and we are expecting similarly great results in the US.”

St-Louis said the company is in talks with other consumer packaged goods companies outside the beverage industry about potential partnerships, which could expand HEXO’s presence in the U.S.

Note that pot stocks already had a great start to 2021 and HEXO Corp was steadily climbing even before the announcement. What the new product launch did was add fuel to the rally. On the day of the announcement, HEXO stock locked in a 17.2% gain. And that was just a start; it went on to climb by another 13.7% in the next trading day.

Add it up and you’ll see that, since the beginning of this year, HEXO stock has surged by more than 95%.

HEXO Corp (NYSE:HEXO) Stock Chart

Chart courtesy of StockCharts.com

As you’d expect from a soaring pot stock, HEXO Corp’s business has been growing rapidly.

In the first quarter of HEXO’s fiscal year 2021, which ended October 31, 2020, the company generated CA$41.3 million in gross revenue. That represented a 14% increase quarter-over-quarter and a 114% increase year-over-year. This also marked HEXO’s highest-ever quarterly gross revenue. (Source: “HEXO Corp Reports First Quarter Fiscal 2021 Financial Results,” HEXO Corp, December 14, 2020.)

The company recorded an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of CA$400,000 for the quarter. While the number was negative, it narrowed substantially from the adjusted EBITDA loss of CA$3.3 million in the previous quarter. Moreover, this marked HEXO’s sixth consecutive quarter of sequential improvement in adjusted EBITDA.

Notably, Truss Beverage Brands (the company’s JV with Molson Coors in Canada) had the No. 1 cannabis-infused beverage brand in Canada and achieved a sequential revenue growth of 54% in the October quarter.

And the best could be yet to come, because the industry is expanding. The market for cannabis-infused beverages is expected to reach CA$1.6 billion in North America and CA$5.0 billion globally by 2026. (Source: HEXO Corp, July 31, 2020, op. cit.)

Combined with Truss CBD USA’s recent product launch in the U.S., I wouldn’t be surprised to see this JV deliver even higher growth rates down the road.

Analyst Take

Keep in mind that, after a stock skyrockets in a very short period, it could face pullbacks in the near term as investors take profits. However, the fundamentals suggest that HEXO stock remains a solid play in the cannabis industry.

The company is a low-cost producer with supply agreements and arrangements with government-run and private-sector retailers in all 10 Canadian provinces, reaching 98% of the country’s population.

In Quebec—the second most populous province in Canada, HEXO Corp has more than 33% of the market share. As the legal cannabis industry further expands, more gains could be on the way for HEXO stock investors.