HEXO Corp: A New Reason to Check Out This Low-Priced Pot Stock

HEXO Corp (NYSEHEXO) A New Reason to Look at This Pot Stock
iStock.com/OlegMalyshev

Don’t Give Up on This Pot Stock Just Yet

Like many pot stocks, Hexo Corp (NYSE:HEXO) has been a volatile ticker. In just the past month, HEXO stock went from trading at $4.11 per share to $2.58, marking a drop of 37%.

One of the reasons behind the tumble was that, on October 10, the company released the preliminary financial information for the fourth quarter of its fiscal-year 2019, which ended on July 31.

The report said that HEXO’s net revenue for the quarter would be approximately CA$14.5 to CA$16.5 million. (Source: “HEXO Corp Provides Preliminary Fourth Quarter 2019 Revenue Results and Withdraws Fiscal Year 2020 Outlook,” HEXO Corp, October 10, 2019.)

This turned out to be a major disappointment because previously, the company expected its fourth-quarter net revenue to double from the third-quarter revenue to around CA$26.0 million. (Source: “Management’s Discussion & Analysis,” HEXO Corp, last accessed October 21, 2019.)

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Meanwhile, HEXO also withdrew its financial outlook for its fiscal 2020. Previously, the company expected its fiscal 2020 net revenue to ramp up to CA$400.0 million.

Investors did not like that news. And as we can see from the below chart, HEXO stock took a serious beating after releasing preliminary fourth-quarter results and withdrawing its previous fiscal 2020 financial outlook.

Hexo Corp (NYSE:HEXO) Stock Chart

Chart courtesy of StockCharts.com

A New Reason to Check Out HEXO Stock

Investors might not want to walk away from HEXO stock just yet. The company recently introduced a new product, and it could give investors another reason to check out this beaten-down pot stock.

On October 16, HEXO announced the launch of its new value brand “Original Stash.”

Notably, the product will be sold for CA$125.70 per ounce, or CA$4.49 per gram. That’s quite inexpensive compared to the prices from other legal pot producers. (Source: “HEXO launches cannabis value brand, Original Stash, With 1 oz product at $4.49 a Gram Including Taxes,” HEXO Corp, October 16, 2019.)

Original Stash’s products are available in Société québécoise du cannabis stores (part of a Crown corporation that has a legislated monopoly on the sale of recreational pot in the province of Quebec).

The company has plans to roll out the Original Stash brand across Canada.

What’s so special about HEXO’s new low-priced pot products? Well, they will allow the company to compete with a big, but much less talked-about competitor: the black market.

You see, Canada legalized recreational marijuana on October 17, 2018. But not every Canadian pot user has been getting their supply from legal vendors.

According to a recent survey from Statistics Canada, more than four in 10 cannabis consumers said that they purchased at least some of their pot from illegal sources. (Source: “National Cannabis Survey, second quarter 2019,” Statistics Canada, August 15, 2019.)

Also, 42% of cannabis consumers said that price was a major consideration when buying pot.

Therefore, with a low-priced offering, HEXO Corp could take some business away from the black-market vendors.

“We’re now competing directly with the illicit market and providing consumers with an affordable, controlled, quality product. Moreover, we are giving consumers the option of less packaging in a 1 oz format, which we know is a priority for so many,” said co-founder and Chief Executive Officer Sebastien St-Louis. (Source: HEXO Corp, October 16, op. cit.)

Analyst Take

At the end of the day, it remains to be seen how well-received Original Stash will be.

But if the low-priced pot strategy works out for HEXO Corp, not only will it disrupt Canada’s black market for cannabis, it will also significantly boost the company’s sales.