HEXO Stock Forecast
One of my favorite marijuana stocks, HEXO Corp (OTCMKTS:HYYDF, TSE:HEXO), is continuing to pick up steam. Between cannabis-infused beverages, supply agreement deals, partnerships with Big Alcohol, and strong Q4 2018 results, there’s a lot to like about the HEXO stock forecast, even as we enter a correction in the cannabis industry.
And, of course, the company is snatching up headlines due to its potential listing on the New York Stock Exchange (NYSE).
A HEXO NYSE listing is now planned for December, making it just the third marijuana stock to list on the major U.S. exchange.
You see, while Aurora Cannabis Inc (NYSE:ACB) and Canopy Growth Corp (NYSE:CGC) were both looking to drum up hype and gain access to more capital via their NYSE listings, the HEXO NYSE listing carries even more weight, due to the company being largely unheralded by the market.
HEXO has managed to remain a marijuana penny stock despite having some of the strongest foundations in the entire industry.
Consider that the company has scored major supply agreements across Canada, with the largest one being in Canada’s second-most populous province, Quebec.
The supply agreement is for about 200,000 kilograms to be supplied to Quebec annually, and that deal will last for the next five years.
While that marks the largest—and likely most lucrative—of HEXO’s supply deals, the company has also expanded its reach to British Columbia and Ontario, the third and most populous provinces in Canada, respectively.
And the company has the production capacity to supply far more than it is currently. Note the following developments for HEXO:
- A partnership with Greek company Qannabos and plans to establish a eurozone processing, production, and distribution center in Greece—including the development of 350,000 square feet of licensed infrastructure.
- The first harvests from a new 250,000-square-foot greenhouse, increasing annual production capacity to 25,000 kilograms of dried cannabis flowers.
- The completion of the foundation and framing for a 1,000,000-square-foot greenhouse (completion of the entire facility remains on track for December 2018).
- The acquisition of an interest in a 2,004,000-square-foot facility in Belleville, Ontario, providing capacity for the manufacturing of advanced cannabis products.
- A contract with Metro Supply Chain Group Inc. to manage a warehouse and distribution center for adult-use online orders for the Société québécoise du cannabis (“SQDC”) in a modern 58,000-square-foot facility in Montreal, Quebec.
(Source: “HEXO reports fiscal 2018 fourth quarter results,” GlobeNewswire, October 26, 2018.)
The HEXO stock forecast for 2019, based on the company’s supply agreements and production capacity alone, makes the stock very attractive.
Regarding the company’s European expansion into Greece, HEXO Corp CEO and co-founder Sebastien St-Louis said the following: “I’m excited to add European distribution capabilities for HEXO and its joint venture partners.” (Source: “HEXO Corp. goes global, establishes Greek manufacturing facilities for distribution throughout Europe, including France and the UK,” GlobeNewswire, September 26, 2018.)
I’ve always been a huge fan of marijuana companies expanding into the global marketplace, getting a head start on what are sure to be extremely lucrative markets in the near future. HEXO is doing just that, and we’ve only begun to scratch the surface of what makes the HEXO stock forecast for 2019 look so enticing.
HEXO-Molson Coors Partnership
One of the biggest boons for HEXO Corp is the partnership that the company signed with Molson Coors Brewing Co (NYSE:TAP).
This Big Alcohol partnership is one of only two such deals in the cannabis sector so far. And should Molson Coors decide to reinvest in HEXO, expect the HEXO share value to climb considerably.
The two companies are partnering together on cannabis-infused beverages, one of the most exciting and lucrative segments of the legal marijuana market. HEXO and Molson Coors have formed a joint venture called Truss to handle the development of this product.
Expect Truss to be one of the driving forces of HEXO stock for years to come.
Chart courtesy of StockCharts.com
HEXO’s Q4 2018 Results
On top of all of the foundational strengths at HEXO, the company has strong fundamentals. This includes impressive numbers in its latest quarterly report.
As per the report:
- Revenue per gram increased to $9.26 per gram equivalent from $9.24 in the prior quarter, and $9.00 in the fourth quarter of fiscal 2017
- Revenue increased 14% to $1,410,656 quarter over quarter and the volume of cannabis dried grams and gram equivalents sold increased 13% to 152,288 from the third quarter of fiscal 2018
- Ontario-based sales increased 15% during the quarter ended July 31, 2018
- Weighted average cash cost of dried inventory sold per gram of $0.90 held relatively steady from $0.88 per gram in the third quarter of fiscal 2018 and decreased 14% year-over-year compared to the fourth quarter of fiscal 2017
- Cash and short-term investments were $244.8 million as at July 31, 2018, and the balance sheet remained debt-free
(Source: “HEXO reports fiscal 2018 fourth quarter results,” GlobeNewswire, op cit.)
The most important number of note is the weighted average cash cost of dried inventory sold per gram of $0.90.
This is going to be a huge metric moving forward as companies compete with each other for lucrative deals that are going to become rarer and rarer as time goes on.
The best way to maximize profits, therefore, is to get the cost of production down as low as possible, which is something that HEXO is showing it has the ability to do.
There’s so much to like about the HEXO stock forecast for 2019, it’s hard to focus on just one aspect.
Between its partnerships with Big Alcohol, its future NYSE listing, the massive HEXO production capacity, and the gains made in the cannabis-infused beverage segment—not to mention the stock’s relatively low valuation—there’s so much room for HEXO to grow and so many things that could spur that growth.