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Time is Running Short for the Natural Gas Market

NYSE:UNG January 9, 2020 1:34pm

Will Shares of HEXO Sink or Swim in 2020?

Now that 2019 is behind us we're beginning to see a breakout among the pack of publicly traded cannabis companies, and Hexo (HEXO) stock seems like it could go any direction. One of the main concerns some investors have is that HEXO is not as insulated from the woes of the Canadian recreational market as some of its competitors. While many of the Hexo's publicly traded peers have operations in other countries, operations in medical markets, and/or generate revenue via ancillary cannabis operations (such as Real Estate Investment Trusts), Hexo seems to have gone all in on Canada's Rec 2.0 with their commitment to the derivatives and edibles markets, and its partnership with Molson Coors (TAP). For the most part, HEXO's challenges have been uniquely Canadian. While no cannabis stock was immune from the market spike and crash of 2019, Hexo's situation is being compounded by a bottlenecked Canadian retail market. Legal edibles, beverages, derivatives and vapes are finally beginning to hit the shelves in Canada this month. But questions remain: How big of a piece is HEXO going to get from that, and how soon? If Canada's brief history of the legal market is any indicator (and history often isn't), the rollout of Rec 2.0 could be slower-than-expected and yield lackluster results. There's no question that consumer demand is there. The Canadian Market by Numbers In calendar Q1 2018, 4.18 million Canadians ages 15 and older used cannabis. By Q3 2019, that number expanded to nearly 5.2 million. Meanwhile, HEXO's year-over-year growth rate in the trailing three quarters dropped from 27% to 14%. There is a disconnect somewhere, and by most accounts it begins with the Canadian government's perplexing rollout strategy for cannabis retail stores.  For example, between Q1 2018 through Q3 2019 Ontario accounted for nearly 41% of the Canadian cannabis market share. But as of October 2019, the province only had 75 cannabis stores that were approved (or scheduled to be) and open for business. Considering this province has more than 2 million cannabis users, that breaks down 26,972 users per store. Comparatively, British Columbia has 830,000 cannabis users but only 104 stores, which equals less than 8,000 users per store. And the city of Calgary currently has 200 stores per its 1.34 million residents. Assuming that 17% of them are marijuana users, that figure equates to 1,139 stores per user. Much of Hexo's success is pending on how soon the Canadian government can loosen the reins on this hodgepodge retail strategy.   HEXO stock kicked off the first trading day of 2020 nearly 16% below its $1.96 closing price of Dec. 24. On top of that, Hexo stock is down more than 80% since the beginning of May 2019, leaving many investors to wonder if it's finally hit bottom. And just last week the company closed its registered direct offering, under which the Hexo sold 15 million common shares at $1.67 per share, for gross proceeds of $25 million. It also issued 5-year warrants to purchase approximately 7.5 million shares at $2.45. But these are the types of moves that have investors growing weary on the cannabis industry. While nearly all of Hexo's peers have resorted to raising cash through equity offerings, investors usually would rather not see companies pursue dilutive measures to continue their growth strategies.
HEXO Corp. (HEXO) was trading at $1.45 per share on Thursday afternoon, up $0.06 (+4.32%). Year-to-date, HEXO has declined N/A%, versus a 22.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Eric Bowler

eric-bowlerEric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.
NYSE:MJ January 9, 2020 12:23pm

Can Gold (GLD) Prices Keep Rising?

gold coins prices
Gold continued its rise overnight on international markets, going above 1600 USD in London before the New York open. Now the question is will it stay above 1600? Of course, there are a lot of opinions about this; first a few facts.
NYSE:GLD January 8, 2020 10:27am

Should Investors be Buying More Silver?

silver bar investing
NYSE:GLD January 8, 2020 9:10am

Where is Silver Headed After Surging Higher on Tension with Iran?

silver bars
Silver "enjoyed" quite a pop from the US-Iran clash. Now that everyone's taken a deep breath - at least, everyone trading metals - what's the scenario from here?
NYSE:SLV January 7, 2020 11:21am

Will Oil Prices Continue to Rise?

NYSE:USO January 7, 2020 10:11am

Will Natural Gas Continue to Move Lower?

NYSE:UNG January 6, 2020 11:17am

Is Gold Headed Higher in January?

gold investment bars
NYSE:GLD January 6, 2020 10:37am

Another Disappointing Inventory Report for the Natural Gas Bulls

NYSE:UNG January 3, 2020 12:58pm

Silver: Key Resistance Looms Overhead

NYSE:GLD January 2, 2020 11:55am

Are Shares of Aphria (APHA) Ready to Make a Big Move in 2020?

ETF BASIC NEWS January 2, 2020 11:50am

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