Why Hexo Stock Has Climbed 14% So Far in 2021 | The Motley Fool

What happened

Canadian cannabis company Hexo (NYSE:HEXO), which began 2021 at $3.72 a share, closed at $4.20 on Monday after going as high as $10.28 in February. So far this year, the stock is up more than 14%. Some of that is due to the general excitement surrounding cannabis stocks as several states opened to medical or adult-use sales.

The up-and-down nature of Hexo’s ride also has a lot to do with the company’s spate of acquisitions and mixed financial reports. 

Image source: Getty Images.

So what

Investors got excited when the cannabis stock announced its plans to buy Zenabis Global in February for $186 million. That was just the beginning of a buying spree for the company. It bought 48North Cannabis (OTC:NCNNF) in May in an all-stock deal for $41 million. Then, later in May, it announced it was purchasing Redecan, Canada’s largest privately owned producer of recreational marijuana, for $765 million.

The company had a solid second-quarter report that kept its shares above $8. It reported revenue of 32.8 million in Canadian dollars ($26 million), up from CA$29.4 million in the first quarter, due to growth in non-beverage adult-use cannabis sales and in cannabis beverage sales. Net losses for the quarter were reported as CA$20 million, a big improvement over the CA$298 million in the same period in 2020.

The stock cooled considerably, however, in June when the company released its third-quarter report. It reported revenue of CA$22.6 million, down from CA$32.8 million sequentially. Hexo did trim net losses from CA$20.8 million to CA$20.7 million sequentially, but the losses were still higher than the same period in 2020, when the company lost CA$19.5 million.

The biggest concern coming out of the third-quarter report was the company’s mention of its various supply issues

Now what

The company needs to show it can pay for all these acquisitions by improving its revenue in the fourth quarter. Hexo just established its presence in the United States by buying a 50,000-square-foot production facility in Fort Collins, Colorado. It says the facility will allow it to grow its joint venture with Molson Coors Brewing (NYSE:TAP) for its Truss brand of CBD-infused beverages and other products.

Investors will also look for Hexo to begin to pay down its debt of CA$73.9 million.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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