The launch of the Canadian recreational cannabis market is just one week away and investors who missed the big rally in pot stocks are wondering which marijuana stock is the best one to buy.
HEXO is Quebec’s leading cannabis firm and recently announced a three-year deal with the Societe Quebecoise du Cannabis (SQDC) to manage the warehouse and distribution operations for the provincial government’s adult-use web store orders.
The 58,000 square foot facility in Montreal will house all of the product from licensed producers and serve as the sole point of distribution for direct-to-consumer deliveries in the province. HEXO will manage the site with the Metro Supply Chain Group.
HEXO is also expanding its reach in Ontario through its 25% interest in a two million square foot facility in Belleville. The location will serve as a major development and manufacturing hub for the company’s advanced cannabis product lines, including cosmetics, beverages, and other edibles.
HEXO continues to expand its capacity. The company currently has more than 300,000 square feet of production space and will have an additional 1,000,000 square feet ready by the end of the year.
International expansion is also part of the company’s strategy. HEXO just announced plans to set up a production, processing, and distribution facility in Greece. The partnership with Greek company Qannabos will see the development of a 350,000 square foot facility that will supply product to the European cannabis market, which is expected to top $100 billion in annual sales within 10 years.
In August, HEXO announced an agreement with Molson Coors Canada that will see the two companies set up a joint venture business to develop and market cannabis-infused beverages for the recreational market. Canada is expected to allow the sale of edibles some time in 2019, and the drinks segment could be the first part that gets the go-ahead.
The opportunity for non-alcoholic cannabis infused beverages is significant. Some pundits predict that it could take a large part of the current beer market, so there is an incentive for the beer, wine, and spirits companies to get a piece of the action.
Molson has its roots in Quebec, and the company’s iconic beer brands are popular across the country. As a result, the partnership between the two companies should be a fruitful one.
Should you buy?
HEXO is playing catch-up to its larger peers, but the company is laying the groundwork to become a significant player in the emerging cannabis industry. If you like betting on an underdog, HEXO might be an interesting pick for your pot portfolio.
As with all marijuana stocks, HEXO’s valuation is off the charts, so investors should be careful. That said, the company will probably be bought at some point, so there could be an opportunity for a nice takeover premium.
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Fool contributor Andrew Walker has no position in any stock mentioned.