Can you believe it? Another Canadian cannabis stock is looking to list on the New York Stock Exchange. And this time, it’s Hexo Corp (TSX:HEXO).
In a recent statement, the company’s CEO Sebastien St-Louis hinted that he was pursuing an NYSE listing to increase brand awareness. Citing the need to “tell Hexo’s story,” he said that he wanted his company to become one of four world-renowned cannabis producers.
This is a big ambition. But can an NYSE listing really help him achieve it? And more important, will it enrich Hexo investors? To answer these questions, we need to understand a little more about Hexo Corp and how it plans to compete with larger brands in the cannabis industry.
An eye on beverages
Hexo Corp is one of the smaller TSX cannabis companies by market cap. In order to compete with larger companies like Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB), it needs to differentiate itself. One way it has sought to do so is through cannabis-infused beverages. Such beverages have the potential to be very lucrative for individual cannabis companies because of exclusive supply deals that protect them from competition.
Many cannabis vendors have been in talks with beverage makers to discuss creating cannabis beverages, but Hexo is by far the furthest along the path, having actually created a joint venture, Truss, with Molson-Coors Brewing.
How does this tie in with Hexo’s plans to list on the NYSE? It has to do with recognition.
Obviously, Hexo Corp is a company that wants to partner with larger businesses for mutual benefit. The Molson-Coors JV is proof enough of that. But with the results of this venture far from concrete–we don’t have a beverage yet–the company still has to keep its options open. That includes courting other large American conglomerates, a goal that an NYSE listing would certainly advance by giving Hexo more name recognition by virtue of coverage in the U.S. media.
A highly favourable outcome–for Hexo investors if not its management–would be an outright buyout by a larger U.S firm. If that happened, the larger company would likely buy Hexo’s shares for a higher price than they traded for in the markets. In that scenario, everybody already holding Hexo shares would profit–possibly handsomely.
Ultimately, there is no guarantee that listing on a U.S. exchange will drive Hexo shares up or lead to M&A activity. However, it’s almost certain that listing on the NYSE will increase Hexo’s brand awareness and trading volume.
This helps the company keep its options open so it can pursue partnerships on favourable terms. For a smaller company in a highly competitive industry, that may make all the difference in the world.
When you buy heavily cyclical stocks at low prices… and then hold the shares until the cycle reaches its peak… you can make a very healthy profit.
Every investor knows that. But many struggle to identify the best opportunities.
Except The Motley Fool may have a plan to solve that problem! Our in-house analyst team has poured thousands of hours into their proprietary research – and this is the result.
Our top advisor Iain Butler has just identified his #1 stock to buy in 2018 (and beyond).
The last time this stock went from the low point of its cycle to the peak… shares shot from $12 to $40 inside of 4 years. That’s an 300%-plus return. And if you missed out on that ride, today might just be your second chance.
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of Molson Coors Brewing.