January 23 came and went without much fanfare.
However, if you own HEXO (TSX:HEXO)(NYSE-A:HEXO) stock, that was a day you’ll look back on with fondness. That’s because it was the first day the Quebec-based cannabis company started trading on the NYSE American Exchange, a stock exchange dedicated to small-cap stocks.
While it might not be the big board, American investors can now own HEXO stock without having to buy it over the counter, improving both the volume of trades and the quality of investor. It’s a win/win.
Here in Canada, we tend to think everything revolves around the TSX, but the truth is the NYSE American experiences a healthy amount of trading volume each day. HEXO getting a U.S. listing is a big deal.
HEXO’s partnership
If you follow the cannabis industry, you’re likely aware that HEXO is working with Molson Coors Canada to develop non-alcoholic cannabis-infused drinks for the Canadian market. Fool contributor Jason Phillips recently recommended that investors go with the tried and true and buy Molson’s stock rather than the speculative play in HEXO.
That’s not unlike my July 2018 recommendation that investors take $10,000 and invest half of it in Constellation Brands, $2,500 in Canopy Growth, and the final $2,500 in Horizons Marijuana Life Sciences Index ETF.
“Buying a single marijuana stock (Canopy) with some of your retirement money is one way to play this new and lucrative market,” I wrote July 18. “Another way is to have Constellation Brands draft behind the fantastic potential of Canopy, but you can’t pay your bills with wishful thinking.”
Opting for this three-stock approach still makes a lot of sense six months later.
If you have $10,000 to invest in the cannabis market and like HEXO, the smart play would be to put half into Molson Coors with the remainder equally divided among HEXO and the ETF.
It’s not as sexy, but it will help you sleep at night.
Now, imagine you’re an American investor
If you lived in Buffalo and wanted to execute this three-stock approach to HEXO before it listed on the NYSE American, you would have to buy both HEXO and Horizons ETF over the counter while purchasing Molson Coors Canada’s parent, which trades on the NYSE. The fees are higher and the spreads are higher; it’s merely a less-efficient way of owning stocks.
By listing on the NYSE American, HEXO’s removed one of the two hurdles involved in making this strategy happen. Like buying anything in life, the easier it is to do, the more you’re likely to follow through.
Not to mention there are a lot more people south of the border with large sums of money to invest. Not having a listing in the U.S. at this stage of the game is a huge mistake for any Canadian cannabis company eyeing the world stage.
It’s a small but significant value add
In December, I’d called HEXO, Canopy Growth, and Cronos Group my three favourite cannabis stocks. In all three cases, I believe it makes sense to buy their partners’ stocks at the same time.
While Molson Coors didn’t invest in HEXO, should the joint-venture go well over the next 12-24 months, I believe it will exercise the 11.5 million warrants it received as part of the partnership agreement between the two companies.
Compared to the Molson Coors partnership, listing on a U.S. stock exchange is a much smaller move, but a significant one, in my opinion. If you’re not listed on a U.S. exchange, it says you’re not serious about being a global player.
HEXO is.
