The battle for supremacy in the marijuana industry is intensifying. While Canopy Growth and Aurora Cannabis have managed to capture about 50% of the Canadian market, other pot companies are attempting to improve their positions. Some firms are successful at doing so, and others, not so much. Letâs look at two marijuana companies to watch this coming May: Hexo (TSX: HEXO) and Cronos Group (TSX: CRON)(NASDAQ: CRON). One of these firms is currently flying high, and the other recently posted disappointing financial results.
Hexoâs rise to relevance
Hexo was a relatively unknown pot stock until recently. The Quebec-based company did not garner as much attention as some of its peers, and it still doesnât. However, in a move that sent shockwaves throughout the marijuana sector, Hexo acquired Newstrike Brands, a Toronto-based grower and producer of cannabis products in an all-share transaction valued at about $263 million. Hexoâs share value increased by 5.56% the day this acquisition was announced.
The resulting company will be better equipped to battle against cannabis giants. Note that Newstrike has in excess of 1.8 million square feet of cultivation space to work with, which, added to Hexoâs 579,000 square feet, should result in a significant increase in production capacity. Hexo expects to deliver $400 million in revenues in 2020. There is more going Hexoâs way. Last year, the company formed a joint venture with Molson Coors Brewing to produced cannabis-infused drinks, which are expected to become legal in Canada sometime this fall.
Further, Hexoâs valuation metrics are far more attractive than those of most of its peers. With a price-to-sales ratio currently hovering at around five, the firm seems like a bargain by comparison to the industryâs standards. Thus, Hexo might just be one of the hottest pot stocks to grab in May.
Cronosâs fall from grace
Cronos was sometimes touted as the best-performing marijuana stock of all time. The company had been on fire since the beginning of the year, and thatâs in comparison with equity markets that have recovered since last yearâs slump. The companyâs share value increased by about 100% between early January and early March. However, Cronos recently reported its much-anticipated Q4 financial results, and they were less than impressive.
Cronos showed an increase in revenues of 285% for the year. This growth was spurred by the sale of recreational marijuana products. But the company also reported significant losses of more than $19 million. In short, Cronos is lagging far behind competitors such as Aurora Cannabis, despite being the more expensive stock. To make matters worse, Cronos stock was downgraded three times within the last three months. This does not bode well for the Toronto-based cannabis seller.
Cronosâs share price has declined by more than 25% since its early March highs, reflecting investorsâ disappointment. Despite boasting a partnership with tobacco giant Altria and having an interesting (though likely not up to par) international presence, Cronos currently seems to be an unattractive marijuana stock. It will be interesting to see how things develop in May and beyond.
Investor takeaway
Hexo has managed to become a better-known company with strong growth prospects. Cronos, however, recently lost its allure in the eyes of many investors and analysts. There is little doubt as to which of these stocks is currently the better option.
