Should You Buy HEXO (TSX:HEXO) or Canopy Growth (TSX:CGC) on the Dip?

HEXO Corp. (TSX:HEXO) and Canopy Growth Corp. (TSX:WEED) (NYSE:CGC) are off the 2019 highs. Is one now a buy?

| More on:
question marks written reminders tickets

Image source: Getty Images

Pot stocks are giving back some of the big 2019 gains, which has investors wondering which marijuana stocks might be the best buys to generate strong returns on the next rally.

Let’s take a look at HEXO (TSX:HEXO) and Canopy Growth (TSX:WEED)(NYSE:CGC) to see if one of Canada’s popular cannabis stocks deserves to be in your portfolio.

HEXO

HEXO’s big production facility in Gatineau, Quebec was in the news this week as residents that live near the new site are complaining that it is stinking up their lives.

Investors might also be plugging their noses when they look at the stock chart, as HEXO is down from $11 per share at the end of April to $8.50. Those who bought at the high might not be too happy, but investors who had the courage to step in at the beginning of the year when HEXO traded for $5.50 are still in pretty good shape.

HEXO arguably punches above its weight. The company only has a market capitalization of $2.1 billion, but has staked out a claim in most of the core markets.

Its acquisition of Newstrike expanded its reach to eight provinces, adding to its dominant position in Quebec, where it’s the leading supplier to the Quebec government’s cannabis retail operations. The company is also setting itself up to be a player in Europe through the construction of a large production facility in Greece that will serve as HEXO’s hub to supply the growing medical marijuana market in the region.

On the edibles front, HEXO launched a new company, Truss, in partnership with Molson Coors Canada. The new company is developing cannabis-infused beverages to sell once Canada opens up the edibles market. That is expected to occur in the fall of 2019.

Canopy Growth

Canopy Growth is a giant in the emerging global cannabis sector. Even after the stock’s recent slide from $70 per share to $54, the company still sports a market capitalization of $19 billion.

Canopy Growth is Canada’s leading supplier of medical marijuana to registered patients, and is taking its expertise to bigger markets, such as Europe, where it owns a pharmaceutical distributor in Germany and is building production facilities in other countries. Canopy Growth also has research and development operations in Chile and production capacity in Colombia to serve Latin America.

In the United States, Canopy Growth is getting itself positioned to take advantage of the potential legalization of marijuana at the federal level. It has an agreement in place to acquire Acreage Holdings for US$3.4 billion, giving it instant access to an existing network of production and retail locations in 20 states.

Is one a better buy?

Both stocks still appear very expensive based on typical valuation methods, so I wouldn’t back up the truck.

However, HEXO could eventually command a takeover premium as consolidation is expected to continue in the cannabis sector. If you like betting on the underdog, go with HEXO. Otherwise, Canopy Growth will likely be one of the few firms that remains standing once all the dust settles and is probably the safer bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »