HEXO Corp (TSX:HEXO) Could Lead the Legal Weed Resurgence

HEXO Corp. is looking attractive, as the legal cannabis industry sees improvements after a lengthy and terrible period.

| More on:
edit Jars of marijuana

Image source: Getty Images

Cannabis companies made big waves in the stock market in 2018, boasting some of the strongest growth on the TSX. Anything that had something to do with marijuana and was trading on the TSX skyrocketed in value. Many equity securities even quadrupled in value — all in a matter of months.

The market then fizzled out, and cannabis companies came back down to more reasonable valuations. Fast forward to today, and the cannabis market is on the rise again.

I will discuss HEXO (TSX:HEXO)(NYSE:HEXO) today. The stock’s recent earnings reports make it a hopeful prospect to consider, and HEXO looks like it is racing its way to the top.

Excellent earnings reports

The cannabis producer’s recent earnings report offered investors decent long-term upside potential. The company reported net revenue of almost $33 million in its latest quarter, up by $17 million from the same period last year. The significant revenue growth came as the quarter marked the seventh consecutive quarter where HEXO reported positive adjusted EBITDA.

The company also noted that its non-beverage recreational use revenues increased by 6%. Its revenues from adult-use cannabis products also marked a fifth consecutive quarter of improvement, allowing HEXO to maintain a leading position in Quebec’s legal cannabis market. The company’s revenues throughout Canada increased by a massive 49%, showing that HEXO’s improving performance is not limited to just Quebec.

Expansion will be a critical factor

The earnings already paint a pretty picture for HEXO investors seeking long-term growth. The company’s high-margin products could be the major driver for its profitability in the coming months and years. Investors may have one reason to worry regarding HEXO: its global expansion potential.

Unlike its closest peers in Canada, HEXO does not have significant direct access to the U.S. market. Despite its impressive revenue growth, its financial position still leaves more to desire.

The company recently established a position in the U.S. market but has focused heavily on its presence in the domestic market. The company has recently appointed Charles Bowman as the general manager of HEXO’s U.S. operations. HEXO is relying on him to improve the company’s presence in the U.S.

Expanding into the U.S. will play a critical role for the weed industry, as the legalization movement picks up pace there. More than half of the 50 U.S. states have already legalized cannabis at some level. The prospects of federal-level legalization look increasingly hopeful. Having a substantial presence in the U.S. market could make a world of difference for HEXO.

Foolish takeaway

HEXO is trading for $7.34 per share at writing, and it is still well below its 2018 valuations. The stock has all the potential to become a global leader in the legal cannabis industry. HEXO could be an excellent investment at its current valuation. Still, many investors might prefer to sit on the sidelines to see how the company progresses with its global expansion before they invest.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. and HEXO.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »