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HEXO: Is this Penny Pot Stock Gaining Momentum?

HEXO: Is this Penny Pot Stock Gaining Momentum?Shares of cannabis giant Hexo (NYSE: HEXO) closed trading at $0.74 on June 30, indicating a gain of just over 7% in the last month. Is this penny pot stock gaining momentum? Let’s take a look at what impacted this cannabis stock in June and if Hexo remains a solid bet for 2020 and beyond.

Hexo stock gained momentum at the start of June after the company announced it received its license from Health Canada for the sale of cannabis-based extracts, topicals, and edibles. This manufacturing and processing facility is located in Belleville, Ontario. The Health Canada license allows Hexo to significantly increase its processing capability which will help it achieve economies of scale and target the high growth Cannabis 2.0 segment.

As the Belleville facility is located along primary shipping routes, it will also act as Hexo’s main development, processing, and distribution facility for the company’s cannabis products.

Strong fiscal Q3 results for Hexo

HEXO's Q3 2020 earnings highlights

Hexo announced its fiscal third-quarter results on June 11 and reported net revenue of CA$22.1 million, up from CA$17 million in Q2 and CA$13 million in the prior-year quarter. The company’s Q3 sales were better than analyst revenue estimates of CA$20.3 million. Another reason why investors were optimistic about the pot stock was its adjusted EBITDA loss of CA$4.3 million which was well below its Q2 EBITDA loss of CA$8.5 million.

Hexo aims to raise more cash to improve liquidity

 

Hexo stock fell by double digits on June 17 after the company announced its intention to raise more cash to improve its liquidity position. Its press release states Hexo has recognized an ATM (at-the-market) equity program that allows the marijuana leader to raise CA$34.5 million.

While Hexo has not issued any new shares, the ATM equity program gives it enough flexibility to raise cash when required. Hexo ended Q3 with a cash balance of CA$94 million.

What next for this pot stock?

HEXO

While Hexo stock rose a little over 7% last month, it is still trading 90% below record highs. This pot stock is struggling with structural issues that include lower than expected demand and competition from the illegal market.

In order to target illegal sales, Hexo launched lower-priced products last year. It is also optimistic about support from the federal government to build better retail infrastructure and accelerate the rollout of licenses in major Canadian provinces that will boost demand and lower inventory levels.

While the cannabis market is expected to grow at a rapid pace in the upcoming decade, there are several issues that will continue to impact pot stocks in the near-term, making them volatile for the rest of 2020.

HEXO: Is this Penny Pot Stock Gaining Momentum?


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