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Why Should You “Social Distance” Yourself from HEXO Stock

Avoid this marijuana stock like it has COVID-19 and seek better marijuana stock investment opportunities

HEXO Marijuana StockIf you’ve been following marijuana stocks this year, you know that most Canadian marijuana companies are in lousy shape. Yes, the markets have been gutted the past couple of months because of COVID-19 but the entire cannabis sector has been hurting for the past year – with most marijuana stocks losing 50-90% of their value.

Overvaluation, long-term operating viability, and the rise of this global pandemic have contributed to these monumental losses and many marijuana stock investors are calling it quits.

What’s the good news?

The cannabis industry continues to gain momentum on a daily basis. With increasing demand and legalization growing on a global scale – there’s plenty of great opportunities abound – if you know where to look. HEXO is not one of those opportunities.

Several cannabis companies are set to deplete their cash as the markets grind to a halt in the coming months. In fact, MJ Business Daily (more commonly known as MJBiz Daily) recently found that 8 of 33 cannabis firms they track don’t have enough funding to last more than 10 months.

HEXO Marijuana Stock

While the last twelve months have been an absolute nightmare for cannabis investors, there’s still a ton of potential opportunities out there as the long-term outlook for Cannabis remains as bright as ever. The winners and losers among the bunch are now becoming more and more evident. In fact, analysts at MJBiz Daily predict the fallout from the COVID crisis will be an “extinction-level event for some companies”. They also maintain that “the long-term investment opportunity for the industry hasn’t changed as legalization spreads and demand grows but companies need to survive long enough to see it”.

The companies that do survive will rebound very sharply. If you expect to profit from your stock investments, you’ll need to pick the winners from the bunch.

Is HEXO one of the winners from the bunch?

At face value, things are not looking terrible for this marijuana stock.

HEXO is a vertically integrated, licensed cannabis company in Canada and the USA. They have more than enough production space and retail sites to be profitable. They sell cannabis topicals, extracts, edibles, and beverages. After recently raising $70 Million in private placement, HEXO remains as one of the few marijuana stocks to have enough cash on hand to weather the COVID Crisis.

First the good news. They have strong branding with their UP, HEXO, and Original Stash brands. Smaller product lines include Time of Day, Decarb, and Exlixir. Their product SKU’s are also impressive.

HEXO Marijuana Stock

They recently raised $70 million in a private placement so they have plenty of operating capital. They are also listed on the TSX and NYSE so there is plenty of access to capital. Partnerships with huge companies like Molson Coors of Canada prove that there could be a tremendous value for HEXO.

That all sounds pretty good – so why should you “social distance” yourself from HEXO stock?

Recent revenue was almost 3x higher than the same time last year, BUT the company reported CA$58.5 million in losses. The total net losses are up by almost 500%. This means that although they just raised some capital to work with, the company is bleeding cash at an extremely high rate.

Although HEXO seems to have a stronger cash position than many marijuana stocks, recently, HEXO has been forced to turn to common stock offerings to raise more capital to sustain its operations during these uncertain times. Much like, Aurora Cannabis, HEXO has been cutting operations to try to conserve the cash it’s sitting on. In fact, HEXO has reduced its annual output by ~30% over the last five months. If HEXO is unable to double its share price, they may be forced to take the route of Aurora Cannabis and elect for a “reverse-split” to avoid being delisted from the TSX and NYSE. Even at less than $0.50/share, you should still socially distance from this stock for the rest of 2020.

The company is under investigation for fraud, has recently fired over 200 employees and, and the stock price is on a strong downward trend.

This stock is one to stay away from.

There are good signs in this company, as noted above, but they need to right the ship in 2020 before we’ll believe they can stage a financial comeback. Until then, we’ll continue to “social distance” ourselves from this marijuana stock.

Why Should You “Social Distance” Yourself from HEXO Stock

About Cannin: Cannabis and Hemp Investment Experts

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