HEXO Corp: This Top-Performing Pot Stock Trades at $6.49 Apiece

A Canadian Pot Stock to Think About

In a world where cannabis companies are getting bigger and bigger, HEXO Corp (NYSE:HEXO) may not be receiving as much attention as before. Considering that HEXO has a market capitalization of about $800.0 million, there are more than a handful of companies in the Canadian cannabis industry with a bigger presence in the stock market.

That said, the share price performance of this company has actually been quite impressive since the market sell-off last year. The NYSE-listed HEXO stock (the company also trades on the Toronto Stock Exchange under the same ticker symbol) went from $2.07 to $6.49 over the past 12 months, marking a return of 213%.

To put that in perspective, the Canadian Marijuana Index returned about 113% during the same period. (Source: “Canadian Index,” The Marijuana Index, last accessed April 29, 2021.)

Of course, past performance is no guarantee of future results, and if you’ve been following the cannabis industry, you’d know that many pot stocks—including HEXO stock—have experienced sizable pullbacks since peaking in early February. For those who’ve been on the sidelines, this dip could present another opportunity to check out some solid pot stocks.

HEXO Corp’s story started in 2013, when it was incorporated under the name The Hydropothecary Corporation and focused on serving the medical cannabis market in Canada.

After the country legalized recreational pot in 2018, the company became HEXO and started serving both the recreational and medical markets. HEXO now operates with two million square feet of facilities in Ontario and Quebec.

As a consumer packaged goods cannabis company, HEXO Corp offers “HEXO,” “HEXO Plus,” “Up,” “Original Stash,” and “Bake Sale” brands in the recreational pot market.

Moreover, in February, the company announced that it would acquire Zenabis Global Inc (TSE:ZENA, OTCMKTS:ZBISF) in an all-share transaction valued at approximately CA$235.0 million. (Source: “HEXO Corp. to Acquire Zenabis Global Inc.” GlobeNewswire, February 16, 2021.)

Under the agreement, Zenabis shareholders will receive 0.01772 of a HEXO common share in exchange for each Zenabis common share they hold.

Zenabis is a Canadian licensed cultivator of medical and recreational cannabis headquartered in Vancouver, BC. The company has 111,200 kilograms (245,154 pounds) of licensed cannabis cultivation capacity across three licensed facilities in the country, along with its cannabis import, export, and processing joint venture, ZenPharm, operating from Birżebbuġa, Malta.

This acquisition will give HEXO Corp access to Zenabis’ licensed production capacity and strengthen HEXO’s presence in the Canadian cannabis industry. At the same time, it will give HEXO access to the European medical cannabis market through Zenabis’ local partner.

HEXO Corp estimates that, through this deal, the combined entity will realize annual synergies of approximately CA$20.0 million within one year through cost-of-goods reductions, additional capacity utilization, and general and administrative savings.

Of course, the transaction is subject to customary closing approvals. But it does give investors an additional reason to check out HEXO stock.

Looking at the company’s financials, we see that HEXO has been growing at a commendable pace.

In the second quarter of the company’s fiscal year 2021, which ended January 31, it generated CA$32.8 million of net revenue. The amount represented a 94% increase year-over-year and a 12% increase quarter-over-quarter. (Source: “HEXO Corp Announces Positive Adjusted EBITDA and 94% Increase in Net Revenue From Prior Year,” GlobeNewswire, March 18, 2021.)

And even though HEXO stock is not the biggest Canadian pot stock, the company has built a solid market position. For instance, in Quebec—the second-most populous province in the country—HEXO maintained its No. 1 position for cannabis market share in the reporting quarter.

Furthermore, the company generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of CA$202.0 million in its second fiscal quarter, representing a huge improvement from its adjusted EBITDA loss of CA$419.0 million in the first fiscal quarter.

Note that this marked HEXO’s seventh consecutive quarter of adjusted EBITDA improvement.

HEXO Corp (NYSE:HEXO) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

At the end of the day, keep in mind that the competitive landscape in the Canadian cannabis industry is changing.

I recently wrote about the upcoming merger between Tilray Inc (NASDAQ:TLRY) and Aphria Inc (NASDAQ:APHA). Now, with the fast-growing HEXO Corp ready to make an acquisition, it could be a good time for investors to revisit some solid Canadian pot stocks.