Is HEXO Stock Set to Dominate 2021?

HEXO Stock Leads Marijuana Stocks in 2021

This year has had no shortage of big marijuana-stock stories. Mergers, political maneuvering, legalization pushes—it has been anything but boring for pot stocks this year.

But marijuana stock investors should never lose sight of which stock holds the highest potential for gains. In my mind, the pot stock that investors should be on the lookout for right now is HEXO Corp (NYSE:HEXO).

HEXO stock has soared by more than 250% in the past 12 months.

For long-time readers of mine, that should come as no surprise. I’ve been bullish on HEXO stock for years. I’ve long viewed it as a potential leader in the future of the marijuana industry due to the company’s partnership with alcohol producer Molson Coors Beverage Co (NYSE:TAP).

The two companies struck their deal just when cannabis-infused beverages were considered to be one of the most exciting prospects in the marijuana market.

What’s more, HEXO Corp has a strong position in Quebec, which is Canada’s second-most populous province.

The pot stock’s momentum hasn’t slowed in 2021, either. The company has seen its share price nearly double in the first five months of 2021.

Chart courtesy of StockCharts.com

So what’s powering the huge gains we’ve been seeing from HEXO stock?

First, the company has reported some solid financials.

“I am so proud of the entire HEXO team for the role they played in helping us achieve positive adjusted [earnings before interest, taxes, depreciation, and amortization (EBITDA)] this quarter, along with our seventh consecutive quarter of adjusted EBITDA improvement,” said the company’s CEO and co-founder, Sebastien St-Louis. (Source: “HEXO Corp Announces Positive Adjusted EBITDA and 94% Increase in Net Revenue From Prior Year,” GlobeNewswire, March 18, 2021.)

He added,

Our continued focus on delighting consumers has seen us increase our market share across Canada while maintaining the number one position in Quebec. We’re also very excited to have launched ‘powered by HEXO’ [cannabidiol] beverages in Colorado. Our net revenues and gross margin have continued to improve year over year, bolstered by our premium product mix with the relaunch of UP Cannabis.

(Source: Ibid.)

HEXO Corp’s total net revenue increased to CA$32.8 million, up 94% compared to the same period a year before and up 12% from the previous quarter.

The company’s non-beverage recreational marijuana revenue also skyrocketed, up 72% compared to a year prior and up 10.5% from the previous quarter.

Moreover, HEXO has CA$2.9 million in operational cash, which is a good sign for a growing pot company.

All these figures are representative of HEXO Corp’s strong position in the Quebec market (currently No. 1, with few real competitors challenging that position) and its growing operations in the rest of Canada, comprising 49% of the company’s sales composition.

So the numbers look good, but that’s not the only reason HEXO stock has been thriving.

At the start of the COVID-19 pandemic, many investors retreated into safe-haven investments. They feared an upcoming market crash as the world’s economy slowed in some places and outright experienced shutdowns in others.

But that crash never happened. Quite the opposite. Stocks across the board (especially tech stocks) saw massive gains even as the world suffered through a once-in-a-century pandemic that significantly altered the way we live and caused unemployment to erupt.

But one segment of the stock market that was hurt was emerging markets. After all, why would an investor engage in typically volatile markets during a time of extreme negativity?

That was the thinking, at least. Of course, that thinking proved to be faulty.

As I’ve pointed out many times, vice goods (which marijuana is) usually see their sales go up in times of strife and economic uncertainty. A drink or smoke can help take the edge off, as they say, and there’s been no sharper edge in living memory than the global pandemic and government-enforced lockdowns around the globe.

Investors eventually calmed down when the market didn’t crash and we got used to the new normal, as they call it, while marijuana sales actually began to increase in Canada while legalization spread to some major U.S. states like New York.

This culminated in massive gains for many pot stocks.

HEXO stock was in a particularly strong position because it’s a marijuana penny stock.

Seeing as how penny stocks are considered to be among the most vulnerable securities, and nascent industries are known for volatility, that leads marijuana penny stocks to be perceived as doubly volatile—and therefore doubly dangerous—during intense economic uncertainty.

Considering that HEXO stock had already been on a decline since mid-2019, coupled with its penny-stock status, it experienced another significant loss in value in February/March 2020, coinciding with the beginning of the pandemic.

In sum, the market over-corrected HEXO stock’s price, which in turn set it up for the massive gains we’ve seen in recent months as investors realized how much potential there is in HEXO.

Does HEXO stock still have room to grow? In my view, absolutely. HEXO was, at one point, around the $30.00-per-share mark. Now it’s around the $7.50 level, leaving it a lot of room to rise.

Analyst Take

The marijuana stock market is once again heating up, and we’re seeing many companies that I was bullish on in the past coming back to the fore.

And that brings me back to HEXO Corp and its potential for massive share-price growth in the next few months.

While it has certainly already seen explosive gains in the past year, which may lead some investors to believe that it’s too late, HEXO stock isn’t even close to its all-time high—a level I believe it can reach again within the next 12 months or so.

That means triple-digit gains are certainly possible for HEXO shares, making them a very enticing prospect for investors.