Finance

Invest in cannabis stocks: time to enter the market

Everyone is waiting for a fresh IPO of the Canadian company Sundial Growers (SNDL) from the cannabis sector. The market is hurting, and stocks are going cheap. Companies such as CannTrust and Canopy have been making investors nervous. HEXO Corp. (HEXO) reported low for the third quarter in June, and since then share sales increased. This is the time to get in on the cannabis market.

Cannabis stocks are going cheap for many reasons. Of course, not to mention CannTrust Holdings (CTST), a driving force behind some problems in the cannabis market. Their bad situations are frightening investors, which led to the company suspending production and the dismissal of their CEO. Another company, Canopy, fired their co-director because of disagreements with their key shareholders. These are all links in the same chain.

HEXO fighting investor anxiety

HEXO investors are not totally certain with the sector either, despite HEXO’s plans of becoming a cannabis world leader and top two in Canada. Their goal rests on three pillars: resources, technology, and infrastructure. For example, only 25 companies are currently developing new products. The products are also designed for customers who want to improve their sleep, health, and diet.

HEXO will provide about 200,000 kg of cannabis in the coming fiscal year. In addition, it has a second supplier that will produce 60,000 kg of cannabis in the next two quarters. The last batch will meet the demand for food and concentrates for Canada’s legalization of extracts in October.

HEXO will provide about 200,000 kg of cannabis in the coming fiscal year. (Source)

Opportunities and risks in HEXO

Earnings rose from $1.24 million to $15 million, but despite this, the overall profits are still suffering.  Furthermore, this reflected a loss of $0.06 per share. Expenses increased to $24.06 million, compared to $5.3 million from previous estimates. These losses should be temporary, as HEXO is expanding through acquisitions.

HEXO finally completed the Newstrike deal, which increased its production capacity to 150,000 kg per year. This expands cultivation to three facilities. In addition, this gives the company access to nine new agreements.

The company’s target revenue is $400 million, though regulations may lead them to miss their goal. If this happens, it will cost the company $100 million, so it is necessary to make the installations work for the autumn. HEXO expects a gross profit of 40% in the near future, and furthermore, believes that 50% is achievable.

Some short-term pressure comes from Quebec, where new manufacturers are emerging. In the long run, however, Quebec producers are not on this scale and they face high costs. HEXO has the scale and reliable partners, and this will allow the company to sell at lower prices, making a profit.

A second supplier will produce 60,000 kg of cannabis for HEXO in the next two quarters. (Source)

The industry may have a shake-up

Most likely, there will be a shift in the industry over the next 18-24 months. After that, it’s estimated that 80% of small licensed producers will go bankrupt. The funding for them will run out. Although this process will put pressure on the gross profit of HEXO in the short term, they will see a better long-term view.

Transition to more advanced products, as well as autumn’s legalization, may lead to growth in the range of 50%. Yesterday Hexo started with a 5% drop but ended up closing at +10%. This could be a positive signal. Shares in the medium term may grow from the current $4.36 to $10.

The history of CannTrust seriously undermined the sector, and the companies lagged in growth. However, it seems the industry is poised to turn itself around. Now is a good time to enter yourself in the market.

 —

(Featured Image by Pexels)

First published in vc, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Hemp.im assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Hemp.im is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.

Anne Kings

Anne Kings is a reporter for the financial sector, often tackling Wall Street and shareholders' interests. She also covers the intersection of media and technology, and delves into interesting topics on entertainment. Sometimes she also writes about the cannabis industry, in particular CBD and hemp. She is currently based in New York.

Recent Posts

Ontario Increases Efforts to Combat Illegal Cannabis Market

Ontario is investing $31 million over the next three years to enhance efforts against illegal…

5 days ago

Hanover and Frankfurt Will Be the First German Cities to Legally Sell Cannabis for Adult Use

Frankfurt and Hanover are launching five-year pilot projects for legal, regulated cannabis sales to adults,…

6 days ago

CBD Decree Suspended By Italian Administrative Court for Third Time

Italy's Regional Administrative Court suspended the Health Ministry's decree labeling CBD as a narcotic, pending…

1 week ago

Which U.S. States Will Vote on Cannabis Legalization in November 2024?

This November, five U.S. states will vote on measures related to legalizing recreational or medical…

2 weeks ago

Italy to Be Investigated By EU Commission Over Proposed CBD and Hemp Ban

The European Commission has launched an investigation into Italy after its recent proposal to ban…

2 weeks ago

Prolonged Cannabis Use May Leave a Unique DNA Signatures

A new study has found that prolonged use of high-THC cannabis leaves a unique mark…

2 weeks ago