Up More Than 100% Already, It’s Time to Take Profits on Hexo Stock

While it’s not the best-known of the pot stocks, Hexo (NYSEAMERICAN:HEXO) is starting to build its reputation. Between fantastic year-to-date performance, a recent uplisting to a major U.S. stock exchange, and a shrewd merger, things are looking up for Hexo stock. There’s also a promising venture with MolsonCoors (NYSE:TAP) that gives Hexo credibility and helps elevate it to the big leagues within the pot stock universe.

Unfortunately, shareholders buying into the story today may be getting in a little late. The stock is up to more than $6 in just a few months. That, along with dilution from its recent merger has inflated Hexo’s market cap a great deal. The company now has a lot to prove in order to justify its stock price.

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Hexo Has Huge Ambitions

A lot of marijuana companies are talking a big game about their future plans. More than a couple of the bigger companies seem intent on building global empires. Even by those standards, however, Hexo is shooting for the moon.

On the company’s most recent earnings conference call, CEO Sebastien St. Louis stated, “Our vision has remained consistent to create a branded consistent on and off cannabis experience across a variety of verticals in a variety of experiences ranging from sleep, to sport, to sex, to diet, to fun.”

Hexo isn’t just aiming to sell marijuana, it wants to change everything ranging from sex to athletics and nutrition. Heady stuff.

Furthermore, Hexo either sees the pot market becoming huge. Or perhaps it is planning on a variety of non cannabis things as well. To those ends, St. Louis said, “We intend to become the premiere branded ingredients for food companies not only a top two in Canada, but also top three globally.”

For comparison’s sake, a U.S. leader in the ingredients for food space, Ingredion (NYSE:INGR) has both a market cap and annual sales of around $6 billion. Hexo, by contrast, has a market cap of under $2 billion and sold just ~$10 million of product last quarter. If Hexo can reach the size of a company like Ingredion, it’d be a home run for shareholders. But it has a long way to go to reach that aim.

Can Hexo Live up to the Hype?

Hexo stock is having a fantastic year. As of this writing, the stock is up 101% year to date. That’s incredible on its own. It’s even more impressive when you consider that most of the other leading marijuana stocks have been in a bit of a slump lately.

We have to ask if Hexo will be able to maintain its hot streak though. As our Vince Martin recently wrote, much of Hexo’s recent gains have come from investors discovering the stock, rather than the company’s actual accomplishments.

“The story behind Hexo is gaining a broader reach — and the Hexo stock price is responding in kind. The question at this point is whether that’s a good thing — and whether a strong YTD is starting to price in at least some of the opportunity here, “Martin wrote.

Martin went on to explain how trading volume in HEXO stock has surged. In particular, with the company’s up-listing to a major market in the U.S., it has attracted far more activity. But the company will now need to demonstrate that it can live up to its greatly increased share price.

Newstrike Deal Looks Like a Positive

One positive for Hexo, as compared to other marijuana companies, is that it acquired Newstrike Brands (OTCMKTS:NWKRF). Hexo appears to have gotten a great deal, as it paid just a few percent premium to Newstrike’s then stock price. 

Newstrike removes one key limitation for Hexo. Remember that Hexo is based in Quebec and has taken a big lead in French-speaking Canada. However Quebec makes up just 8 million out of Canada’s 37 million person population. Newcastle, with its business relationships in English-speaking provinces gives Hexo a major boost in becoming a national rather than just regional player.