Though HEXO Corp. (HEXO) isn’t a U.S. multi-state operator (MSO) that offers some of the best investing options in the cannabis sector, the company is one of the few Canadian players rallying to new highs this year. The Canadian cannabis companies got most of the press during 2018, but this company is one of the few with catalysts in 2019 including a key stock uplisting and strong expansion initiatives…
A prime reason that HEXO has rallied to $7 for a $1.5 billion market valuation is the first cannabis harvest from their new 1 million square foot facility in Canada.
The company is approaching full production capacity of 108,000 kg per annum. The Newstrike Brands (NWKRF) acquisition gets the company up to a production target of 150,000 kg per annum once the deal closes.
HEXO only produced 4,938 kg of dried cannabis in Q4 while kg equivalents sold was only 2,689 kg. Even a goal of reaching 150,000 kg in annual production pushes HEXO to a 10-fold increase in cannabis sold each quarter.
Maybe most interesting is the expectation that HEXO can use the deal to save C$10 million in annual synergies. A big par of the fast growth aspirations in the industry has been some wild spending that a more efficient use of capital might provide a long-term advantage.
HEXO ended the January quarter with cash and shot-term investments of C$166 million to provide a solid capital basis for expansion this year.
Along with the Newstrike Brands acquisition, HEXO has a revenue target in excess of C$400 million in FY20 that ends in July. The amount converts to ~$300 million in U.S. dollars.
The company isn’t positioning to become the largest cannabis player in the next couple of years, but HEXO is positioned for substantial growth considering the market valuation of the stock.
The stock has a listed market valuation of…
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