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HEXO Corp. (HEXO): A Potential Long-term Investment Opportunity

Hexo is trading around the $1 mark and has the momentum that can be quite worthy for the investors if they go long-term, considering the swelling cannabis market.

The increasing growth of the marijuana market has turned out to be blooming for the cannabis stocks. Hexo Corp. (HEXO) was part of the recent boom in cannabis stock following Biden win and vaccine news.

Hexo has surged over 18% during November following the legalization of marijuana in four new states. As of today, the stock had soared up to 20% as it trades in day’s range of $0.8801 – $1.0100. HEXO was trading at $0.97 at 12:17 A.M EST, up by 11%.

The use of cannabis for different health purposes has increased the demand for the product in the medical sector. Especially, the serious mental health issues reported during the pandemic have played a pivotal in growth of cannabis demand. Reportedly, around 91% of cannabis usage was increased for mental health purposes during the COVID-19 pandemic.

The impact of the increasing demand can be seen in cannabis stock’s growth and their quarterly results. Hexo’s fourth quarter revenues spiked by 76% compared to the prior year. Considering the future of cannabis market and increasing demand, investors have a great opportunity to buy HEXO for under $1 per share. The stock seems an appealing long-term investment with its solid gross margins, Belleville facility’s potential, and improving internal process efficiency.

Strong Fourth Quarter Results

Looking at the profitability of Hexo, it was a drastic experience for the company widening its net loss to 276% Year-over-Year. But, investing in a stock for a longer term we need to look at broader aspects.

Hexo’s loss in Q4 was due to its primarily attributable to a massive impairment loss. This loss has a hefty impact on profits and verifies that its inventory valuation is more realistic. Impairment formed around 71.5% of the operating expenses in Q4. With the addition of an impairment charge of approximately $200 million, the loss would be much lower.

On the contrary, Hexo recorded an increase of 76% in consolidated revenues compared to $27.1 million in the same quarter last year. Revenues showed strong growth despite the pandemic impact and lockdowns.

Another key aspect; Hexo’s net revenue per gram surged from $2.95 to $2.22. In addition, the adjusted EBITDA of ($3.25) million should break-even by the first two quarters of 2021. Also, the gross margins were impressive at 42%, excluding revenues from adult-use beverages.

Hexo has working capital of $223 million, including $184 million in cash. Whereas, it improved the net cash and cash equivalents by 95% from the prior quarter.

The company’s topline results growth in Q4 2020 reflects the advancement of Hexo’s 2.0 products and its ongoing performance. The high-quality products keep on attracting more customers for the company.

The Potential of Truss Project

In 2018, Hexo Corp. (HEXO) collaborated with Molson Coors to introduce a new cannabis-infused beverage product line called Truss. The company has finally started to progress with Truss. Hexo sold its adult-use beverages for first time in Q4 2020.

Truss will contain five brands under Truss product line, offering various options for the customers. The company claimed that Truss surpassed the sales among all its competitors in Canada. A massive potential for the cannabis beverage market is shaping up. Truss has an upper hand allowing Hexo to make the first move in the market. Moreover, Hexo’s partner Molson Coors provides the platform to reach the masses in Canada.

The company is looking to optimize its supply chain and improve its internal processes.

Conclusion

Every company has its risks, and so has Hexo. For a long-term investor, it will provide you with an opportunity to make profits. Hexo Corp. (HEXO) is making growth with Truss and with a potential market, it could bring massive revenue. Moreover, the company is expected to break-even in the first phase of 2021. The future seems prominent for the cannabis stock.