HEXO Corp (NYSE:HEXO)(TSX:HEXO) is one of the best performing marijuana companies on the stock market in 2019. Its performance—so good, that HEXO stock has already doubled since the beginning of the year.
This is the result of revenue reports that reflected year-over-year growth of 1,269%. A sales increase of 144% from the previous quarter, also helped. And let’s not forget the firm’s major deals with Molson Coors (NYSE:TAP), and the province of Quebec, amongst others, which cements its leadership in this industry.
HEXO Stock – Space
All the pieces are falling nicely for HEXO Corp. But it might surprise investors to learn that while the company’s output capacity—an annual estimated yield of 150,000 kg—places it in the top ten cannabis producers in terms of capacity, this is actually far less than the company could be producing.
According to the Motley Fool, “HEXO has 1.79 million square feet of cultivation space, but only expects 150,000 kilos of aggregate output. That’s an underwhelming yield of between 83 grams and 84 grams per square foot”.
So what is HEXO doing with all that space? Would this affect HEXO stock?
Well, perhaps it’s actually being smart; what’s the point in over-producing?
There’s a misconception out there which says the Canadian demand for cannabis is so high that companies can’t keep up. This is not true. In fact, the industry is still very much losing sales to the black market. Demand is there but it is being met in terms of capacity anyway—we’re growing enough. Issues with the supply chain in the early days of legalization is another story.
As Bill Blair, Canada’s minister in charge of marijuana explains that some provinces “still have much work to do (to) establish their wholesale and retail distribution systems and better protect Canadians”
And further, as per MJBizDaily:
“Just over 7,000 kilograms (15,432 pounds) of medical and adult-use dried cannabis was sold to consumers in December compared with the 19,000 kilograms that were “ready for sale” in warehouses across the country, according to Health Canada”.
High-Margin Cannabis Derivatives Sector
It’s likely that HEXO knows what it is doing. For example, its focus on highly-lucrative cannabis derivatives offers exciting potential (easily more potential than dried flower). With a two-year extraction deal signed with Valens GroWorks (CSE:VGW)(OTCQB:VGWCF), the company has broadened its portfolio of derivative products. And let’s not forget the deal with Molson Coors—investors can be assured that the high-margin cannabis beverage sector is certainly covered anyway.
At the time of writing, HEXO stock is selling for $7.10 USD on the NYSE. Are you a fan of HEXO?
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