HEXO stock is up 11% today after MKM Partners initiated coverage on seven cannabis firms, including HEXO Corp (TSX:HEXO) (NYSE:HEXO).
HEXO Stock the Biggest Gainer from MKM Coverage
MKM Partners, an institutional equity research firm, has launched coverage on five Canadian cannabis firms and two US multi-state operators, of which only two received buy ratings—which were Acreage Holdings Inc (OTCQX:ACRGF) and HEXO Corp. MKM handed sell ratings to Curaleaf Holdings (CSE:CURA) (OTCQX:CURLF) and Aurora Cannabis (TSX:ACB) (NYSE:ACB), while Canopy Growth (TSX:WEED) (NYSE:CGC), Cronos Group (TSX:CRON) (NASDAQ:CRON), and Tilray (NASDAQ:TLRY) were rated as neutral. HEXO stock was lifted the most following the report, currently trading at $4.375.
Bill Kirk, an analyst at MKM, said that HEXO “has the best chance of creating a defensible brand” of cannabis products, citing the company's promising joint ventures with partners such as Molson Coors (NYSE:TAP) as a primary reason. Kirk was also favorable of HEXO Corp's trademarked slogan "Powered by HEXO," which he argues will help the company avoid becoming another commoditized cannabis brand. Despite Kirk's positive outlook, HEXO stock is still down nearly 50% from a 2019 peak of $8.28 back in April.
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Optimism Spilled Over to Investors
MKM set a $12.00 CAD price target for HEXO stock, indicating that it could grow by more than 130% in the next 12 months. This optimism has clearly spilled over to investors, as seen by the rising value of HEXO shares this morning. Kirk argues that the second wave of cannabis legalization, which he describes as a "Day One" event for the market, as the driving force behind HEXO Corp's predicted rise.
Legalization 2.0 will allow for full commercialization of cannabis edibles, of which Kirk says HEXO is one half of a two-horse field aiming to dominate this market. The company's main competitor in this field is struggling giant Canopy Growth, which has partnered with Constellation Brands (NYSE:STZ), and while it may have the financial power to take control of the market, the internal issues at the company are still glaring.
Earlier this week, HEXO stock made incremental gains after the company's master grower, Agnes Kwasniewska, was named as the inaugural Master Grower of the Year at the Grow Up Conference and Expo Awards.
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