A major plus point going for HEXO stock (TSX:HEXO) is the company’s deal with Molson Coors Brewing (NYSE:TAP). The pair signed an agreement last August to develop cannabis-infused beverages.
While the deal offers major growth potential for HEXO stock in 2019, cannabis-infused beverages are not actually legal yet and won’t be for another 6–8 months. Therefore, investors must twiddle thumbs, anticipating that this partnership is going to work without an iota of proof that it actually will.
Let’s look at some of the pros and cons here.
HEXO Stock and Molson: The Pros
“I think, if you take an average, then it suggests that [the entire cannabis] market may be somewhere between $7bn and $10bn in market value, with beverages somewhere between 20% and 30%. And that’s obviously non-alcoholic cannabis-infused beverages.”
Of course, all we can do right now is guesstimate. We won’t truly know until drinks go on sale.
The Power of a Global Brand
Partnering with a global beverage giant such as Molson Coors puts HEXO in a prime spot to reap a massive portion of this revenue. Molson comes with deep pockets, years of marketing expertise and thousands upon thousands of loyal drinkers. This kind of behemoth in your corner can only serve HEXO stock well.
Diversity and a New Revenue Stream
Lastly, the deal helps to diversify HEXO away from a “reliance on dried cannabis flower.” According to analyst Sean Williams: “Alternative cannabis products, such as infused beverages, almost always offer higher long-term margins and fewer pricing pressures.” Increasing revenue streams means increasing HEXO stock.
HEXO Stock and Molson: The Cons
As stated, marijuana consumption methods beyond oils and sprays aren’t legal yet in Canada. It could be next fall before they are. This means the pair will have waited at least a year before even selling a single beverage, let alone make a profit. The longer the wait, the higher the chance of this venture losing steam and there’s every chance the HEXO Molson partnership could simply fizzle out.
Lost First-Mover Advantage
Being at the mercy of Canada’s politicians means that HEXO and Molson—which put ink to paper last August—have already lessened any first-mover advantages in this space.
Competition is Big
The wait-time has also given others the chance to catch up, and now we have huge and increasing competition in the space. So, like a relay race, it doesn’t matter that HEXO got to the starting line first, it can still only go when the gun is fired.
The Bottom Line
HEXO stock still offers one of the cheapest marijuana stocks, considering its potential forward earnings. For this reason, it’s an investor favorite. Be aware though that the competition isn’t going to allow HEXO an easy ride. Stock dilution is also a real possibility in the near future as the company looks to fund expansions and the likes.
It could be a bumpy ride ahead, but long-term HEXO stock investors could easily reap rewards here.
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