At the time of writing, HEXO stock is down 5%, selling for $5.99 USD on the NYSE American exchange. A mammoth start to 2019 saw HEXO shares pack on 86% in gains in the last three months. But in April, the entire sector seems to be winding down, with Canadian cannabis companies hit particularly hard.
Since hitting a high of $6.94 USD on March 19th, HEXO Corp (TSX:HEXO) (NYSE:HEXO) has steadily declined in the preceding weeks. As alluded, shares appear to be moving in tandem with a broader market sell-off rather than in response to any news from the company.
Looking at the Canadian marijuana index today, the entire top ten cannabis producers are all in red… and significantly. For example, OrganiGram (TSXV:OGI), Cronos (TSX:CRON) and Aphria (TSX:APHA) are experiencing massive losses of 10%, 7%, and 14% respectively. It may ease HEXO stock investors to think that this is simply another sector lull—no doubt a return to form is on the horizon?
Canadian vs US Cannabis Stocks
There is a theory, however, for why the Canadian marijuana index is currently experiencing the downtrend that it is: investors are shifting focus to US cannabis instead. And even other investment opportunities entirely. But why?
Well, the Canadian market has not been easy to navigate since recreational cannabis was legalized last October. Companies have struggled with production and supply chain issues, as well as continued government restrictions in certain provinces. In Ontario, BC, and Alberta, the provincial governments continue to restrict physical retail stores in the country’s largest markets.
Further, sales are slowing. According to SeekingAlpha, “early data suggest legal sales have slowed down across the nation which is a worrying sign for the young industry.”
So while it remains to be seen, it’s very probable that Canadian cannabis companies will report lower than hoped revenues for calendar 2019 Q1. It’s too early to tell if HEXO stock will be one of these, but if investors continue to wain on Canadian cannabis stocks, there’s a real possibility it will be.
The US is Bigger
The US’s cannabis market, on the other hand, is shaping up rather differently. For starters, it is a much bigger market than the Canadian one.
“Canada had about 350,000 medical patients at the end of 2018 but Florida alone reported more than 200,000 medical patients in early 2019 and that number is expected to grow substantially this year.”
“Planet 13 reported $5.5 million USD of sales from its single location in Las Vegas in March alone while Cronos only reported $5.6 CAD million revenue from the entire fourth-quarter in 2018.”
Those figures are incredibly eye-opening. The mammoth size difference in markets is simple for investors: US producers will produce more revenue going forward. And then consider that the US market hasn’t even received its full wings yet—if legalization does occur at the federal level, then the sky’s the limit.
You could put your money into the Canadian cannabis market, which already seems finite. Or you could back the US cannabis market instead, with potential that feels infinite.
Featured Image: Canva