Shares of HEXO Corp (TSX:HEXO) have plunged as much as 82% from its 2019 high
SmallCapPower | November 22, 2019: HEXO Corp. (TSX:HEXO) (NYSE:HEXO) shares led the most-followed Canadian cannabis stocks higher on Thursday with a 34% gain, outperforming companies such Canopy Growth Corp (+15%), Aurora Cannabis (+18%), Organigram (+17%) and TGOD, The Green Organic Dutchman (+32%).
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So why the sudden interest in HEXO? Well, yesterday’s big rally could be nothing more than a giant short squeeze. Between October 15 and October 31, 2019, the number of HEXO shares held short increased by about 1.3 million to a total of 8,745,185. The current cannabis-sector rally has likely been sparked by a few factors, including: Bank of America analyst Christopher Carey upgrading Canopy Growth stock to a ‘buy’ rating; Aurora Cannabis announcing that it managed to convince 94% of its convertible debenture holders to accept stock instead and; Ontario’s recent commitment to issue more cannabis retail licenses. All of which seemed to have sent many short sellers scrambling to cover.
Investor bets against HEXO Corp began to rise after the Company withdrew its previously-issued financial outlook for fiscal 2020 on October 10, adding that it expects fourth-quarter revenue of $14.5 million to $16.5 million, which would fall short of the Company’s guidance.
Expectations for HEXO, it seemed, couldn’t get any worse as its stock price plunged as much as 82% from its 2019 high. Compare that to Canopy Growth (off as much as 74%), Aurora Cannabis (down as much as 79%), and Organigram (losing as much as 77%). Thus, this could also be a case of speculators buying a cannabis name that has been oversold the most.
Finally, despite HEXO’s recent stumbles the Company’s long-term prospects still look enticing. HEXO does, after all, have a joint venture with Molson Coors Canada to develop cannabis-infused beverages, which should begin to roll out in 2020 and beyond. And, the fact that HEXO’s operations are based in Quebec provides the Company with an abundance of inexpensive hydroelectric power for year-round grows. That, and its supply agreement with the Société Québécoise du Cannabis (SQDC), the largest to date, for as much as 100,000 kg over three years, this despite the province being of one the most restrictive in Canada in terms of consumer cannabis consumption (raising the legal age to 21 and banning gummy edibles).
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