Hexo Corp. Is On The Brink Of Collapse From A Capital Markets Standpoint

In late 2020, HEXO Corporation (TSX: HEXO) (Nasdaq: HEXO) received approval from shareholders to conduct a reverse stock split in order to comply with regulations to continue to trade on the New York Stock Exchange (NYSE). After the split, the Canadian LP voluntarily delisted from the NYSE and started to trade on the Nasdaq. 

​​Early this week, HEXO reported that it was notified that it is not in compliance with the minimum bid price requirement to continue to be listed on the Nasdaq Capital Market. The share price has been trading below the $1 level for 30 consecutive trading days and this triggered the notification from the exchange.

This is nothing new for HEXO. In late 2020, the Canadian Licensed Producer needed to conduct a reverse split in order to be in compliance with the minimum bid price requirement to be listed on the Nasdaq Capital Market.

According to the notice, HEXO has 180 calendar days from the date of notification to comply with the Nasdaq Capital Market’s minimum bid price requirement. To satisfy this requirement, the stock has to trade at or above $1 per share for at least 10 consecutive business days. If HEXO is unable to satisfy the minimum bid price requirement, the exchange will give the company 180 additional calendar days to comply or the stock could be delisted.

When HEXO was previously put in this position, the stock bounced well off its lows. Although the stock jumped higher, it continued to trade below the minimum bid price requirement and the leadership team conducted a reverse split to comply with the Nasdaq Capital Market’s continued listing requirement.

Will HEXO Follow a Similar Path?

Prior to receiving shareholder approval to conduct a reverse split in late 2020, HEXO initially planned to conduct an eight-for-one (8 for 1) reverse split, however, the management team later changed the terms of transaction to be a four-for-one (4 for 1) instead of eight-for-one (8 for 1) reverse split. 

We believe the reason for the change in terms was related to the performance of HEXO after the initial split was announced. Before announcing the new terms, HEXO was trending higher and rallied more than 70% after it announced the planned eight-for-one (8 for 1) reverse split. 

Like the NYSE, the Nasdaq has listing requirements and we would not be surprised if HEXO had to conduct another reverse split to remain listed on the exchange. Currently, HEXO is trading for less than $0.50 (as of the close of trading on January 26th) and is not in compliance with the Nasdaq’s trading requirements. 

According to the Nasdaq Capital Markets exchange, a company must continue to meet all of the requirements of Rule 5550(a) and at least one of the requirements of Rule 5550(b). At current levels, HEXO is not in compliance with all of the requirements of Rule 5550(a) which we have covered below:

1. At least two registered and active market makers, one of which may be a market maker that enters a stabilizing bid
2. Minimum bid price of at least $1 per share
3. At least 300 shareholders 
4. At least 500,000 publicly held shares
5. Market value of publicly held shares are at least $1 million

If the management team stuck with the 8 for 1 reverse split in 2020, the stock would be trading above the $1 level and would not need to conduct another split. When the company first announced the change to the terms of the reverse split, we were concerned about the risk of falling back below $1. 

Bearish Indicators Keeps us Cautious 

During the last quarter, several broker-dealers have downgraded or lowered price targets on HEXO and we consider this to be a bearish indicator. The most recent changes are: 

1. Jeffries went to Hold from Sell but lowered the price target to C$0.67 from C$1.07 
2. MKM Partners lowered the price target to C$1 from C$8
3. ATB Capital Markets lowered the price target to C$0.80 from C$1.50
4. CIBC lowered its price target to C$0.80 from C$2
5. Canaccord Genuity lowered its price target to C$1 from C$2

From lower price targets to potentially another reverse split, we are cautiously following HEXO. The Canadian LP has been under pressure with the rest of the cannabis sector and we will monitor how the industry continues to perform. 

If you are interested in learning about a potential reverse stock split for HEXO, please send an email to support@technical420.com with the subject “Will HEXO Conduct Another Reverse Stock Split” to learn more. 

For the fastest access to data on HEXO, sign up for our free newsletter!

Share

Tags

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

Top Stories