February has been a huge month for HEXO Corporation (HEXO: TSX) (HEXO: NYSE) and the market responded favorably to the acquisition of Zenabis Inc. (ZENA.TO).
Following HEXO’s announcement to acquire the Canadian cannabis company, several broker-dealers upgraded HEXO and this is a trend that our readers should be aware of. While we have some concerns with HEXO’s track record of making acquisitions, banks are bullish on the deal and we want to highlight the upgrades:
- February 19th: Stifel raised its price target to $10 from $5.60 (CAD)
- February 17th: Alliance Global Partners raised its price target to $15 from $9.50 (CAD)
- February 17th: Canaccord Genuity raised its price target to $8 from $5 (CAD)
- February 16th: CIBC upgrades HEXO to Buy from Hold and raised its price target to $13.50 from $5.60 (CAD)
Once the acquisition is completed, HEXO will have much more leverage to Canada’s recreational cannabis market and strategic international medical cannabis markets. The acquisition of Zenabis provides HEXO with the ability to produce and additional 110,000+ kilograms of cannabis per year.
A key pillar of the acquisition is related to the access that HEXO would immediately have to the European Union’s (EU) medical cannabis market. Zenabis owns a facility that meets European Union Good Manufacturing Practice (EU GMP) standards. The facility serves as a packaging and distribution center for medical cannabis products that are produced in Canada and we are favorable on how this asset will benefit HEXO over the near and long-term.
One of the main reasons for the changes is rating and price targets is related to the potential synergies that can be found between the two operators. The market seems to believe that HEXO’s will benefit from the international exposure that Zenabis provides and we will monitor how this aspect of the benefit serves as a revenue driver for the entire business.
If you are interested in learning more about the firms that are getting bullish on HEXO, please send an email to email@example.com with the subject “HEXO Upgrades” to be added to our distribution list.