So far, 2021 has been a period of strong growth for the US cannabis industry and this is a trend that has shown no signs of slowing down.
An interesting trend that we have identified is related to large-scale Canadian Licensed Producers (LPs) which are focused on penetrating the US market ahead of a change in legislation at the federal level. Although there is no expected time frame for cannabis to be legalized or decriminalized in the US, we believe it is only a matter of time for pro-cannabis legislation to be passed.
Last week, HEXO Corporation (HEXO: TSX) (HEXO: NYSE) reported to have entered a partnership with REQ, a leader in digital marketing and brand reputation, to expand its footprint in the US.
HEXO creates and distributes innovative cannabis products to serve the Canadian recreational market as well as strategic international medical markets. We are favorable on how the Canadian cannabis company has focused on the US cannabis industry and believe that its joint venture with Molson Coors will play a key role in how it enters strategic US markets.
Specifically, REQ will help HEXO support the growth initiatives of Truss CBD USA as well as help secure strategic relationships with non-beverage consumer package goods (CPG) companies. In future quarters, HEXO should report increasing revenue from the US market and we expect this focus to play an important role in the success of the entire business.
As part of the relationship, REQ will evaluate HEXO’s brand presence on- and offline in the US and evolve the Powered by HEXO® brand. This comes ahead of a planned period of expansion and growth by HEXO and we expect to receive additional announcements on the progression of the relationship in the coming months.
During the last month, HEXO has come under considerable pressure and has been trending to the downside. With momentum trending toward oversold levels, we continue to follow the opportunity and will monitor how the story advances from here.
Although we are favorable on the potential for HEXO to capitalize on the US market over the long-term, it will face significant competition from leading multi-state-operators (MSOs) and Canadian LPs. Operators like Canopy Growth Corporation (WEED: TSX) (CGC: Nasdaq), Aurora Cannabis Inc. (ACB: TSX) (ACB: NYSE), and Tilray, Inc. (TLRY: TSX) (TLRY: Nasdaq).
If you are interested in learning more about Canadian LPs that are focused on the US market, please send an email to firstname.lastname@example.org with the subject “LPs Focused on the US” to be added to our distribution list.
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