The Canadian cannabis sector has been one of the greatest beneficiaries of the election results from the US general election and this trend has benefited some companies more than others.
HEXO Corp. (TSX: HEXO) (NYSE: HEXO) has been one of the greatest beneficiaries of the trend and the stock is up more than 70% since the election. While this rally has been significant, the Canadian Licensed Producer (LP) has been a top performer in 2020 and has rallied more than 200% off its lows of the year.
We attribute the turnaround to two key developments. We believe the primary reason for the strong performance is the launch of Truss Beverages with Molson Coors (TAP.CN) (TAP). We are of the opinion that HEXO’s leverage to the Israeli medical cannabis market (via a strategic relationship with Breath of Life) was a secondary reason for the stock’s performance and are favorable on this aspect of the story.
Through Truss Beverages, HEXO is selling THC-infused beverages in Canada and CBD infused beverages in the US. We believe the brand is well positioned to capitalize on a change in legislation in the US and can easily modify its facility to product THC infused beverages when the time comes.
Under a Biden presidency, cannabis legalization or decriminalization is pretty much guaranteed. We are favorable on the impact this would have on HEXO and believe that the market is becoming more aware of how significant this could be for the business.
Earlier this week, HEXO issued an update and announced an attempt to differentiate the UP-Cannabis brand by raising the standards for the product line. The company believes the brand can do this by only selling flower that has more than 20% THC and we are not too sure with how we agree with the strategy.
Based off our understanding of the cannabis industry, most cannabis consumers understand that the percentage of THC is not a great way to measure the quality of a brand. While new consumers might fall for this gimmick, we do not believe that the branding strategy has staying power or expect it to work in a mature market.
Going forward, we believe that the success of HEXO is solely based on Truss Beverages. Molson Coors offers the company credibility and expect this to play an important role in the success of the brand.
If you are interested in learning more about HEXO or Truss Beverages, please send an email to email@example.com with the subject “HEXO Corp” to be added to our distribution list.