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Hexo Momentum Slows As Q3 Results Are A Big Miss

Hexo Momentum Slows As Q3 Results Are A Big Miss

Shares of Hexo Corp (NYSE:HEXO) (TSX:HEXO) have zigzagged their way steadily downward in the last few days since the cannabis grower unveiled its latest quarterly results.

The stock closed Monday at US$5.76, down about 18.5% from where it was trading at the beginning of last week.

The Canadian-based marijuana company posted third-quarter revenues of C$22.6 million (US$18.26 million), a figure that was 29% below the previous three-month period and a disappointing 35% under analysts’ expectations. Analysts had predicted that Hexo would report C$34.5 million (US$27.87 million) in revenue.

The results miss has had the affect of a spoke being shoved into Hexo’s wheel, as it was gaining momentum in the competitive cannabis market with a series of deals. The Ottawa-based company had earlier this year announced deals that totalled about C$1.3 billion (US$1.05 billion) to take over three cannabis firms—Zenabis Global (OTC:ZBISF) (TSX:ZENA), 48North Cannabis Corp (OTC:NCNNF) (TSXV:NRTH) and Redecan Pharm.

These headline-grabbing deals set the tone for Hexo’s push to expand and propel the company to become one of the leading Canadian cannabis growers with an international reach.

But as a Stifel analyst reportedly said in a note last week, according to a report by BNN Bloomberg, Hexo’s poor third-quarter will shift its momentum somewhat.

Said analyst Andrew Carter:

“While Hexo’s aggressive merger and acquisition activity had the potential to shift focus from any disruption in the company’s momentum particularly in a quarter where results were challenged across the sector, the magnitude of the underperformance drives scrutiny for the core business as well as the ability to realize value from the three acquisitions.”

Two of Hexo’s three deals, however, have not closed yet. And they are not expected to be completed until later this year as they await regulatory approval.

Cronos Buys Stake In PharmaCann

Cronos Group (NASDAQ:CRON) (TSX:CRON) last week announced it was buying a 10.5% stake in PharmaCann, one of the largest privately-held cannabis companies in the United States.

The deal, valued at US$110.4 million, will go into effect as soon as cannabis is legalized federally in the US. The move, according to Cronos president and CEO Kurt Schmidt, is part of the company’s US-focused growth strategy.

PharmaCann operates in six states and has 23 dispensaries and six cultivation and production facilities.

Hexo Momentum Slows As Q3 Results Are A Big Miss

Shares of Cronos Group closed yesterday at US$8.56, up about 2.5% on the day.

Connecticut is set to become the eighteenth US state to legalize cannabis.

The state’s senate voted to approve the move, which will allow the sale of recreational cannabis. Weed will only be formally legal once the governor signs the bill, a hurdle that it is expected to pose little obstacle.

According to published reports, sales of marijuana in the state are expected to reach US$750 million by 2025. Long-awaited federal legalization legislation could be introduced as early as next month, according to a tweet from one pot firm executive.

In a tweet late last week, Curaleaf (OTC:CURLF) executive chairman Boris Jordan said that Senate Majority Leader Chuck Schumer, along with two additional Senate Democrats will be introducing holistic cannabis legislation in July.

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