The marijuana industry has delivered nothing short of an incredible year as a whole and for investors. Aside from the fact that pot stocks have been hands down the top-performing industry for investors since the beginning of 2016, the big event was Canada becoming the first industrialized country in the world to legalize recreational cannabis last month. We also bore witness to the first cannabis-derived drug being approved by the Food and Drug Administration in June.
In short, this has been a year of cannabis legitimacy. More countries than ever before now legally allow the product to be prescribed to medical patients and, therefore, the opportunity for robust sales growth for pot stocks has never been higher.
Uplisting has been a big trend in 2018
Perhaps the most notable trend of late -- you know, other than Canada tearing down the curtain on nine decades of prohibition – is the push away from listing on the over-the-counter (OTC) exchange and toward more reputable U.S. exchanges, such as the New York Stock Exchange (NYSE) and Nasdaq. Since late February, five companies have announced and/or made the move on to reputable exchanges. This includes:
- Cronos Group, which led the charge by becoming the first marijuana stock to make the leap to a large U.S. exchange.
- Canopy Growth Corp., the first marijuana stock to list its shares on the NYSE.
- Tilray, the first Canadian-based pot stock to go the initial public offering route via a major U.S. exchange.
- Aurora Cannabis, the second marijuana stock to list on the NYSE.
- Aphria, which recently filed paperwork with the NYSE for approval to list on the exchange.
Now, it's time to add yet another name to the list -- and I take extra pleasure in announcing this, seeing as how my dart-throw guess last week proved accurate.
The NYSE will welcome its fourth marijuana stock listing this coming December
According to the Montreal Gazette in an interview with HEXO Corp. (HEXO 7.23%) CEO Sebastien St-Louis, the once-billion-dollar company (the drop in pot stocks over the past two weeks has pushed its market cap back below $1 billion) aims to list on the NYSE by December.
Like its peers, HEXO aims to gain credibility by uplisting to the storied NYSE. Some institutions aren't allowed to purchase companies that trade on the OTC exchange, therefore such a move would broaden the spectrum of Wall Street firms that are able to invest in the HEXO growth story.
The decision to uplist comes just six months after it snagged a massive long-term supply agreement in Canada, and just under three months after it forged a joint venture with Molson Coors Brewing Co. (TAP 1.38%).
HEXO first put its name on the radar in April, when it signed a five-year deal to supply an aggregate of 200,000 kilograms of cannabis to Quebec. The amount it'll supply increases each year, potentially setting the company up to be the premier grower in the province. Although Canopy Growth has HEXO topped in terms of annualized supply agreements across all Canadian provinces, a 200,000-kilogram multiyear deal is nothing to sneeze at.
HEXO further cemented its time in the limelight by forming a joint venture with Molson Coors on Aug. 1. Molson and HEXO are expected to develop nonalcoholic, cannabidiol (CBD)-infused beverages. HEXO will provide its industry knowledge, with Molson bringing its deep pockets and superior marketing strategy to the table. Interestingly enough, CBD-infused beverages, along with other alternative consumption options like edibles, vapes, and concentrates, aren't legal yet in Canada. Nonetheless, that didn't stop Molson Coors and HEXO from tying the knot on a deal to create CBD-infused beverages.
And that's not all...
Aside from just uplisting to the NYSE, CEO St-Louis also announced in the phone interview with the Montreal Gazette that HEXO is for sale... for the right price. Said St-Louis, "In five years there may be four global cannabis companies and whether HEXO is a buyer or a seller on that journey, what matters to us is for our shareholders to participate in that to become one of the four." He added, "It's certain that if someone comes and offers a 150 percent premium tomorrow, we are for sale."
Note that St-Louis didn't say "we'll think about it." He used the word "certain" if the price is right. If a company is willing to pay a hefty premium for HEXO, which is arguably a lot cheaper than its peers based on its 108,000 kilograms of estimated peak annual production, they could net themselves solid market share in Quebec.
Does this mean HEXO is absolutely for sale? Well, no. But it's pretty evident that the cannabis industry is overcrowded, and consolidation is probably coming sooner rather than later. Let's face it: Aurora Cannabis can't buy every company, so we're liable to see anywhere from four to perhaps 10 large global players emerge.
As its CEO notes, it's far too early to tell whether HEXO gobbles up other companies or is gobbled up itself, but it's, thus far, making a lot of smart moves in the eyes of investors.