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HEXO Stock Drops Following Analyst Downgrade

By Eric Volkman - Feb 21, 2020 at 4:58PM

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The marijuana company's shares dipped by 2% after Jefferies hit it with an underperform rating.

HEXO (HEXO -8.41%) was hit by an analyst downgrade on Friday. In a research note, investment bank Jefferies Financial Group shifted its recommendation on the stock to underperform from the previous hold. It also cut its price target on the shares nearly in half, from 1.90 Canadian dollars ($1.43) to CA$1 ($0.75).

In the note, analyst Owen Bennett opines that sales forecasts for marijuana and cannabis products in Canada are too optimistic. He also feels that the profitability of Cannabis 2.0 products -- the derivatives that were sanctioned in the second wave of Canadian recreational-use legalization last year -- could be "nonexistent," at least during the early stages of their rollout.

Marijuana bud on fire.

Image source: Getty Images

HEXO is particularly eager to capitalize on the Cannabis 2.0 market. The company is focused on the market for cannabis-infused beverages, due in no small part to a joint venture it operates with brewery giant Molson Coors (TAP 0.79%). The two are collaborating on a line of such drinks.

Management has not formally responded to Jefferies' recommendation downgrade and price-target cut, but this is not the first time in recent months that it has lost favor with an analyst. In October, for example, Bank of America reversed its recommendation from buy to underperform, and cut its price target significantly from CA$9 ($6.79) to CA$4 ($3.02).

Shares of HEXO, one of the more prominent marijuana companies on the New York Stock Exchange, closed 2% lower on Friday.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Jefferies Financial Group Inc. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

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Stocks Mentioned

HEXO Stock Quote
HEXO
HEXO
$0.23 (-8.41%) $0.02
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
TAP
$56.12 (0.79%) $0.44

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