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Why HEXO Stock Surged Today

By Joe Tenebruso – Updated Jun 1, 2020 at 2:07PM

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The marijuana producer received a game-changing new sales license.

What happened

Shares of HEXO (HEXO -2.04%) rose sharply on Monday after the cannabis company announced that it has received a license amendment for its cannabis manufacturing and processing facility in Belleville, Ontario. 

As of 1:30 p.m. EDT today, the stock was up more than 10% after rising as much as 19% earlier in the day. 

So what 

HEXO's license now allows for the sale of cannabis dried flower, extracts, topicals, and edibles products at its Belleville facility. The license also includes a new beverage production area for its Truss/HEXO beverage division.

"Receiving the sales license for our Belleville facility is extremely positive news for HEXO and Truss, our joint-venture with Molson Coors Canada," HEXO CEO Sebastien St-Louis said in a press release. "This license allows us to increase our processing capability significantly, achieve greater economies of scale, and continue to roll out more innovative 2.0 products."

2.0 is a term used to describe second-generation products, such as cannabis-containing vapes, drinks, and candy.

A person is holding a cannabis leaf up to the sun.

Shares of HEXO climbed on Monday after the company received a valuable new license. Image source: Getty Images.

Now what

The company said its Belleville facility will be the hub for the development, processing, and distribution of its cannabis products. The company also expects its technology investments to help improve its profitability.

"HEXO's Belleville facility is a purpose-built manufacturing center," St-Louis said. "By using specifically designed automation and best-in-class cannabis technology to streamline our processes, we are focusing on long-term cost reductions and improvements to our portfoliowide gross margin."

That would be a welcome relief to shareholders. Like many marijuana companies, HEXO has seen its losses mount due to industrywide challenges including regulatory delays, slower-than-expected retail store openings, and production overages.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

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