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Why HEXO Shares Are Jumping Today

By Keith Speights - Updated Jun 11, 2020 at 10:41AM

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Investors liked the Canadian cannabis producer's Q3 update.

What happened

Shares of HEXO (HEXO 1.79%) were up 11.4% as of 9:52 a.m. EDT on Thursday, with the Canadian cannabis producer reporting its fiscal 2020 third-quarter results before the market open.

HEXO announced Q3 net revenue of 22.1 million in Canadian dollars ($16.5 million), up 30% quarter over quarter and higher than the CA$20.3 million expected by analysts. The company posted a Q3 net loss of CA$19.5 million, or CA$0.07 per share. This was wider than the Q2 net loss of CA$7.8 million, or CA$0.04 per share. It also missed the consensus analysts' estimate of a net loss of CA$0.05 per share.

So what

Investors obviously are more excited about HEXO's revenue surprise than its bottom-line miss. That's understandable. The company's wider net loss in Q3 stemmed primarily from a smaller unrealized gain on changes in fair value of biological assets compared with the previous quarter. HEXO's adjusted EBITDA, which improved from the second quarter, is a better measure of the company's progress.

Hand holding white bag with green cannabis leaf printed on it

Image source: Getty Images.

The main driver of HEXO's revenue growth in Q3 was its Original Stash value cannabis brand launched in late 2019. HEXO also attributed its sales increase to recent launches of new products including hash and oil extract drops.

One quarter with better-than-expected revenue doesn't necessarily mean that HEXO has completely turned things around after a downright horrible Q2 update. However, the company appears to be at least headed in the right direction.

Now what

Canadian marijuana stocks, including HEXO, should benefit as the retail environment improves. Investors will want to closely watch HEXO's potential expansion with its partner Molson Coors into the Colorado CBD beverage market. Perhaps the most important thing to look out for, though, is HEXO's progress toward profitability. The company is tracking toward generating positive adjusted EBITDA in the first half of fiscal 2021, which would be a major milestone in becoming profitable.

Keith Speights 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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Stocks Mentioned

HEXO Stock Quote
HEXO
HEXO
$0.23 (1.79%) $0.00
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
TAP
$56.71 (0.02%) $0.01

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