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Why HEXO Stock Dropped 6% Tuesday

By Howard Smith - Jun 1, 2021 at 3:23PM

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Investors may be spooked after a recent spending spree by the Canadian cannabis company.

What happened

Shares of Canadian cannabis company HEXO (HEXO 13.08%) slid Tuesday, as the company announced the closing of one acquisition on the heels of another recent large purchase. As of 2:45 p.m. EDT, shares of HEXO were down about 6%. 

So what

Investors seem to be digesting news of a large acquisition announced late last week while another previously announced merger closed today. The latest announcement for HEXO to buy Canadian grower Redecan for the equivalent of about $765 million came after the company had already spent over $230 million this year to grow its offerings and footprint. Today's drop comes at the same time that peer Canopy Growth (CGC 10.61%) announced disappointing financial results. 

Two seniors smoking marijuana and laughing.

Image source: Getty Images.

Now what

Though Canopy Growth assured investors it was still on track for positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) this year, the quarterly results disappointed investors. After HEXO spent about $1 billion to grow, investors may be worried that the returns won't materialize fast enough -- or at all. 

HEXO's purchase of Redecan will be paid in a mix of shares and cash and will create what the company says will be the Canadian market leader in recreational-cannabis sales. In an all-share transaction announced earlier in May, HEXO purchased competitor 48North Cannabis to bolster its premium flower brand offerings.

Today, HEXO announced the closure of its arrangement to acquire Zenabis Global in yet another previously announced all-share transaction. That transaction is meant to bolster domestic sales, but also will give HEXO access to Europe's medical-cannabis market.

While the growth could help drive HEXO's long-term success, investors may be wary of the share dilution and cash spent, particularly in light of Canopy's disappointing announcement today. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends HEXO Corp. The Motley Fool has a disclosure policy.

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Stocks Mentioned

HEXO Stock Quote
HEXO
HEXO
$0.26 (13.08%) $0.03
Canopy Growth Stock Quote
Canopy Growth
CGC
$3.65 (10.61%) $0.35
48North Cannabis Corp. Stock Quote
48North Cannabis Corp.
NCNNF

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