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Why HEXO Stock Dropped Monday Morning

By Howard Smith - Jun 14, 2021 at 11:24AM

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The company's quarterly financial update was disappointing, but management sees a bright future.

What happened

HEXO (HEXO 14.05%) has been actively growing its business through acquisitions recently, but the Canadian cannabis company didn't thrill investors with its fiscal third-quarter financial report today. As of 10:35 a.m. EDT on Monday, HEXO shares were down almost 9%. 

So what

Total revenue for the quarter rose slightly over the prior-year period, but was notably lower sequentially versus the prior quarter, which ended Jan. 31. Compared to that previous three-month period, sales dropped by 31%. The company said the drop was primarily "due to a decline in adult-use non-beverage sales of $5.2M [in Canadian dollars] in Quebec related to strain cultivation decisions made by the company and production issues relating to hash." For the nine-month period ended April 30, 2021, however, total sales rose 58.5% compared to the same period one year ago.

marijuana plants hanging to dry with workers looking at product.

Image source: Getty Images.

Now what

The real highlights for HEXO in the period were several announcements for acquisitions that the company says has put it in a position "to become the No. 1 licensed producer by recreational market share." 

Those announcements included the closing of the purchase of Zenabis, a Canadian-licensed cultivator of medical and recreational cannabis; an agreement to acquire consumer-focused producer 48North Cannabis; and most recently, plans to combine with fellow grower Redecan for the equivalent of about $765 million.

The company had planned to grow into a top-three position in the Canadian market, but the combination with privately owned Redecan puts it in competition to be the top domestic producer. Investors will have to continue to watch the progress once the acquisitions are fully approved and integrated into HEXO's existing business. Some cannabis investors, however, are selling today on the disappointing results from the most recent quarter. 

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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