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Will HEXO Be the Next Top Dog in the Canadian Cannabis Market?

By Keith Speights - Jun 23, 2021 at 7:01AM

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A key acquisition could give the company the leading market share in the Canadian recreational pot market.

HEXO (HEXO 14.05%) should become a much larger company in the not too distant future assuming there aren't any roadblocks with its pending acquisition of Redecan. In this Motley Fool Live video recorded on June 11, healthcare and cannabis bureau editor Olivia Zitkus and Motley Fool contributor Keith Speights discuss whether or not HEXO might even become the next top dog in the Canadian cannabis market.

Olivia Zitkus: One other business knocking at the door of the new Tilray and Canopy Growth as well is HEXO, which announced a $925 million deal to acquire Redecan on May 28, which is another adult recreational use company pot based in Canada. HEXO has been busy on the acquisition front, multiple acquisitions in a matter of weeks.

I think it's trying to become a bit of a big dog. Do you have any thoughts on HEXO?

Keith Speights: Yeah. At one time, I was relatively bullish on HEXO. I thought the company was really growing well and had a good strategy and then the bottom fell out a little over a year ago. I think HEXO had overpromised and underdelivered, and I started to question whether or not the management team's strategy was the right one.

Now, this latest deal, particularly the Redecan deal, it's such a big move for HEXO. The company has been rebounding quite a bit, they seem to be getting their house in order to a large extent. Then they announced this deal and they're even saying, "Hey, we're going to be No. 1 in Canada in terms of recreational market share now, and so move aside Tilray, Aphria, you're being pushed aside now with this HEXO deal."

HEXO isn't paying nearly as much money to make the deal happen. Again, this is one where I want to wait and see. I think this could pan out for HEXO, but they're still paying, I can pull up the price tag, I think they are still paying several hundred million dollars, $770 million U.S., about 925 million Canadian.

That's still a hefty price tag to pay. HEXO doesn't have that kind of cash lying around. They're having to issue new stock to help pay for it. We'll see if it's a good return on investment here. Again, I said it earlier, bigger isn't always better.

I think the real thing that HEXO and all these companies need to be doing is laying the groundwork for a potential entrance into the U.S. market down the road, whether down the road is next year or five years from now or whatever. I'm not so sure that HEXO's acquisition of Redecan does that.

Zitkus: Sure. They've got their partnership with Molson Coors. They've launched their CBD beverage under Truss, I think it is, in the states. Those arrangements are tough to navigate. They don't have full control over that quite yet.

I think they just announced that they were opening a new processing facility in Colorado that's going to process CBD distillates, in particular. But yeah, it will be interesting to see how that relationship evolves, too.

Speights: Yeah. I think that's a good opportunity for HEXO. I think the relationship with Molson Coors is a good one. I think that was actually one of the deals, a few years ago, that really vaulted HEXO into the limelight.

I think HEXO, in some respects, is in a better position in the U.S. market than even Tilray is because of that relationship. But again, we'll see. The CBD beverage market is still in its really early stages, I think it has a great opportunity to grow fast, but it's one that I will definitely watch closely.

Keith Speights has no position in any of the stocks mentioned. Olivia Zitkus 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 (14.05%) $0.03
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
TAP
$56.46 (-0.44%) $0.25
Canopy Growth Stock Quote
Canopy Growth
CGC
$3.82 (15.76%) $0.52
Tilray Stock Quote
Tilray
TLRY
$4.29 (6.45%) $0.26

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