Shares of Hexo Corp (TSX 🙂 continued to slide last week, even after the company reported positive financial results for privately held Redecan Pharm, which the cannabis producer announced it was earlier buying this year.
In May, Hexo announced that it would buy Redecan, a Canadian-based cannabis producer, for C $ 925 million (US $ 725 million). The transaction was touted as another sign of the resurgence of consolidation in the cannabis sector with a view to gaining market share. It is also estimated that the transaction would make Hexo the third largest cannabis operator in Canada.
According to figures released last week, Redecan reported revenues of C $ 73.6 million (US $ 57.8 million) in 2020. In the first quarter of 2021, the company generated $ 24.7 million Canadian (US $ 19.4 million) in revenue, a 146% jump from the same period a year earlier. Net profit for 2020 was $ 22.6 million.
But shares of Hexo, which opened at $ 4.94 on July 14, the day the numbers were released, steadily declined for the rest of the week, closing in New York yesterday at $ 4.20. losing another 4% on the day. Hexo shares have risen nearly 51% over the past year, but have lost more than 40% since the start of 2021.
U.S. cannabis laws are shaking up the markets
Long-awaited U.S. legislation that will pave the way for federal legalization of marijuana has done very little to prop up cannabis stocks after it was finally unveiled last week.
A Cannabis Administration and Opportunities Bill was introduced in the US Senate, but the stock market paid little heed to it.
This law is seen as a comprehensive initiative to end the federal ban on marijuana and allow regulated cannabis companies access to financial services.
At its core, the law would no longer list cannabis as a controlled substance and would regulate the industry.
Now the bill will be open for public comment until September.
But despite his much-vaunted anticipation heralded as a game-changer for the cannabis industry, the main sponsor of the legislation, Senator Chuck Schumer, admitted last week that he doubted he had enough voice to push through the bill in the Senate. But that did not dampen the enthusiasm of industry leaders on both sides of the Canada-US border.
Global cannabis index regains momentum
The Global Cannabis Stock Index has regained some momentum lately, gaining 14% so far in 2021.
In the early years of the legal cannabis industry, the index saw huge increases, gaining nearly 90% in 2016 and surpassing 90% in 2017. In the following two years, it suffered heavy losses, dropping by nearly 55% in 2018 and just over 34% in 2019.
Last year, it reversed course, gaining a modest 5.2% in 2020. Today, the gains are accelerating.
The index includes 44 cannabis stocks.