Hexo's revenue warning 'very disappointing' but company still well-positioned for cannabis 2.0: MKM

A revenue warning from Canadian cannabis company Hexo Corp. is very disappointing, but the company is still well positioned for the coming launch of derivative products in Canada and today's news may be "more of a delay than lost opportunity," MKM analyst Bill Kirk said Thursday. Hexo surprised investors and saw its stock stumble after it warned of a fiscal fourth-quarter revenue shortfall, citing "lower than expected product sell through." The company said it was also withdrawing its fiscal 2020 financial outlook, as "regulatory uncertainty" and jurisdictional decisions to limit the availability and types of cannabis derivative products have led to an "increased level of unpredictability." The company expects revenue for the quarter to July 31 of C$14.5 million to C$16.5 million ($10.9 million to $12.4 million), below the FactSet consensus of C$24.8 million. "We believe a reset of expectations following a CFO departure is a difficult but prudent move," Kirk wrote in a note to clients. The analyst said Hexo's approach of helping partners with their product "has has the best chance of creating a defensible brand ("Powered by HEXO"). It is a less commoditized approach, which should give them early access to some exciting categories," said Kirk. The company's partnership with Molson Coors shold give it an early mover advantage when cannabis edibles become permissible, expected in December. Kirk reiterated his buy rating on the stock and C$12 price target. U.S.-listed shares were down 19% premarket, but are up 7.3% in 2019, while the ETFMG Alternative Harvest ETF has fallen 20% and the S&P 500 has gained 16%.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.