The market may have missed a major milestone passed by cannabis company HEXO Corp. (HEXO Stock Quote, Chart TSX:HEXO), according to Russell Stanley, analyst for Beacon Securities, who on Monday reiterated his “Buy” rating and $11.00 target price.
On December 27, Gatineau, Quebec’s HEXO announced the completion of the first phase of its one-million sq. ft. greenhouse expansion, saying that the construction has been completed on time and on budget and is now licensed and ready for plants to move in.
“Receiving initial licensing on our 1,000,000 sq. ft. facility is a huge accomplishment for the entire HEXO team,” said Sébastien St. Louis, HEXO Corp’s CEO and cofounder in a press release. “The new production facility allows us to continue to scale-up which, once fully operational, will give customers across Canada access to HEXO products.”
Stanley says the construction puts HEXO on its way to reaching 108,000 kg per year but that the announcement may have been overlooked due to timing over the holidays. Another December announcement was that HEXO had filed an application to list on the NYSE exchange, and with only five cannabis companies currently with US listings, Stanley says that the NYSE listing should benefit HEXO on scarcity value alone.
“We continue to view HEXO as an elite cannabis producer, combining large scale/low cost production capacity with demonstrated strength in commercializing unique value-added products. This positions HEXO has an attractive candidate for a strategic investor (or acquirer), and a NYSE-listing should significantly increase the company’s profile in that context,” Stanley says.
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In October 2018 AgraFlora’s majority owned subsidiary, AAA Heidelberg, received a license to produce under Health Canada’s Access to Cannabis for Medical Purposes Regulations for its facility in London, ON. AAA is currently preparing for its first crop and is working closely with partner Canopy Growth as the harvested product is to be sold through Tweed Mainstreet’s CraftGrow Collection.
At 10x his 2020 EBITDA estimates, Stanley values HEXO at a 41 per cent discount to its broader peer group at 16x and at a 72 per cent discount to the larger cannabis group (above $1 million market cap) which is valued at 35x 2020 estimates.
The analyst’s $11.00 target represents a projected 12-month return of 89 per cent at the time of publication.