HEXO is an interesting play in the pot sector, James Hodgins says

Pot stocks have taken a beating over the past couple of months as the emerging industry still tries to find its feet, but one company that seems to have hit the ground running is HEXO Corp (HEXO Corp Stock Quote, Chart TSX:HEXO), which just closed on a $321-million acquisition of cannabis company Newstrike Brands.

Fund manager James Hodgins says one of HEXO’s strengths is in edibles, which are expected to make a big impact when they come online later this year.

“We like HEXO and we own a little bit. It’s been kind of an under-the-radar name,” said Hodgins, chief investment officer at Curvature Hedge Strategies, in conversation with BNN Bloomberg on Friday.

Hodgins says he favours both Gatineau, Quebec’s HEXO and Moncton, New Brunswick’s Organigram. “They certainly have their niche markets and HEXO has the sprays and edibles and they seem to be specializing in that and it seems to be working for them,” he says.

After a brilliant start to the year, the pot sector has faltered in recent weeks, HEXO included. The Horizons Marijuana Life Sciences ETF, which attempts to mirror the North American cannabis industry as a whole, gained almost 65 per cent between the start of January and mid March but has tumbled 21 per cent since March 19. HEXO’s share price climbed 139 per cent between January 1 where it stood at $4.61 and April 29 when it hit $11.29, but it has since pulled back, closing at $8.67 last Friday.

Hodgins says the sector could experience further declines.

“I think that the space itself is overbought,” he says. “Last summer there was a huge drawdown in the space as liquidity came out and speculation waned but that all changed with the [Constellation Brands] purchase of Canopy Growth and then all of these stocks have done well in the last year, but we’re cautious on the space.”

Ahead of HEXO’s quarterly earnings, due later this month, the company last reported its financials on March 14 when it reported a loss of $4.3 million on revenues of $16.2 million in its second quarter, a 144-per-cent increase in its top line compared to a year earlier.