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Why Hexo, Tilray, and Aurora Cannabis Got Smoked Tuesday

What happened

On yet another "red" day for stock markets, marijuana investors saw their stocks tumble right along with the rest of the Nasdaq. By the time trading was done for the day, Tilray (NASDAQ: TLRY) stock was down 2%, Aurora Cannabis (NASDAQ: ACB) had fallen 2.6%, and Hexo (NASDAQ: HEXO) shares were selling 5.2% lower.

And in fact, Hexo seems to have been to blame for much of this.

Image source: Getty Images.

So what

In a press release early this morning, Hexo gave investors an update on its strategic plan entitled "The Path Forward," explaining how Hexo -- shares of which traded above $30 just a couple of years ago, but now fetch just $0.50 -- intends to regain its mojo and get its share price moving higher once again.

New product launches appear key to Hexo's plan, as the company launches sales of a "transdermal cream and a CBD-forward body lotion," and also a new line of "gummy confection called Redebles." The latter, says Hexo, will contain "10 mg of THC [of] extracted cannabis distillate ... per pack and [are] vegan friendly and gluten free ... and are sugar coated." Hexo says it intends its Redecan subsidiary to begin sales in Nova Scotia, New Brunswick, and Manitoba, bringing to nine the number of Canadian provinces and territories in which it operates.

The company will be launching other new products as well, including "pre-rolls and dried flower." Together, the company is hoping that its new products will "solidify Hexo's position as the number one cannabis company in Canada by recreational market share, with the goal of becoming the first among its peers to be cash flow positive from operations."

Now what

That's an admirable goal, and one I suspect a lot of Hexo investors would like to see happen. And in fact, many analysts who follow the stock predict that Hexo will turn cash flow positive in 2023.

That being said, to date Hexo has never generated positive free cash flow, and analyst predictions and management promises notwithstanding, Hexo doesn't appear to be on any particular path to doing so at present. Over the past 12 months, cash flow at the cannabis company was negative $75 million -- better than the $95 million in negative cash flow suffered in 2019 -- but more than twice as bad as the $35 million lost in fiscal 2021, according to data from S&P Global Market Intelligence.

That being said, one thing I think investors can expect Hexo's striving to grow market share will produce is additional price competition in the Canadian market for cannabis. And that could be bad news not only for Hexo's ability to turn itself cash flow positive, but for rivals Aurora Cannabis and Tilray's quests to reach positive cash flow as well.

Suffice it to say that if what Hexo is promising is a price war, that won't be good for any of its competing marijuana stocks -- or even necessarily for Hexo itself.

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Rich Smith 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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