Oppenheimer Out Bullish On Molson JV Partner, Cannabis Producer Hexo

Oppenheimer took a bullish stance Tuesday on Canadian cannabis producer Hexo Corp HEXO, but said it's a speculative play given the uncertainty of the sector in which the company operates.

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The Analyst

Analyst Rupesh Parikh initiated coverage of Hexo Corp. with an Outperform rating and $7 price target.  

The Thesis

Oppenheimer's rating and price target is based on several key factors, including the long-term potential of the global cannabis industry, which the sell-side firm said could reach over $200 billion.

Hexo listed on the NYSE American exchange in January. 

Hexo and beer maker Molson Coors Brewing Co TAP created a joint venture last year to produce non-alcoholic, cannabis-infused beverages for the Canadian market. Oppenheimer expects Hexo to launch partnerships in other categories, including cosmetics, edibles, vapes and more, Parikh said in the Tuesday initiation note. 

Hexo's stock is trading at a discount to larger peers, the analyst said. For example, the shares are trading at a 13.8 forward 2020 EBITDA multiple, which is significantly lower than Tilray Inc. TLRY's multiple of 180.6 and Cronos Group Inc CRON's 54.7, he said. 

Despite the bullish rating and optimistic price target, Parikh said the cannabis industry is still in its inception phase, and the competitive and regulatory backdrop is still evolving, making Hexo a more speculative investment versus other consumer packaged good verticals. 

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