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Hexo Receives NYSE Warning for Listing, Clock Is Ticking

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On May 13, Hexo (TSE:HEXO) announced that it received an NYSE listing notification in the first week of April. The news wasn’t a surprise. The shares have been trading below the NYSE listing standard of $1 for a while. Hexo faced difficulties in 2019 when it started missing its own revenue and profitability guidance. The company’s leadership team stumbled when CFO Michael Monahan resigned, which made investors more skeptical. Hexo’s struggles have continued in 2020 and the stock price started declining. The company has been trying to raise additional capital to survive the cash crunch. What does the NYSE warning mean for Hexo?

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Hexo feels the heat

On April 7, the NYSE sent a listing notification to Hexo. The warning said that the stock fell below the NYSE’s $1.00 share price continued listing standard. Read Cannabis Stock: Will Hexo Get Delisted Next? to learn more. According to the NYSE’s stock listing standard, a stock could get delisted if its stock price falls and continues trading below $1 for 30 consecutive days. Hexo has been trading below $1 for a while.

After receiving the listing notification from the NYSE, Hexo has six months to regain compliance. Due to the COVID-19 outbreak, the NYSE provided an extension. Now, the company has until December 16, 2020, to regain compliance. Hexo can do that if its shares achieve a 30-trading-day average closing price of at least $1 per share. If the company doesn’t regain compliance, the NYSE can start delisting procedures.

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Among the options, Hexo is considering share consolidation, if necessary, to regain compliance. Recently, Aurora Cannabis was also at risk of delisting when its shares price fell below $1. To save itself from delisting and strengthen its cash position, Aurora Cannabis announced a reverse stock split in April. The company executed its reverse stock split of 1:12 on May 11. Notably, the stock crashed after the split.

Cannabis stocks’ performance

Year-to-date, Hexo’s shares have declined by 66.6%. In May, the stock has gained 7.0%, while the Horizons Marijuana Life Sciences ETF has gained 5.7%, respectively. For now, Aurora Cannabis’s third-quarter results are driving the cannabis sector. The company’s revenue beat the estimates, which renewed investors’ confidence in the company. Even Cronos Group (NASDAQ:CRON) and Green Thumb Industries (OTCMKTS:GTBIF) reported higher revenues in their first quarter.

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Hexo reported a decline in its revenue to 17.0 million Canadian dollars in the second quarter. The company missed analysts’ estimates of 17.2 million Canadian dollars. However, the revenue improved compared to the first quarter of 2020. Hexo reported an EBITDA loss of 10.3 million Canadian dollars. Notably, the losses were lower than the estimates. Analysts expect the revenue to increase in the third and fourth quarters. The EBITDA losses could also decline. Marijuana sales have been rising in the US amid the COVID-19 pandemic. Cannabis 2.0 products could still turnaround Hexo’s situation.

Currently, 15 analysts cover Hexo stock. They’re bearish on the stock. Among the analysts, six recommend a “hold,” five recommend a “sell,” with three suggesting a “strong sell,” and one recommends a “buy.” The average target price on the stock is 1.29 Canadian dollars, which represents an upside potential of 69% as of its last closing price on May 15. Hexo closed 22.5% higher at 0.76 Canadian dollars on May 15.

Aurora Cannabis stock closed 68% higher on May 15, which drove all of the cannabis stocks higher. Tilray (NASDAQ:TLRY), Canopy Growth (NYSE:CGC), and Aphria gained 8.3%, 14.4%, and 11.2% on May 15. The Horizons Marijuana Life Sciences ETF gained 9.3% on the same day.

Outlook

CannTrust was the first company to get delisted from the stock exchange. The regulation scandals were disastrous. Aurora Cannabis somehow avoided the mishap. Now, the clock is ticking for Hexo. We’ll have to wait and see if the company can save its stock from delisting and regain investors’ confidence.

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