Cannabis stocks plunged in price in the second half this year as U.S. regulatory reform extended barriers to broad ownership of cannabis equities by institutional investment managers. However, most Americans support the legalization of cannabis. Also, the U.S. cannabis industry is growing at an unprecedented pace, and cannabis sales are estimated to increase 41% year-over-year to $31 billion at the close of 2021.
San Francisco supervisor Rafael Mandelman said that "Cannabis businesses create good jobs for San Franciscans and provide safe, regulated products to their customers." Moreover, the San Francisco Board of Supervisors passed an ordinance to suspend the Cannabis Business Tax for the 2021 and 2022 tax years. This should give the legal cannabis businesses a boost.
Given this backdrop, we think it could be wise to bet on cannabis stocks HEXO Corp. (HEXO) and Neptune Wellness Solutions Inc. (NEPT), which are down more than 70% in price year-to-date but possess a solid rebound potential.
Click here to check out our Cannabis Industry Report for 2021
HEXO Corp. (HEXO)
HEXO is a Gatineau, Canada-based consumer packaged goods cannabis company that creates and distributes products for the cannabis market. The company serves the adult-use market through its HEXO, HEXO Plus, Up, Bake Sale, Namaste, REUP, Original Stash brands, and the medical market through its HEXO brand. In addition, it provides cannabis beverages under Little Victory, House of Terpenes, XMG, Mollo, and Veryvell brand names.
For the fiscal first quarter, ended October 31, 2021, HEXO’s total revenue increased 70.3% year-over-year to CAD50.19 million ($39.11 million). The company’s revenue from the sale of goods grew 68.3% from the year-ago value to CAD69.5 million ($54.16 million).
HEXO’s $207.42 million consensus revenue for the fiscal period ending 2022 represents a 114.7% increase year-over-year. Its EPS is expected to grow 63.8% in the current year. However, the stock has declined 76.3% in price year-to-date.
Neptune Wellness Solutions Inc. (NEPT)
Incorporated in 1998, NEPT is a Laval, Canada-based fully integrated health and wellness company that produces natural, plant-based consumer products. The company provides turnkey product development and supply chain solutions, including legal cannabis and hemp, nutraceuticals, and consumer packaged goods. Biodroga Nutraceuticals, Forest Remedies, Ocean Remedies are some of the brands under which NEPT markets its products.
One of NEPT’s subsidiaries, Sprout Foods, Inc., launched its new website in November. The new site should provide a direct line for purchase with consumers via e-commerce and showcase a new look and feel for the Sprout brand, which is carried over into packaging, and an updated logo for better brand recognition.
During its fiscal second quarter, ended September 30, 2021, NEPT’s revenue came in at CAD15.7 million ($12.24 million). The company’s gross profit loss declined 61.7% from its year-ago value to CAD1.8 million ($1.4 million). Its net loss reduced 36.4% from the prior-year quarter to CAD14 million ($10.9 million).
Analysts expected NEPT’s revenue to increase 73.2% year-over-year to $89.29 million in fiscal 2023. The company’s EPS is estimated to grow 53.3% next year. However, the stock has declined 74.4% in price year-to-date.
Click here to check out our Cannabis Industry Report for 2021
HEXO shares were trading at $0.79 per share on Wednesday afternoon, down $0.08 (-9.30%). Year-to-date, HEXO has declined -78.53%, versus a 24.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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