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It's a news item that may have nonchalantly passed over many traditionally minded investors' radars. In a few days, Hexo (AMEX: HEXO ) will trade on the grandest stage of all: the New York Stock Exchange. Therefore, even though the HEXO stock price incurred ugly volatility in recent months, that could soon change for the better.
After a tough earnings report, Hexo could use some good news. This is the positive development that embattled stakeholders have been looking for.
Getting listed on the top exchange is a significant event for any publicly traded company. But what makes the promotion for HEXO different is that it also positively impacts the broader marijuana industry. That's because, from day one, all cannabis players searched for one thing: credibility.
With the "upgrade" in Hexo, the organization joins powerhouse names like Canopy Growth (NYSE: CGC ) and Aurora Cannabis (NYSE: ACB ). And this in turn gives the green sector one more name within the elite circle.
Now, I'm not suggesting that mere inclusion in the NYSE is the end all, be all. Over the years, we've seen the top exchange delist several names that didn't meet its standards . But that's also the draw for Hexo stock: the NYSE won't let just anyone in.
Among many other factors, a prospective corporation must demonstrate broad demand and value of its equity. Furthermore, they must submit financial documents proving their viability. Given every opportunity to find something wrong, the NYSE gave HEXO stock a pass.
That's got to be worth something!
Good News Is Gold for HEXO Stock
Despite the above points, I may still have some doubters regarding the NYSE move's importance. At the end of the day, critics might argue, it's just a change of scenery for Hexo.
Nevertheless, it's still a positive development for the budding company, and good news in this sector is worth its weight in gold. Unlike most other investment markets, cannabis-based securities primarily are not driven by the fundamentals. Instead, they're narrative-driven, which can be good and bad.
On the negative end of the spectrum, you just need to look at the recent earnings season for marijuana firms. Company after company tumbled over the past several weeks, and for what? Failing to meet consensus expectations for earnings per share and revenue growth?
As I explained regarding Aurora Cannabis' bout with volatility, Wall Street is not playing fair with marijuana businesses. Analysts know that due to a murky legal environment in the U.S., cannabis operators have limited options. Thus, the poor earnings results don't accurately reflect demand. Rather, they reflect unnecessary market inefficiencies due to myopic laws.
Yet HEXO falls because most investors are trained to look at the numbers. Admittedly, they don't look good.
But the numbers don't matter now as much as the narrative. Because for botanical advocates, the main goal was never about Canadian legalization. Instead, the grand prize is full legalization in the U.S.
And stories like HEXO being listed in the NYSE add more leverage and credibility to this prospect. With enough positive headlines, the narrative can quickly shift from cannabis firms not making their numbers to potentially advantaging an unprecedented opportunity.
That's why I'd advise against panicking: we're just getting into the good stuff for Hexo Corp stock.
Ample Evidence Points to Full Legalization
Several years from now, I'm almost certain that we'll look back on names like Hexo stock with regret. Not because their shares did poorly but because they catapulted to unbelievable heights.
Think I'm high on something? Consider that right now, cannabis is the fastest-growing job market in the U.S. Remarkably, this is true despite the fact that many states still haven't legalized marijuana to any degree.
Moreover, several European countries are shifting favorably to weed. Late-last year, South Korea legalized medical marijuana. The concept was so groundbreaking - because the country is socially very conservative - that it caught observers by surprise.
I could go on and on. But the point is that the world is gravitating toward marijuana legalization. Eventually, the rest of the markets will catch up to this fact. And this is the ultimate narrative that can push Hexo Corp stock to crazy levels.
Josh Enomoto is considering buying Hexo stock in the next 72 hours.
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