Markets

Why Hexo Corp Stock Dropped 8.5% on Thursday

What happened

Shares of Hexo Corp (NYSEMKT: HEXO) dropped 8.5% in Thursday trading after the Canadian producer of marijuana in dried, oil, and powder forms reported fiscal Q3 2019 earnings that "beat" expectations -- but sales that fell short.

Expected to report a $0.05 per-share loss for the quarter, Hexo surprised investors with a loss of only $0.04 per share. Sales, however, came in at $13 million Canadian dollars, almost CA$2 million short of analysts' hoped-for CA$14.8 million. That's probably why the stock is down today.

Marijuana plants.

Image source: Getty Images.

So what

While sales may not have quite met expectations, they were still up dramatically year over year -- nearly 1,000%, when compared to the CA$1.2 million in "net revenue from sale of goods" that Hexo reported in the year-ago quarter. Sales may have been impacted by falling prices for marijuana in Canada.

Recreational pot prices have declined 9% over the past three months, to CA$5.29 per gram. Medical marijuana prices are down less -- but still down -- a small fraction of a percent, at CA$9.11 per gram.

Losses quadrupled year over year, to CA$7.8 million, but as already mentioned, this wasn't as bad a loss as analysts had forecast.

Now what

Moreover, this early in the marijuana story, investors still aren't looking for their companies to earn profits. They're more worried about production rates and market share.

In that regard, Hexo's prediction that it will "double" revenue in Q4 2019 and "ramp" annual sales 100 times from the less than CA$4 million booked in 2018 to CA$400 million by the end of 2020, holds out promise that today's sales shortfall will only prove to be a small bump in a very long road to growth.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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