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Today we are watching…
1. Hexo Corp. (#hexo)
Hexo stockholders are not happy bunnies and with good reason. Since the end of April, its price has dropped significantly from $7.88 to its current level around $4.10. Like many other companies in the cannabis industry, Hexo is facing some challenges – especially about how it arrives at its inventory valuation. In other words its marijuana supplies. It’s all a bit subjective, using a combination of the historic average selling price, the yield per plant, the stage of growth, and the amount of wastage. Notwithstanding, global demand for cannabis-based consumer products has been increasing at a rapid pace, with CBD (Cannabidiols)demand in the US alone expected to be worth $23.7 billion by 2023, and $44.4 billion globally by 2024. And as consumers more and more embrace the products as alternatives to traditional medicines, future opportunities for CBD companies like Hexo should only get better. So investors should be taking the long and not the short point of view!
2. British American Tobacco (#bat)
The prospects for tobacco stocks such as British American Tobacco (BAT) have long been uncertain. Growing social unacceptability and tighter regulations have led to sales declines, driving investors away from a sector that was once considered defensive. Then along came the e-cigarette, or vapes, to resurrect its future prospects. BAT is aiming to generate £5 billion ($6.2 billion) per year in e-cigarette revenues, by 2024. This would go a long way to offsetting the decline in tobacco sales. But this and a drive for cost efficiency and simplification (it’s laying off 2,300 workers!) to provide greater long term stability and less risk may not be enough. With the US death toll from vaping recently reported on the rise, public health bodies are warning about the dangers. And India has just declared a ban on its production, import and sale. These couldn’t come at a worse time for the tobacco industry, and BAT. Mind you, it does still pay out a generous dividend (a prospective 6.5%). But this could just be its last puff!
