At a market capitalization of over $400 million, Hexo Corp. (TSX:HEXO) could still face further downside selling pressure. The company registered a sale of a whopping 25 million shares at $1.67. The stock dilution plus the realization that cannabis sales will not justify the high valuations sill hurt the sector in January.
Hexo willingly sold 25 million shares at a 15% discount on Dec. 26, showing it would take anything to shore up its balance sheet. The cannabis market is far too weak to support the many players already in the market.
Canopy Growth (NYSE:CGC) may have a big investor supporting it. But the $6.69 billion market capitalization is too high. The company has excess inventory and is facing lower prices every quarter. By the time its facilities are ready to produce more, the company will have trouble selling at a profit.
Cronos Group (TSX:CRON), whose market cap is $2.37 billion, enjoyed a $1.8 billion investment from Altria (NYSE:MO). But once Altria admits its investment will become a goodwill write-down, the quarterly revenue of just $9.6 million will no longer support the stock valuation.
Tilray (NASDAQ:TLRY) is still valued at a $1.67 billion market cap. And the more it sells, the lower the prices realized. That business model is not sustainable. This will force TLRY stockholders to value the company at below $1 billion.
Continue avoiding the cannabis market. It could take two to three years before the demand-supply dynamics favor profit generation for the biggest names.
