Hydropothecary Corp (TSE:HEXO) consolidation near all-time highs continues to raise serious concerns about the stock’s long-term prospects. For the better of the year, the stock has been trading in a tight $4.12 to $5.30 a share range after an impressive run late last year that saw it rally by more than 150%.
Everything seems to be working well for the company more so from the business execution point, even though the stock has struggled to break above the critical $5.65 a share mark. It is still unclear whether the stock ran ahead of fundamentals late last year, thus the consolidation and whether it is due for a major pullback before breaking out.
After rallying to the $5.65 a share mark in June, the stock came under pressure and tanked to the $4.12 mark, where it appears to have found strong support. The stock has since bounced back to the $4.67 mark waiting to see if the momentum has what it takes to push above the key resistance at $5.6. A breach of the $4.12 mark, on the other hand, could see the stock dropping to the $3.80, the next support level.
What Does Hydropothecary Corporation Do?
The company creates and distributes easy to use products for the Canadian cannabis market. It currently operates a 300,000 sq. Ft. production capacity plant that it plans to expand in a bid to serve the ever-expanding adult-use market.
The stock has continued to trade in range even as the company has continued to make impressive strides in expanding its operations in pursuit of new opportunities for growth. Top on the list is a $10 million investment in cannabis retailer Fire & Flower.
Fire & Flower is in the process of securing 37 retail store licenses in the province of Alberta. The retailer is set to capture substantial market share in the retail cannabis space that Hydropothecary Corporation intends to make good use of in a bid to accelerate sales for its award-winning Elixir line among other products.
“Fire & Flower is establishing itself as a leading independent Canadian cannabis retailer and welcomes the investment by HEXO, a recognized leader in legal cannabis production. HEXO’s investment reinforces our position as a key strategic partner too many of Canada’s most innovative and leading-edge cannabis producers,” said Trevor Fenced, Chief Executive Officer of Fire & Flower.
The investment came days after a Hydropothecary had entered into a memorandum of understanding with Liquor Distribution Branch. Pursuant to the agreement, the company is to supply the province of British Columbia with its award-winning Elixir product line.
Hydropothecary Corporation is also set to become the largest cannabis producer in North American having received a license for the construction of a manufacturing facility from Health Canada. The advanced facility once complete will enhance the company’s operations in distillation dewaxing milling and extraction
The facility will also allow Hydropothecary to manufacture and package cannabis into a wide range of products. The expansion should allow the company to position itself strategically ahead of the adult-use beverage and edible cannabis market coming online in October.
The expansion drive should also allow the company to improve its existing product line as it continues to work on a new set of products under new regulations. The company is currently working on smoke-free products as well as activated cannabis powder and intimate medical cannabis oil.
Molson Coors –Hydropothecary Joint Venture
In addition to the $10 million investment, Hydropothecary Corporation has entered into a definitive agreement with Molson Coors Brewing Company for the formation of a joint venture. The joint venture is to be structured as a standalone startup company, working on non-alcoholic cannabis-infused beverages for distribution in Canada.
“This new venture is consistent with our growth strategy and our commitment to being the First Choice for Consumers and Customers by ensuring that Canadians have access to high-quality products that meet their evolving drinking preferences,” said Frederic Landtmeters, President, and CEO of Molson Coors Canada.
The recent consolidation in share price does not paint a clear picture of a company that is aggressively pursuing new opportunities for growth. Hydropothecary Corporation is still growing at an impressive rate as it did for the better of last year.
The signing of partnership agreements with cannabis distribution companies underscores how focused the company is about exploring new sales avenues in pursuit of new revenue streams. The future can only be bright for the company as it also works on a new production and manufacturing facility.
While very little has changed in share price since the start of the year, the same cannot be said about the future. Once investors take note of the company’s long-term prospects, given the investments made so far, it should be able to break out of the current trading range and move higher.
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Disclosure: We have no position in HEXO and have not been compensated for this article.