Both TLRY and HEXO initially focused on the medical marijuana markets and later expanded into adult-use product lines when Canada legalized marijuana usage in 2018. TLRY made history in July 2018 as the first cannabis company to administer an IPO on the NASDAQ. HEXO listed on the NYSE in January 2019 and has been traded on the Toronto Stock Exchange since November 2014. An important question for investors, however, is which of the two names offers the best potential for gains?

Latest Developments

During 2020, both companies have climbed to respectable highs and fallen to troubling lows. TLRY kicked off the year with the introduction of three new adult-use products in Canada and the import of the U.S. brands Marley Natural and Goodship. It followed with a deal to export up to 2.5 tons of medical cannabis from its wholly-owned Portuguese subsidiary to Israel, representing the first medical cannabis import allowed by that country. Earlier this week, TLRY signed a pact with Hormosan Pharma GmbH for the promotion of its full-spectrum cannabis extracts in Germany, effective Jan. 1.

On the downside, in May TLRY closed its wholly-owned subsidiary High Park Gardens, an Ontario cultivation and processing facility, a little more than one year after acquiring the location. TLRY CEO Brendan Kennedy explained that the sale would “immediately put Tilray in a better position to achieve our goals of driving revenues across our core businesses and working towards positive adjusted EBITDA by the end of 2020.”

Regarding HEXO, the company was embarrassed in April when its stock fell below $1.00 for 30 successive business days – the NYSE, citing the pandemic, cut the company slack and gave it until Dec. 16 to boost its share price back to a minimum of  $1.00, under threat of delisting. HEXO has since met the requirement. In June, it executed the C$10.25 million sale of its facility in Niagara, citing excess cultivation capacity that created more supply than consumers demanded.

The company also had some positive developments: the June launch of a 30-gram medical flower format for its popular high-THC strain Tsunami; a partnership in July with Breath of Life International Ltd. to sell its medical cannabis products in Israel; an August partnership with Molson Coors (TAP) to create cannabis-infused beverages for Canada and hemp-derived CBD beverages in the U.S.; and a Dec. 1 announcement repositioning its UP Cannabis brand with a differentiator of 20% THC or higher in all dried flower products.

“Canadian cannabis consumers have been clear with their demands since legalization and, until now, the entire industry has struggled to give consumers what they are looking for,” said CEO Sebastien St-Louis. “We know that they want consistently superb quality and high THC at a competitive price. We’ve listened and have adapted systems and processes to offer just that.”

Recent Financial Results

In last month’s Q3 earnings report, TLRY announced total revenue of C$68.1 million, which was flat on a year-over-year basis. An 11% decline in its cannabis sector due to its discontinuation of bulk sales and a fall in Canadian medical sales contributed to a stagnant revenue stream, even though its adult-use and international medical sales grew 26% and 42%, respectively, and its hemp segment revenue rose 28% to C$26.5 million.

HEXO’s Q4 earnings were announced in October and the company recorded net revenue of $27.1 million, a 76% spike from the same quarter in the prior year. The company credited market expansion coupled with the increasing popularity of its cannabis beverage products and vape products for the year-over-year growth. However, Q4 also saw a C$41.9 million inventory write-down and a gross loss of C$34.7 million – one year earlier, its loss was C$5.7 million.

POWR Ratings

TLRY and HEXO are both rated “Sell” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Rating are graded for both these stocks:

TLRY has a “C” for Trade Grade, an “F” for Buy & Hold Grade, a “D” for Peer Grade and an “A” for Industry Rank. It is ranked #101 out of 240 stocks in Medical – Pharmaceuticals.

HEXO carries a “C” for Trade Grade, an “F” for Buy & Hold Grade, a “D” for Peer Grade, and a “C” for Industry Rank. It is not ranked among the stocks in the Medical – Pharmaceuticals category.

The Winner

It has been something of a rollercoaster ride for both companies this year, although TLRY appears to be in better financial shape currently– at least it wasn’t threatened with delisting. Both stocks are available on the cheap: TLRY closed yesterday at $8.64 (a comedown from its 52-week high of $22.95) while HEXO closed at $1.17 (not much of a tumble from its 52-week high of a less-than-stellar $2.30).

Which is the better buy? The answer, sadly, is neither – at least for the moment. While this year has seen disappointments and odd strategies – why are both companies so heavily focused this year on the tiny Israeli market? – both have also shown signs of adapting to a changing market. While one can hope that they can overcome their respective problems and enjoy stronger activity in 2021, today’s investors may wish to explore other stocks in this space and revisit these companies in Q1 2021.

Want More Great Investing Ideas?

9 “MUST OWN” Growth Stocks for 2021

Are Stocks Off to the Races in December?

7 Best ETFs for the NEXT Bull Market

HEXO shares were trading at $1.15 per share on Thursday afternoon, down $0.03 (-2.14%). Year-to-date, HEXO has declined -27.67%, versus a 15.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...

More Resources for the Stocks in this Article