Mengel’s “Next King of Cannabis”

What's being teased as "the next Canopy Growth?"

By Travis Johnson, Stock Gumshoe, December 17, 2019

Jimmy Mengel is out with a new marijuana stock ad for us, teasing the “next king” of the sector as he looks for more winners… and, of course, he’d like you to subscribe to his newsletter to learn what this next winner might be (actually, he’s pitching this as “you buy my $99 report, nonrefundable, and I’ll give you a free one-year subscription to The Crow’s Nest, after which that will autorenew at $129/year, but whatever).

Gumshoe readers, naturally, want to know what the story is before they plunk down a hundred bucks with no chance at a refund if they don’t like the newsletter… so let’s get you started, ID the stock for you, then you can think for yourself.

The basic spiel is that this will be the next huge winner pick from Jimmy Mengel, who recommended Canopy Growth (CGC, WEED.TO) very early, when it was down around $1 or so — I can verify that he did tease that stock early on, starting in 2015 I believe, so those who followed that suggestion from him were probably quite happy. Here’s a little taste from the ad:

“Canopy isn’t going to be the cannabis company to take us to the next round of growth.

“It’s jettisoned its founder, diluted shares, and like any large company, won’t be growing at a large enough scale to make a difference for investors.

“In short, Canopy isn’t going to be delivering another big win anytime soon — which is why I’ve taken my profits and continued my search for an up-and-coming company that can.”

And then he sums up the other clues he drops quite nicely on his order form here:

“There are three big reasons why this stock will soar in the next few weeks:

“1. Its expansion is almost complete… and the announcement of its progress will be the biggest event in this company’s history. A million square feet will cement its spot as a major cannabis grower

“2. It’s just been added to the NYSE… no other cannabis company in the world has been in this unique position of such rapid expansion AND a recent U.S. listing. Not even Canopy Growth had this advantage!

“3. And its partnership with a major $13 billion beverage company dovetails perfectly with its expansion… Once it announces the details, every investor in America will want a piece of this cannabis company”

So there you have it… what might the stock be? This is, sez the Thinkolator, our old friend Hexo (HEXO)… which just reported its latest quarterly earnings yesterday, so the news is good and fresh.

Things have not gone terribly well for Hexo lately, though that’s true of most of the marijuana stocks in the past six months — one writer from TipRanks blames it on Quebec, though it’s also true that most growers and producers up North are having trouble with expenses being higher than they expected, and retail prices being lower, and with the slow rollout of beverages and edibles in Canada… and though they do have a 1.3 million square foot super-greenhouse center in Quebec and some other very large facilities in Ontario, it looks like they’re also not going full-out, presumably because of lack of demand (cultivation is “on hold” in parts of those facilities).

There’s a good sum-up of the situation from the CEO in the conference call transcript here that’s definitely worth a read, and you can read the rosy sales pitch in their investor presentation here (that’s from last quarter, but still fairly up to date). Like many marijuana companies, they recognize the problem with being a commodity producer, and they’re trying to move up the value chain by focusing on specific strands and on comomdity-derived products — particularly cannabis-infused beverages in their case, with their Truss partnership with Molson, but also a bunch of other products from vapes to edibles.

They have distribution throughout Canada with at least some of their brands, and they consider themselves to be the “premium branded partner” for the big consumer packaged goods companies, though it’s so early in this product development cycle (and I have so little personal knowledge of that marketplace) that I’m just parroting their words here — I don’t know if they’re really going to lead, or if some competing products could swamp them.

And, of course, they don’t have any profits to go with their solid revenue growth. And they probably won’t for at least a couple years, particularly if they’re investing in product innovation and distribution. They do say they’re tageting positive cash flow next year, or at least they were saying that in October… don’t know if they’ll make it or not.

So this is far from being the worst cannabis company, and I do like the focus on beverages and edibles… though it’s important to note that we still don’t even really have a clear idea of how big those markets might be in Canada, let alone elsewhere. All the estimates could be wildly rosy, just like the estimates about demand for legal cannabis have been pretty over-the-top in most legalized states and in Canada so far (partly that’s because black-market cannabis is now more socially acceptable and is a lot cheaper, to be fair). The future does seem to lie with the brand builders, and there are some brands here… I just don’t know if they’re going to succeed or not, so you’ll have to make your own judgement on that.

But yes, this is Mengel’s latest tease… and if you’d like some backup, I should also note that a few readers have already posted this answer (thankfully everybody gets to be right!), here are a couple of the comments we received on this earlier…

Reader tinskov submitted:

It is HEXO, I watched Jimmy’s presentation and we can see Sébastien St-Louis, CEO of Hexo, many times during the video pitch. Plus HEXO’s master grower is indeed a female, they’re building a 1 million sq feet greenhouse, the beverage partner – a 13Billion company – suits Molson-Coors, which is Hexo’s beverage partner and has a market cap between 11 and 13 Billion, depending on the days. Plus the images of the facility in Mengel’s video fit the images in promotional videos by Hexo. Plus Hexo is located in Gatineau, Quebec, at about a one hour drive from Ottawa, as stated in Mengel’s video. Some images in the pitch video show staff of the company with a Hydropothecary logo on their clothes, Hydropothecary is the medical brand of Hexo. By the way, I am from the province of Quebec, so I can recognize the location of the images in Mengel’s video as being shot in Quebec.

And last week, a jamesseamus posted this:

Looks like hexo.. lisred on NYSE. Got a beverage coming out in Cnada with Molson. Not able to verify that they have a lock on Purple Kush or are going to triple their greenhouse space…. but seems to fill the bill… and Jimmy separately fromhis new report issued a buy on HEXO recently….

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So with that, dear friends, I’ll pass it over to you — what do you think of Hexo? Like their CPG focus and brand building ideas, or are you worried that, like everyone else in Canada, they’ve been producing a lot more marijuana than they can sell at a good price? I can’t see the future and I don’t know the Canadian pot marketplace, but I’d be delighted to hear what you think… just use the friendly little comment box below. Thanks!

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