Hexo is already worth more than $ 2 billion, just six years after it was founded. The Gatineau pot producer’s title has more than doubled in 2019 and has posted the best performance on the Toronto Stock Exchange this year. And his energetic president says the action remains undervalued. Meeting with a businessman with great ambitions.
“I said that the day the company exceeds one billion market value, I would wear more jacket,” says Sebastien St-Louis with a smile. “What’s important to me is not what you look like or what you wear, it’s what you do. “
The likable 35-year-old entrepreneur wears jeans and a t-shirt when he arrives at Hexo’s expanding facility in Masson-Angers (Gatineau), in the Outaouais region. He presents himself with a disconcerting simplicity and does not lack energy even if he supports working nearly 100 hours per week since the founding of Hexo, six years ago.
Sébastien St-Louis has every reason to be in a good mood. The action of the preferred provider of the Quebec Cannabis Society (SQDC) has more than doubled since the beginning of the year and shows the best return among all the members of the S & P / TSX in 2019. His personal participation in this 2 billion business is now worth tens of millions.
” I’m not surprised. I have been screaming for a long time that it must have happened. People have been slow to believe our story. “
- Sébastien St-Louis, big boss of Hexo
And the title is not overvalued, according to him. “Absolutely not,” he said. Look at our sales. With the recent acquisition of Newstrike, we expect to close our fiscal year 2020 with a turnover of 400 million. Applies a multiple [of evaluation] of 10 times for a hypercroissance industry, the title still seems cheap. “
Sébastien St-Louis admits, however, that the figures have something to think about when we stop at the assessments of the entire market. “It does not [stick], that’s for sure. North American companies in the sector are worth $ 100 billion at the moment, while last year it sold about $ 200 million worth of marijuana. It sounds crazy. “
Hexo aspires to have the best technology in terms of consistency in the speed at which products work and the duration of the effect.
What the experts think
About fifteen analysts officially follow the activities of Hexo. Only two of them do not recommend buying the title. Their average target over a 12-month horizon is $ 10.67, while the stock closed yesterday at $ 9.55 in Toronto.
To believe him when he claims that Hexo is undervalued, we must first accept that the global market for cannabis (medical, recreational and black market) reaches 300 billion.
“Many people do not accept it, but there are fewer and fewer who do not accept it,” he says.
If the companies in the industry are worth 100 billion today and the market reaches 300 billion, the multiple applied to sales is 0.3. “It’s nothing,” said Sebastien St-Louis. In any other product industry, a multiple of three times or four times sales is something very reasonable and conservative in a non-explosive market. “
Still a lot of money coming
Another factor in supporting the sector’s securities, he says, is institutional money. “Real money has not returned. About 90% of Hexo shareholders are small investors.
“The big funds have no choice. As cannabis stocks are added to major stock indexes, they will have to follow. “
For Sébastien St-Louis, the title of Hexo is far from overvalued: “It is expected to complete 2020 with a turnover of 400 million. Applies a multiple [of evaluation] of 10 times for a hypercroissance industry, the title still seems cheap. “
What investors should be wary of, he says, is that 80% of cannabis companies are overvalued and in danger of going bankrupt within two years. “They arrived too late and do not have the infrastructure to be competitive. We all underestimated the scale of infrastructure needed to deliver the products (oil, vaporizer, powder, etc.). “
The question is who are the Pets.com and Amazon in the future, says Sebastien St-Louis.
“If you identify the next Amazon, you buy it at a multiple of 0.3 times the sales of its industry. You will make so much money. It’s an aggregated bubble, but there are three or four companies completely undervalued in the group when faced with the opportunity, “he says.
Focus on R & D
“Hexo has one of the best chances, with Canopy, to become one of the three or four big global companies of 100 billion and more in the sector”, according to Sébastien St-Louis.
To achieve this, he relies heavily on research and development (R & D), to have the best products possible. “We have more than 20 scientists in R & D. And we will have more than a hundred in the next 12 months. These people work with molecules that could lead, for example, to creating a product to help reduce appetite.
Hexo aspires to have the best technology in terms of consistency in the speed at which products work and the duration of the effect. “What I’m trying to do is a bit of Intel Inside of cannabis. He says he wants to make acquisitions and claims to have found several targets. He would like to buy a strictly technological company to apply expertise to cannabis. “What we are looking at right now is very much about intellectual property. “
If he intends to pursue his short-term international growth strategy with a joint venture in Greece, he has his eyes on the United States, where his next chief financial officer will work. A hiring that will be announced soon.
“To move Hexo’s value from $ 2 billion to $ 100 billion, it’s clear we need the United States. “
The contractor also intends to complete four other similar partnerships with the one announced last year with Molson to produce edible beverages (eg Nestlé, Mondelez, Keurig), vape (eg Philip Morris, Altria, Imperial) , beauty products (eg L’Oreal, Estée Lauder, Unilever, Procter & Gamble) and health and wellness products (eg Johnson & Johnson, Pfizer, Novartis, Sanofi).
Hexo is already worth more than $ 2 billion, just six years after …
“The idea is to insert Hexo’s technology into their products and then sell them in stores. “
For Sébastien St-Louis, there is no doubt that major consumer goods companies must find a way to enter the cannabis market to boost their incomes. But closing a partnership is not necessarily what will happen.
“If, tomorrow, a big tobacco company offers 20 billion for Hexo, I have no choice. I need to create value for my shareholders. That’s not what I want to do. I would love to have the privilege of running this business for the next 15 years. “
5 billion in five years
If Hexo remains independent and manages to get along with five major partners, Sébastien St-Louis sees Hexo become a technology and brand company.
“We will no longer need to grow our cannabis ourselves. The transformation will be done with Hexo’s technology. You will see “Powered by Hexo” on the products, “he says.
“My goal is to bring Hexo to be a Fortune 500 and one of the three largest cannabis companies on the planet within 10 years. I challenged my executive team to deliver $ 5 billion in revenue in five years. “
Sébastien St-Louis even thinks that in 10 years, Hexo could defend gross margins of 50% and a turnover of 30 billion.
“If we are moving towards 20% market share in Canada, can we get 10% of a $ 300 billion global market? There is a real chance that Hexo is going there. “
Hexo in resume
Year of foundation: 2013
Founding President: Sébastien St-Louis
Activities: pot producer and preferred supplier of the SQDC
Number of employees: 850
Sales expected next year: 400 million
Market value: 2 billion
This article is written and published by The Cannabis Stock
Disclaimer : The Cannabis Stock wants to promote the cannabis market with the best publication on the market. The Cannabis Stock does not recommend selling or buying any of the company mentioned and is not responsible for any losses that may result.