Hexo (NASDAQ: HEXO) stock has given up all its gains from Monday as Tilray (NASDAQ: TLRY) revealed the price it was willing to pay for the cannabis company. Nothing like what people were getting all excited about that is. HEXO rose 30% yesterday, has fallen back 22% today and the way percentages work with their denominators that means Hexo is back where it started.
The play was that TilrayBNN Bloomberg was going to buy Hexo. That got reported by BNN Bloomberg as being a $250 million deal. At which point the usual speculators piled in and drive the price up that 30%. At which point Tilray reveals the actual deal itself, which is to buy Hexo at the $1,25 prevailing before the Bloomberg report. At which point of course the stock goes back down.
There's no great chance of someone entering to beat this deal either. Tilray is starting from the point of owning a $173 million convertible note which it acquired from a Hexo creditor. It's going to be difficult for anyone to overcome that start.
Hexo stock price from NASDAQIn terms of interesting trading we'd probably have to say that Hexo is going to get taken out at that $1.25. The only difference is going to be if Tilray stock moves - as the bid is being paid for in stock.
This leaves us with really only one other subject of discussion. Cannabis was made newly legal, surely everyone making the now legal cannabis was going to do well? After all, people were willing to break the law for a century to get it - why wouldn't they buy it legally? It hasn't actually worked out that way, as we can see, there just aren't many - if any - of the companies that have done well.
One reason for this is that the bureaucrats decided to really design a proper marketplace. Something which so larded the drugs market with taxes and paperwork that in some locations - California, we're looking at you - the legal stuff is both worse and more expensive than the black market. The other is that so many companies flooded into the market that there's no grand profit margin left given the competition. Ah well, that happens. But that is something we need to keep in mind for the next investment fashion. It might be a wondrous idea and market but whether there are profits or not depends on how many other people decide to become producers as well.
