Sebastien St-Louis and his visionArticle from lapresse.ca, translated using Bing. Posted on May 11th, 2019 at 5:00 am | Updated at 05:00
Hexo: the ambitions of the star of
the Bourse
Le PDG d'Hexo, Sebastien St-Louis
PHOTO OLIVIER PONTBRIAND, LA PRESSE
Hexo is already worth over 2 billion, 6 years after its founding. The title of the Gatineau pot producer more than doubled in 2019 and shows the best return on the Toronto Stock Exchange this year.
And his energetic President says the action remains undervalued. Meet a entrepreneur with great ambitions. "I said that the day the company exceeds the billion market value, I will no longer wear a jacket," launches Sebastien St-Louis with a smile. "What's important to me is not what you look like or what you're wearing, that's what you do."
The friendly entrepreneur of 35 years wears jeans and a t-shirt arriving at the expansion facilities of Hexo in Masson-Angers (Gatineau), in Outaouais. It comes with a disconcerting simplicity and does not lack energy even if it supports working nearly 100 hours a week since the founding of Hexo six years ago.
Sebastien St-Louis has every reason in the world to be in a good mood. The action of the preferred supplier of the Quebec cannabis society (SQDC) has more than doubled since the beginning of the year and shows the best performance among all members of the S&P/TSX index in 2019. His personal participation in this company of 2 billion is now worth several tens of millions.
"I'm not surprised. I've been screaming for a long time that it should happen. People took a long time to believe our story."
-Sebastien St-Louis, big boss of Hexo
And the title is not overrated, according to him. "Absolutely not," said he. Look at our sales. With the recent acquisition of Newstrike, we expect to complete our financial year 2020 with a turnover of 400 million. Applies a multiple [valuation] of 10 times for an industry in hypergrowth, the title seems still cheap. »
Sebastien St-Louis admits, however, that the figures have something to leave behind when we stop at the evaluations of the whole market. "It doesn't [stick], that's for sure. North American companies in the sector are worth 100 billion globally at the moment, while last year it sold for about 200 million dollars of marijuana. It sounds crazy. » What experts think
Some 15 analysts are officially following 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 title closed yesterday at $9.55 in Toronto.
To believe it when it argues that Hexo is undervalued, it must first be accepted that the global total cannabis market (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 industry companies 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 to come
Another factor to support the sector's securities, he said, is institutional money. "The real money has not returned." Approximately 90% of the Hexo shareholding is composed of small investors.
"The big funds have no choice. As cannabis titles are added to the main stock indices, they will have to follow. » 
For Sebastien St-Louis, the title of Hexo is far from being overstated: "it is expected to buckle 2020 with a turnover of 400 million. Applies a multiple [valuation] of 10 times for an industry in hypergrowth, the title seems still cheap. »
PHOTO OLIVIER PONTBRIAND, THE PRESS
What investors must be wary of, he stresses, is that 80% of cannabis companies are overvalued and in danger of going bankrupt within two years. "They arrived too late and did not have the infrastructure to be competitive. We have all underestimated the extent of the infrastructure needed to deliver the products (oil, vaporizer, powder, etc.). »
The question is who are the Pets.com and the Amazon become, says
Sebastien St-Louis.
"If you identified the next Amazon, you buy it at a multiple of 0.3 times the sales of its industry. You're going to make so much money. It is an aggregated bubble, but there are three or four companies completely undervalued in the group in the face of the opportunity to seize, "he says. Betting on R&D
"Hexo has one of the best opportunities, with canopy, to become one of the three or four major global companies of 100 billion and over in the sector," according to Sebastien St-Louis.
To achieve this, it is putting a lot on research and development (R&D), in order 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 the creation of a product to help reduce appetite. 
Une serre de l'entreprise Hexo, Gatineau
PHOTO OLIVIER PONTBRIAND, LA PRESSE
Hexo aspires to hold the best technology in terms of constancy in the speed at which the products are effective as well as the duration of the effect. "What I'm trying to do is a bit of the Intel inside of cannabis." He claims he wants to make acquisitions and claims to have found several targets. He would like to buy a strictly technological company to apply the expertise to cannabis. "What we're looking at right now is very intellectual property oriented."
Global growth
If he intends to pursue his strategy of short-term international growth with a joint venture in Greece, he has his eyes on the United States, where his next Chief of finance will work. A hiring that will be announced soon.
"To change the value of Hexo from $2 to 100 billion, it is clear that we need the United States."
- Sebastien St - Louis
The entrepreneur also intends to complete four other partnerships similar to the one announced last year with Molson to produce edible beverages (e.g. Nestl, Mondelez, Keurig), vapoyers (e.g. Philip Morris, Altria, Imperial), products of beauty (eg. L'oral, Este Lauder, Unilever, Procter & Gamble) and health and wellness products (e.g. Johnson & Johnson, Pfizer, Novartis, Sanofi). "The idea is to insert Hexo's technology into their products and then sell them in stores."
For Sebastien St-Louis, there is no doubt that large, mainstream consumer goods companies must find a way to enter the cannabis market to make their incomes foam. 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 have to create value for my shareholders. That is not what I want to do. I would like 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, Sebastien 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 technology. You'll 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 in 10 years. I challenged my Executive team to deliver 5 billion in revenue in five years. »
Sebastien St-Louis even believes that, in 10 years, Hexo could defend gross margins of 50% and a turnover of 30 billion.
"If we tend to 20% market share in Canada, can we get 10% of a global market of 300 billion? There is a real probability that Hexo will go there. »
Hexo in brief
Year of Foundation: 2013
Head Office: Gatineau
Founding President: Sebastien St-Louis
Activities: pot producer and preferred supplier of the SQDC
Number of employees: 850
Expected turnover next year: 400 million
Market value: 2 billion
Link To Article in French