Canadian Cannabis Companies Advance 41% in Q1

The Canadian Cannabis LP Index pulled back slightly in March after a strong first two months to begin the year, declining 6.3% to 388.44:

The index, which rallied 22.1% in Q4 but still fell 30.1% in 2020 to end at 275.16, is up 55.4% over the past year and 41.2% year-to-date in 2021:

It remains substantially below the all-time closing high of 1314.33 in September 2018, just ahead of Canadian legalization. In March 2020, it posted a new 52-week closing low of 196.10, a level not seen since late 2016, and it closed 98.1% above that level at the end of March:

The Canadian Cannabis LP Index, which is rebalanced monthly, included 39 qualifying publicly traded licensed producers that traded in Canada at the end of February, with equal weighting for each stock. Each of the members was also included in a sub-index, with 4 in the Canadian Cannabis LP Tier 1 Index, 11 in the Canadian Cannabis LP Tier 2 Index and 24 in the Canadian Cannabis LP Tier 3 Index during the month. At the end of June, we revised the rules for inclusion, requiring companies to have a price of at least C$0.20 unless they are generating at least C$2.5 million quarterly from their cannabis production operation. Previously, we required revenue in excess of C$1 million for stocks trading below C$0.20. There are currently about two dozen publicly traded LPs that fail to qualify.

Tier 1

Tier 1, which included the LPs that are generating cannabis-related sales of at least C$25 million per quarter, fell 5.9% to 804.98 in March. Tier 1, which dropped 23.9% in 2020 when it ended at 488.96, has rallied 64.6% in 2021. We have increased the minimum revenue required to be included over time. At the beginning of 2021, we raised it from C$20 million. During 2019 and the first half of 2020, companies needed to generate revenue in excess of C$10 million for inclusion. In 2018, we used C$4 million as the hurdle.

This group included Aphria (TSX: APHA) (NASDAQ: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), Canopy Growth (TSX: WEED) (NASDAQ: CGC) and HEXO Corp (TSX: HEXO) (NYSE: HEXO).

Among these largest LPs by revenue, Aphria was the only stock to post a positive return, gaining 1.6%. Aurora Cannabis fell 13.2%.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$25 million, fell 3.5% to 588.76. In 2020, it lost 35.9% in 2020, closing at 365.19, and it is up 61.2% in 2021. Prior to July 2020, companies needed revenue in excess of C$2.5 million to be included in this tier.

This group included Auxly (TSXV: XLY) (OTC: CBWTF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Delta 9 (TSX: DN) (OTC: DLTNF), Organigram (TSX: OGI) (NASDAQ: OGI), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), TerrAscend (CSE: TER) (OTC: TRSSF), Valens Company (TSX: VLNS) (OTC: VLNCF), Village Farms (TSX: VFF) (NASDAQ: VFF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and Zenabis Global (TSX: ZENA) (OTC: ZBISF).

The best performer was Valens, which gained 57.2%, while WeedMD, the best performer in February, fell 46.3%.

Tier 3

Tier 3, which included the 24 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, fell 7.6% as it closed at 83.64. It ended at 66.59 in 2020, declining 31.2%, and is up 25.6% in 2021. Note that during the month, we replaced Trichome Financial with IM Cannabis (CSE: IMCC) (NASDAQ: IMCC), which acquired it. The weakest performer was 48North (TSXV: NRTH) (OTC: NCNNF), which saw several execs depart near the end of the month and ended down 35.1%. IntelGenx (TSXV: IGX) (OTC: IGXT) was the strongest name among Tier 3, rallying 38.5%

The returns for the overall sector varied greatly, with 3 names gaining more than 20% and 4 declining by more than 30%. The entire group posted a median return of -6.1%:

For April, the overall index will again have 39 constituents. Aleafia Health (TSX: AH) (OTC: ALEAF) and 48North will both move from Tier 3 t Tier 2.

In the next monthly review, we will summarize the performance for April and discuss any additions or deletions. Be sure to bookmark the pages to stay current on LP stock price movements within the day or from day-to-day.

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Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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