Canadian Cannabis Licensed Producer Index Suffers 18.2% Loss in October

Losses mounted for Canadian licensed producers in October, with the Canadian Cannabis LP Index falling 18.2% to 481.91, the seventh consecutive monthly loss:

The index remains substantially below the all-time closing high of 1314.33 on September 25th a year ago, just ahead of Canadian legalization. It closed the month at a new 52-week low, a level not seen since late 2017, and ended the month down 31.6% year-to-date:

The index, which included 48 publicly-traded licensed producers that traded in Canada at the end of August, with equal weighting, is rebalanced monthly. Each of the members is also included in a sub-index, with 8 in the Canadian Cannabis LP Tier 1 Index, 6 in the Canadian Cannabis LP Tier 2 Index and 34 in the Canadian Cannabis LP Tier 3 Index during the month.

Tier 1

Tier 1, which included the LPs that are generating cannabis-related sales of at least C$10 million per quarter (in 2018, we used C$4 million as the hurdle), fell 14.0%, leaving the year-to-date loss at -30.7% after declining 7.7% in 2018. This group included Aphria (TSX: APHA) (NYSE: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), Canopy Growth (TSX: WEED) (NYSE: CGC), Cronos Group (TSX: CRON) (NASDAQ: CRON), HEXO Corp (TSX: HEXO) (NYSE American: HEXO), MediPharm Labs (TSX: LABS) (OTC: MEDIF),  Organigram (TSXV: OGI) (NASDAQ: OGI) and Supreme Cannabis (TSX: FIRE) (OTC: SPRWF). HEXO, which lost its highly regarded and recently hired CFO, missed its Q4 guidance, retracted its FY20 outlook and raised $C70 million, was the weakest among the group, declining almost 46%. Supreme Cannabis fell almost 39%, with much of the loss coming after the company announced the departure of John Fowler, a founder of the company. MediPharm Labs bucked the negative trend, rallying more than 22%, the only Tier 1 LP to post a gain.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, fell 26.7%, leaving it down 26.8% so far in 2019 after declining 35.0% in 2018.  This group included Delta 9 (TSXV: DN) (OTC: VNRDF), TerrAscend (CSE: TER) (OTC: TRSSF), Valens GroWorks (TSXV: VGW) (CSE: VGWCF), VIVO Cannabis (TSXV: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and  Zenabis Global (TSX: ZENA) (OTC: ZBISF). Zenabis, which conducted a rights offering at a massive discount to its share price, fell a stunning 75.3%, with Emerald Health, which has a dispute with its greenhouse JV, Pure Sunfarms, the second worst performer at -37.7%.  Valens GroWorks, which reported strong quarterly revenue growth during the month, was the best performer, declining 4.2%.

Tier 3

Tier 3, which included the 34 LPs that generate cannabis-related quarterly sales less than C$2.5 million, declined 17.4%, leaving its year-to-date loss at 32.0% after declining 26.4% in 2018. 3 of the 4 companies in the entire sector that showed gains in the month were members of Tier 3 during October as 3 of the 5 worst performers. The winners included AgraFlora Organics (CSE: AGRA) (OTC: AGFAF), MPX International (CSE: MPXI) (OTC: MPXOF), which saw purchases of its stock by its CEO and another executive, and Indiva (TSXV: NDVA) (OTC: NDVA), which was able to find debt financing during the month. FSD Pharma (CSE: HUGE) (OTC: FSSDF), which conducted a 201:1 reverse-split, Green Organic Dutchman (TSX: TGOD) (OTC: TGODF), which curtailed its expansion plans when it was unable to raise debt financing, and Terranueva (CSE: TEQ) all declined more than 46%.

The returns for the overall sector varied greatly, with  4 names posting positive returns, while 15 declined by more than 25%, for a median return of -16.6%:

For November, the overall index will have 49 constituents, as we have added a previously omitted company, Geyser Brands (TSXV: GYSR) (OTC: GYSRF), which owns a relatively small LP that was licensed in late 2018, Apothecary Botanicals. It enters the Tier 3 index as well. Additionally, Valens GroWorks has moved from Tier 2 to Tier 1. Readers should be aware that Sundial Growers (NASDAQ: SNDL) and Tilray (NASDAQ: TLRY), with no Canadian listings, are not eligible for inclusion in the index, which is denominated in Canadian dollars. Note that the cut-off date for making changes to the index was 10/29.

In the next monthly review, we will summarize the performance for November 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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