Canadian Cannabis LPs Give Up More Ground in June

After a 54.9% gain in Q1, the Canadian Cannabis LP Index  gave up a lot of ground in Q2, including a 8.4% decline in June to 894.07:

The index remains substantially below the all-time closing high of 1314.33 on September 25th, just ahead of Canadian legalization. It has increased 41.5% since bottoming on December 21st and is up 26.9% year-to-date:

The index, which included 50 publicly-traded licensed producers that traded in Canada at the end of May, with equal weighting, is rebalanced monthly. Each of the members is also included in a sub-index, with 7 in the Canadian Cannabis LP Tier 1 Index, 6 in the Canadian Cannabis LP Tier 2 Index and 37 in the Canadian Cannabis LP Tier 3 Index during the month.

Tier 1

Tier 1, which included the LPs that are generating sales of at least C$10 million per quarter (in 2018, we used C$4 million as the hurdle), fell 6.3%, leaving the year-to-date gain at 42.0% after declining 7.7% in 2018. This group included Aphria (TSX: APHA) (NYSE: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), CannTrust (TSX: TRST) (NYSE: CTST), Canopy Growth (TSX: WEED) (NYSE: CGC), HEXO Corp (TSX: HEXO) (NYSE American: HEXO), MediPharm Labs (TSXV: LABS) (OTC: MEDIF) and Organigram (TSXV: OGI) (NASDAQ: OGI). HEXO Corp, which reported its fiscal Q3 financials during the month, was the worst performer, falling 19.4%, while Aphria was the best performer, gaining 3.1%. Canopy Growth also reported during the month and, despite the pullback in the last week of June, performed third-best, declining 3.0%.

Tier 2

Tier 2, which included the LPs that generate quarterly sales between C$2.5 million and C$10 million, fell 9.9%, leaving it up 40.9% to begin 2019 after declining 35.0% in 2018.  This group included Cronos Group (TSX: CRON) (NASDAQ: CRON),  Delta 9 (TSXV: NINE) (OTC: VNRDF), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), TerrAscend (CSE: TER) (OTC: TRSSF), VIVO Cannabis (TSXV: VIVO) (OTC: VVCIF) and WeedMD (TSXV: WMD) (OTC: WDDMF). Cronos Group, which gained 10.0%, was the best performer, while Delta 9, which fell 27.4%, was the worst.

Tier 3

Tier 3, which included the 37 LPs that generate quarterly sales less than C$2.5 million, declined 8.6%, leaving its year-to-date gain at 22.8% after declining 26.4% in 2018. 7 of the top 8 performers for the entire sector, including the top 3, were all members of Tier 3 during June as were the 9 of the 10 worst performers, including the bottom 5.

The returns for the overall sector varied greatly, with four names gaining more than 10%, while ten declined by more than 20%, for a median return of -8.5%:

For July, the overall index remains at 50 constituents, with Zenabis Global (TSX: ZENA) (OTC: ZBISF) moving from Tier 3 to Tier 1. Readers should be aware that Tilray (NASDAQ: TLRY), with no Canadian listing, is 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 6/26.

In the next monthly review, we will summarize the performance for June 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 communities 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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