Canadian licensed producers experienced their eleventh consecutive monthly decline during February, with the Canadian Cannabis LP Index falling 20.8% to 302.23:
Over the past year, the index has declined 69.7%:
The index remains substantially below the all-time closing high of 1314.33 in September 2018, just ahead of Canadian legalization. It closed the month at a new 52-week low, a level not seen since October 2016, and is now down 23.3% from its close of 393.78 at the end of 2019:
The index, which included 36 publicly-traded licensed producers that traded in Canada at the end of January, with equal weighting, is rebalanced monthly. Each of the members is also included in a sub-index, with 9 in the Canadian Cannabis LP Tier 1 Index, 6 in the Canadian Cannabis LP Tier 2 Index and 21 in the Canadian Cannabis LP Tier 3 Index during the month. Please note that at the end of 2019 we began excluding companies with a price below C$0.20 unless they generate quarterly industry revenue in excess of C$1 million. There are currently 17 publicly traded LPs that fail to qualify.
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), declined less than the other tiers as they fell 18.6% to 476.49, which followed a 2019 decline of 38.5%, when it ended the year at 642.23. Tier 1 has declined 25.8% so far this year. 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), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) and Valens Company (TSXV: VGW) (CSE: VGWCF). The performance was mixed within this group, with Supreme Cannabis and Aurora Cannabis declining more than 25%, while MediPharm Labs, HEXO, Valens and Organigram all fell less than 13%.
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, fell 22.7%, underperforming the broader market after having outperformed in the prior two months as it closed at 448.04. In 2019, it lost 44.3% in 2019 after closing at 569.54 and is down 21.3% in 2020. This group included Delta 9 (TSXV: DN) (OTC: VNRDF), Emerald Health (TSXV: EMH) (OTC: EMHTF) TerrAscend (CSE: TER) (OTC: TRSSF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and Zenabis Global (TSX: ZENA) (OTC: ZBISF). TerrAscend posted the best performance of Tier 2 companies, declining less than 5%. Emerald Health and WeedMD, both of which lost more than 40% of their value during the month, were the worst performers.
Tier 3, which included the 21 qualifying LPs that generate cannabis-related quarterly sales less than C$2.5 million, declined 21.2% as it closed at 74.56. It ended at 96.76 in 2019, declining 45.0%, and is down 22.9% in 2020. Four Tier 3 companies produced positive returns, including Indiva (TSXV: NDVA) (OTC: NDVAF), which was the best performing stock in the entire index with a 20% gain, while eight dropped by more than 30%.
The returns for the overall sector varied greatly, with 4 names posting positive returns, while 12 declined by more than 30%, with the entire group posting a median return of -21.0%:
For March, the overall index will have 35 constituents, as we have removed James Wagner Cultivation (TSXV: JWCA) (OTC: JWCAF) because it no longer qualifies for inclusion due to its price being below C$0.20 and its quarterly industry revenue not meeting the minimum requirement of C$1 million for stocks that don’t meet the price minimum. Additionally, Supreme Cannabis has moved from Tier 1 to Tier 2 following a decline in quarterly revenue below C$10 million. Note that the date for making changes to the index was 02/26.
In the next monthly review, we will summarize the performance for March 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.