Canadian licensed producers, which rose in both April and May after twelve consecutive monthly declines through March, reversed some of the recent gains, with the Canadian Cannabis LP Index declining 11.4% to 282.96:
Over the past year, the index, which rallied 14.6% during Q2, has declined 68.4%:
The index remains substantially below the all-time closing high of 1314.33 in September 2018, just ahead of Canadian legalization. In March, it posted a new 52-week closing low of 196.10, a level not seen since late 2016, and it closed 44.3% above that level at the end of June. The index has declined 28.1% from its close of 393.78 at the end of 2019:
The index, which included 38 qualifying 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 10 in the Canadian Cannabis LP Tier 1 Index, 7 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 almost two dozen 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), fell 12.4% to 412.71. In 2019, it declined 38.5%, when it ended the year at 642.23, and Tier 1 remains the weakest sub-sector in 2020 after declining 35.7% so far this year. This group included Aleafia Health (TSX: AH) (OTC: ALEAF), Aphria (NASDAQ: APHA) (NYSE: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), Canopy Growth (TSX: WEED) (NYSE: CGC), HEXO Corp (TSX: HEXO) (NYSE American: HEXO), MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSXV: OGI) (NASDAQ: OGI), Radient Technologies (TSXV: RTI) (OTC: RDDTF), Valens Company (TSXV: VGW) (CSE: VGWCF) and Zenabis Global (TSX: ZENA) (OTC: ZBISF). Zenabis was down almost 45%, while MediPharm Labs, which declined in May, dropped more than 36%. HEXO, at up almost 17%, and Aphria, which was up 0.2%, were the only gainers among the group.
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, fell 13.0% to 428.63. In 2019, it lost 44.3% after closing at 569.54 and is down 24.7% in 2020. This group included Cronos Group (TSX: CRON) (NASDAQ: CRON) , Delta 9 (TSXV: DN) (OTC: VNRDF), Emerald Health (TSXV: EMH) (OTC: EMHTF), Heritage Cannabis (CSE: CANN) (OTC: HERTF), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF) and WeedMD (TSXV: WMD) (OTC: WDDMF). Emerald Health, which was the strongest in May, was the worst performer, declining by more than 39% in June. Supreme Health also lagged the group substantially, declining over 27%. Delta 9 managed a gain of 6%.
Tier 3, which included the 21 qualifying LPs that generate cannabis-related quarterly sales less than C$2.5 million, fell 10.3% as it closed at 73.51. It ended at 96.76 in 2019, declining 45.0%, and is down 24.0% in 2020. Six names in this group declined by more than 20% while three posted gains.
The returns for the overall sector varied greatly, with 5 names posting gains, while 10 declined by more than 20%, with the entire group posting a median return of -10.9%:
For July, the overall index will have 35 constituents after a revision to our rules for inclusion, which we recently detailed. In order to be in the overall index, companies must have a price of at least $0.20 unless they are generating at least C$2.5 million quarterly from their cannabis production operations. Further, we have increased the minimum quarterly revenue required for Tier 1 to C$20 million and for Tier 2 to C$5 million.
In the next monthly review, we will summarize the performance for July 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.