Canadian Cannabis Producers Continued to Retreat in September with 15% Decline

After losing almost 7% in August, the Canadian Cannabis LP Index continued to struggle in September, losing 15.4% to 225.41:

During Q3, the index fell by 20.3%. Over the past year, it has declined 61.7%:

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 15% above that level at the end of September. The index has declined 42.8% from its close of 393.78 at the end of 2019:

The Canadian Cannabis LP Index, which is rebalanced monthly, included 31 qualifying publicly traded licensed producers that traded in Canada at the end of August, with equal weighting for each stock. Each of the members is also included in a sub-index, with 4 in the Canadian Cannabis LP Tier 1 Index, 13 in the Canadian Cannabis LP Tier 2 Index and 14 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 over 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$20 million per quarter, fell 19.7% to 297.64. 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 53.7% so far this year. We have increased the minimum revenue required to be included over time. 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) (NYSE: CGC) and HEXO Corp (TSX: HEXO) (NYSE: HEXO).

Among these largest LPs by revenue, Aphria, HEXO and Canopy Growth all fell less than the overall market. Aurora Cannabis dropped 52%, the worst performer among all LPs during the month.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$20 million, fell 19.2% to 318.90. In 2019, it lost 44.3% after closing at 569.54 and is down 44.0% in 2020. Prior to July, companies needed revenue in excess of C$2.5 million to be included in this tier.

This group included Aleafia Health (TSX: AH) (OTC: ALEAF), Auxly (TSXV: XLY) (OTC: CBWTF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Delta 9 (TSX: DN) (OTC: VNRDF), MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSX: OGI) (NASDAQ: OGI), Radient Technologies (TSXV: RTI) (OTC: RDDTF), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), TerrAscend (CSE: TER) (OTC: TRSSF), Valens Company (TSX: VLNS) (OTC: VLNCF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and Zenabis Global (TSX: ZENA) (OTC: ZBISF).

The worst performers in this tier included Zenabis, down 50%, Supreme Cannabis, down 33%, and Radient Technologies, down 32%. Delta 9 rose 2% during the month.

Tier 3

Tier 3, which included the 14 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, declined 10.6% as it closed at 63.85. It ended at 96.76 in 2019, declining 45.0%, and is down 34.0% in 2020. Two names in this group declined by more than 30% while three posted gains. The strongest performers, both of which gained more than 10%, included CannTab Therapeutics (CSE: PILL) (OTC: CTABF) and Speakeasy Cannabis (CSE: EASY) (OTC: SPBBF). The Green Organic Dutchman (TSX: TGOD) (OTC: TGODF) was the worst performer, losing more than 30%.

The returns for the overall sector varied greatly, with 2 names gaining more than 10%, while 5 declined by more than 30%, with the entire group posting a median return of -14.3%:

For October, the overall index will have 29 constituents, with the removal of Emerald Health (TSXV: EMH) (OTC: EMHTF), IntelGenx Technologies (TSXV: IGX) (OTC: IGXT) and Nextleaf Solutions (CSE: OILS) (OTC: OILFF), each of which fell below the minimum price and had cannabis revenue of less than C$2.5 million in the most recent quarter. Additionally, Trichome Financial (CSE: TFC) (OTC: TRICF) joins Tier 3.

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