Continuing the rebound from 2018 lows in mid-August, the Canadian Cannabis LP Index soared 22.6% in September to 1252.98:
The market had reversed course in August after the announcement of the pending C$5 billion investment by Constellation Brands (NYSE: STZ) into Canopy Growth (TSX: WEED) (NYSE: CGC), and with legalization in Canada moving closer to the October 17th launch and additional multinational beverage companies on the prowl, including Diageo (NYSE: DEO) and Coca-Cola (NYSE: KO), interest in the sector expanded, leaving the index just short of the peak in January and up 24.7% in 2018:
While Tilray (NASDAQ: TLRY) is not in the index due to its lack of Canadian listing, its meteoric ascent and partial decline during the month was one of the sector’s biggest stories. Aurora Cannabis (TSX: ACB) (OTC: ACBFF) closed a $200 million bank debt deal with Bank of Montreal, the first large transaction of this type with a Tier 1 bank that shows the expanding access to capital. Cronos Group (TSX: CRON) (NASDAQ: CRON) agreed to invest up to $122 million in a collaboration to produce cannabinoids with biosynthesis, partnering with a U.S. company. Aphria (TSX: APH) (OTC: APHQF) divested its stake in Liberty Health Services (CSE: LHS) (OTC: LHSIF) and nominated new directors that will make its Board independent, moves that solidify expectations that it will soon list on a major exchange in the U.S. Aurora Cannabis has indicated that it will be doing so in October. CannTrust (TSX: TRST) (OTC: CNTTF) announced a $9.2 million investment from strategic partner, alcohol distributor Breakthru Beverage. International expansion remained a key theme, as Aphria closed its Latin American acquisition while Aurora Cannabis announced the pending acquisition of South-America focused ICC Labs (TSXV: ICC) (OTC: ICCLF). Finally, with prices picking up, the sector saw a jump in the number of financing transactions.
The index, which included 39 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 four in the Canadian Cannabis LP Tier 1 Index twenty-one in the Canadian Cannabis LP Tier 2 Index and fourteen in the Canadian Cannabis LP Tier 3 Index during the month.
Tier 1, which includes the LPs that are generating sales of at least C$4 million per quarter, rose 18.7% in September and is now up 76.0% year-to-date. This group included Aphria, Aurora Cannabis, CannTrust and Canopy Growth. Within the group, Aurora Cannabis had the best return, at 41.0%, leaving it up 29.3% in 2018. CannTrust, up 22.3% during the month, is now up 38.9% year-to-date. Aphria, up 6.0%, and Canopy Growth, up 5.2%, trailed the group, with Canopy Growth leading 2018 returns at +111.0%, while Aphria is the sole decliner at -3.7%.
Tier 2, which includes the remaining LPs that are permitted to generate sales, rose 9.0% and is now up 13.0% year-to-date. HEXO Corp (TSXV: HEXO) (OTC: HYYDF) and Eve & Co (TSXV: EVE) (OTC: EEVVF) were the best performers, while THC Biomed (CSE: THC) (OTC: THCBF) and Beleave (CSE: BE) (OTC: BLEVF) were the worst performers.
Tier 3, which includes the LPs that are licensed to cultivate but not yet approved to sell, rose 46.8% and is now up 33.4% year-to-date. Aleafia (TSXV: ALEF) (OTC: ALEAF), which received a sales license amendment as well as an above-market investment from the Serruya family, and FSD Pharma (CSE: HUGE) (OTC: FSDDF) gained more than 150%. The worst performers were Golden Leaf Holdings (CSE: GLH) (OTC: GLDFF) and MPX Bioceutical (CSE: MPX) (OTC: MPXEF), two U.S. operators that were down very modestly.
The returns for the overall sector varied greatly, with seven stocks increasing in value by more than 40%, while seven declined:
For October, the overall index had one addition, Flowr (TSXV: FLWR), which has been added to Tier 2. The company operates an indoor facility in British Columbia. Additionally, Aleafia, Benchmark Botanics (CSE: BBT) (OTC: BHHKF), Golden Leaf Holdings and Namaste Technologies (TSXV: N) (OTC: NXTTF) have moved up to Tier 2 following the amendments to their Health Canada licenses permitting them to sell. Finally, 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.
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.