Canadian licensed producers experienced their tenth consecutive monthly decline during January, with the Canadian Cannabis LP Index falling 3.1% to 381.71:
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 near its new 52-week low set on January 10th at 371.07, a level not seen since September 2017, and ended the month in the red after declining 44.1% in 2019:
The index, which included 41 publicly-traded licensed producers that traded in Canada at the end of December, 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 26 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.
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), showed relative weakness as they fell 8.8% to 585.67, which followed a 2019 decline of 38.5%, when it ended the year at 642.23. 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 MediPharm Labs, Supreme Cannabis and HEXO Corp all declining more than 19%. Canopy Growth and Organigram were the only names to post gains.
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, rose 1.7%, outperforming the broader market for the second consecutive month as it closed at 579.87. In 2019, it lost 44.3% in 2019 after closing at 569.54. 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). VIVO Cannabis, which declined 71% in 2019, posted a gain of 61% to lead Tier 2. TerrAscend was the only other gainer. Zenabis declined 27%, while Delta 9 and WeedMD posted double-digit declines as well.
Tier 3, which included the 31 qualifying LPs that generate cannabis-related quarterly sales less than C$2.5 million, declined 2.2% as it closed at 94.63. It ended at 96.76 in 2019, declining 45.0%. Four Tier 3 companies produced returns in excess of 20%, while five dropped by more than 20%.
The returns for the overall sector varied greatly, with 5 names posting double-digit returns, while 8 declined by more than 20%, for a median return of -9.5%:
For February, the overall index will have 36 constituents, as we have removed 5 names that no longer qualify for inclusion due to their price being below C$0.20 and their quarterly industry revenue not meeting the minimum requirement of C$1 million for stocks that don’t meet the price minimum. The stocks removed included Eve & Co (TSXV: EVE) (OTC: EEVVF), Invictus (TSXV: GENE) (OTC: IVITF), MJardin (CSE: MJAR) (OTC: MJARF), RMMI Corp (CWE: RMMI) and Sproutly (CSE: SPR) (OTC:SRUTF). Note that the date for making changes to the index was 01/29.
In the next monthly review, we will summarize the performance for January 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.