Canadian licensed producers, after twelve consecutive monthly declines through March, posted their second straight gain during May, with the Canadian Cannabis LP Index rising 20.2% to 319.23, far surpassing the performance of the S&P/TSX Composite, which rose 2.8%:
Over the past year, the index has declined 67.3%:
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 62.8% above that level at the end of May. The index has declined 18.9% from its close of 393.78 at the end of 2019:
The index, which included 35 publicly-traded licensed producers that traded in Canada at the end of March, 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, 8 in the Canadian Cannabis LP Tier 2 Index and 18 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), which fell in April, was boosted by a rebound in one stock this month, rising 26.7% to 471.32%. In 2019, it declined 38.5%, when it ended the year at 642.23, and Tier 1 has declined 26.6% so far this year, substantially worse than the other tiers. This group included Aphria (TSX: 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, which more than doubled during the month, remains down almost 22% year-to-date. HEXO, the only other member of Tier 1 to outperform the sector during May, remains down 59% in 2020. MediPharm Labs was the only Tier 1 stock to decline during the month, though Canopy Growth and Radient both rose less than 10%.
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, rose 19.9% to 492.47. In 2019, it lost 44.3% after closing at 569.54 and is down 13.5% in 2020. This group included Aleafia Health (TSX: AH) (OTC: ALEAF), 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 led the way with a 65% gain that leaves it down about 14% in 2020. Aleafia, Health, Cronos Group, Heritage Cannabis and VIVO Cannabis all rose less than 10%.
Tier 3, which included the 18 qualifying LPs that generate cannabis-related quarterly sales less than C$2.5 million, led in April but lagged in May, rising 17.0% as it closed at 81.97. It ended at 96.76 in 2019, declining 45.0%, and is down 15.3% in 2020. Four names in this group declined, while five gained more than 35%.
The returns for the overall sector varied greatly, with 18 names posting double-digit (or triple-digit) gains, while 5 declined, with the entire group posting a median return of 11.0%, well below the 20.2% average return:
For June, the overall index will have 38 constituents, as CanadaBis (TSXV: CANB) returns and Lotus Ventures (TSXV: J) (CSE: LTTSF) and NextLeaf Solutions (CSE: OILS) (OTC: OILFF) join for the first time. Each of these will also be in Tier 3. Additionally, Aleafia Health has moved from from Tier 2 to Tier 1.
In the next monthly review, we will summarize the performance for June 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.