Canadian Cannabis Stocks Fall 1.4% in March

The Canadian Cannabis LP Index fell for the ninth consecutive month, declining 1.4% to 169.46 in March:

The index, which fell 29.2% in 2021 to end at 194.95, is down 13.1% in 2022 and has declined 43.6% over the past year:

It remains substantially below the all-time closing high of 1314.33 in September 2018, just ahead of Canadian adult-use legalization. The index, which trades below its March 2020 closing low, has lost 87.1% since that all-time high but has lifted 12% since setting a 2022 closing low on March 15th at 150.39 :

The Canadian Cannabis LP Index, which is rebalanced monthly, included 24 qualifying publicly traded licensed producers that traded in Canada at the end of January, with equal weighting for each stock. Each of the members was also included in a sub-index, with 4 in the Canadian Cannabis LP Tier 1 Index, 8 in the Canadian Cannabis LP Tier 2 Index and 12 in the Canadian Cannabis LP Tier 3 Index during the month. At the end of November 2021, we raised the minimum for Tier 1 from C$25 million to C$30 million, for Tier 2 from C$5 million to C$7.5 million and for Tier 3 to C$2.5 million from zero. This was the first change since June 2020, when we required 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 more than 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$30 million per quarter, rose 10.9% to 279.48 in March. Tier 1, which is now down 11.1% in 2022, dropped 17.7% in 2021 when it ended at 314.28. We have increased the minimum revenue required to be included over time. In November 2021, we raised it from C$25 million. At the beginning of 2021, we raised it from C$20 million. 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 Aurora Cannabis (TSX: ACB) (NASDAQ: ACB), Canopy Growth (TSX: WEED) (NASDAQ: CGC), HEXO Corp (TSX: HEXO) (NASDAQ: HEXO), Organigram (TSX: OGI) (NASDAQ: OGI) and Tilray (TSX: TLRY) (NASDAQ: TLRY).

Among these largest LPs by revenue, the best performing company for the second consecutive month was Tilray, which rose 25.8%. Aurora Cannabis posted the lowest return, increasing 3.3%.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$7.5 million and C$30 million, fell 5.9% to 226.05. In 2021, it lost 17.1%, closing at 267.36, and it is down 15.5% thus far in 2022. Prior to December 2021, companies needed revenue in excess of C$5 million to qualify for inclusion. Prior to July 2020, 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 (TSX: XLY) (OTC: CBWTF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Decibel Cannabis (TSXV: DB) (OTC: DBCCF), Entourage Health (TSXV: ENTG) (OTC: ETRGF), Indiva (TSXV: NDVA) (OTC: NDVAF) and Valens Company (TSX: VLNS) (NASDAQ: VLNS).

Among these companies, Valens saw the largest decline, 18.8%, while Cronos had the largest gain, 6.6%.

Tier 3

Tier 3, which included the 12 qualifying LPs that generate cannabis-related quarterly sales of C$2.5-C$7.5 million, fell 3.8% as it closed at 41.05. It ended at 47.42 in 2021, declining 19.9%, and is now down 13.4% in 2022. The worst performer was Neptune Wellness Solutions (TSX: NEPT) (NASDAQ: NEPT), which fell 42.7%. The best performance among this group was from Green Organic Dutchman (CSE: TGOD) (OTC: TGODF), which rallied 23.8%.

The returns for the overall sector varied greatly, with 6 names posting double-digit gains and 8 declining by more than 10%. The entire group posted a median return of +2.6%:

For April, the index will not change in terms of its constituents and there were no changes in the tiers.

In the next monthly review, we will summarize the performance for April 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 community 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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