After breaking a three-month losing streak with a 1% gain in June and then retreating almost 10% in July, the Canadian Cannabis LP Index fell sharply again in August, declining 7.5% to 299.96:
The index, which fell 30.1% in 2020 to end at 275.16, is up 12.6% over the past year and 9.0% year-to-date in 2021:
It remains substantially below the all-time closing high of 1314.33 in September 2018, just ahead of Canadian adult-use legalization. In March 2020, it posted a new 52-week closing low of 196.10, a level not seen since late 2016, and it closed 53.0% above that level at the end of August:
The Canadian Cannabis LP Index, which is rebalanced monthly, included 39 qualifying publicly traded licensed producers that traded in Canada at the end of June, with equal weighting for each stock. Each of the members was also included in a sub-index, with 3 in the Canadian Cannabis LP Tier 1 Index, 16 in the Canadian Cannabis LP Tier 2 Index and 20 in the Canadian Cannabis LP Tier 3 Index during the month. At the end of June 2020, 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 more than a dozen publicly traded LPs that fail to qualify.
Tier 1, which included the LPs that are generating cannabis-related sales of at least C$25 million per quarter, fell 2.1% to 546.88 in July. Tier 1, which dropped 23.9% in 2020 when it ended at 488.96, has rallied 11.9% in 2021. We have increased the minimum revenue required to be included over time. 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.
Among these largest LPs by revenue, Aurora Cannabis was the best performer at +7%, while Canopy Growth, at -8%, was the worst..
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$25 million, fell 7.4% to 466.65. In 2020, it lost 35.9% in 2020, closing at 365.19, and it is up 27.8% in 2021. Prior to July 2020, companies needed revenue in excess of C$2.5 million to be included in this tier.
This group included 48North (TSXV: NRTH) (OTC: NCNNF), Aleafia Health (TSX: AH) (OTC: ALEAF), Auxly (TSX: XLY) (OTC: CBWTF), Cannara Biotech (TSXV: LOVE) (OTC: LOVFF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Decibel Cannabis (TSXV: DB) (OTC: DBCCF), Delta 9 (TSX: DN) (OTC: DLTNF), Entourage Health (TSXV: ENTG) (OTC: WDDMF), HEXO Corp (TSX: HEXO) (NASDAQ: HEXO), Indiva (TSXV: NDVA) (OTC: NDVAF) MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSX: OGI) (NASDAQ: OGI), The Green Organic Dutchman (CSE: TGOD) (OTC: TGODF), Valens Company (TSX: VLNS) (OTC: VLNCF), Village Farms (TSX: VFF) (NASDAQ: VFF) and VIVO Cannabis (TSX: VIVO) (OTC: VVCIF).
48North was dragged down by its merger partner, HEXO. Both stocks fell 37%. Indiva, up 18%, and Valens, up 12%, led Tier 2.
Tier 3, which included the 20 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, sank 8.3% as it closed at 64.41. It ended at 66.59 in 2020, declining 31.2%, and is down 3.3% in 2021. Citizen Stash (TSXV: CSC) (OTC: EXPFF), formerly Experion Holdings, was the strongest Tier 3 name, gaining 33%, aided in part by the acquisition bid it received from Valens. The worst performer was IM Cannabis (CSE: IMCC) (NASDAQ: IMCC), falling 32%.
The returns for the overall sector varied greatly, with 3 names posting double-digit gains and 9 declining by more than 20%. The entire group posted a median return of -5.2%:
For September, the overall index will have 38 constituents, with the addition of Agra Ventures (CSE: AGRA) (OTC: AGFAF) to Tier 3 and the removals of Eve & Co (TSXV: EVE) (OTC: EEVVF) due to its price decline and 48North (TSXV: NRTH) (OTC: NCNNF) due to its pending acquisition by HEXO Corp. Village Farms will move from Tier 2 to Tier 1, while TerrAscend will move from Tier 3 to Tier 2.
In the next monthly review, we will summarize the performance for September 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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