Canadian LP Stocks Gain 4% in October

While the Canadian Cannabis LP Index lagged the broader sector, it was able to snap a two-month losing streak in October as it gained 3.7% to 233.78:

The index, which lost 20.3% in Q3, is now down 51.5% over the past year:

It 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 19% above that level at the end of October. The index has declined 40.6% from its close of 393.78 at the end of 2019:

The Canadian Cannabis LP Index, which is rebalanced monthly, included 29 qualifying publicly traded licensed producers that traded in Canada at the end of September, with equal weighting for each stock. Each of the members is also included in a sub-index, with 4 in the Canadian Cannabis LP Tier 1 Index, 13 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 June, 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 over 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$20 million per quarter, rose 3.1% to 306.84. In 2019, it declined 38.5%, when it ended the year at 642.23, and Tier 1 remains the weakest sub-sector in 2020 after declining 52.2% so far this year. We have increased the minimum revenue required to be included over time. 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 Aphria (TSX: APHA) (NASDAQ: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), Canopy Growth (TSX: WEED) (NYSE: CGC) and HEXO Corp (TSX: HEXO) (NYSE: HEXO).

Among these largest LPs by revenue, Canopy Growth led the group and was one of the strongest performing LPs overall during the month, rising 31.1%. Cronos Group and Aphria both increased modestly, while Aurora Cannabis fell over 13%.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$20 million, rose 7.5% to 342.74. In 2019, it lost 44.3% after closing at 569.54 and is down 39.8% in 2020. Prior to July, 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 (TSXV: XLY) (OTC: CBWTF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Delta 9 (TSX: DN) (OTC: VNRDF), MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSX: OGI) (NASDAQ: OGI), Radient Technologies (TSXV: RTI) (OTC: RDDTF), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), TerrAscend (CSE: TER) (OTC: TRSSF), Valens Company (TSX: VLNS) (OTC: VLNCF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and Zenabis Global (TSX: ZENA) (OTC: ZBISF).

The worst performers in this tier included VIVO Cannabis, down 29%, and WeedMD, down 19%. Auxly rose 77% during the month, while TerrAscend gained 34%.

Tier 3

Tier 3, which included the 14 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, declined 0.2% as it closed at 63.75. It ended at 96.76 in 2019, declining 45.0%, and is down 34.1% in 2020. The strongest performer was RMMI Corp (CSE: RMMI), while Adastra Labs (CSE: XTRX) was the worst.

The returns for the overall sector varied greatly, with 4 names gaining more than 20% and 2 declining by more than 20%. The entire group posted a median return of 1.4%:

For November, the overall index will have 28 constituents, with the removal of Radient Technologies (TSXV: RTI) (OTC: RDDTF), which fell below the minimum price and had cannabis revenue of less than C$2.5 million in the most recent quarter, and Rapid Dose Therapeutics (CSE: DOSE) (OTC: RDTCF), which failed to provide timely financials. Additionally, Christina Lake Cannabis (CSE: CLC) joins Tier 3.

In the next monthly review, we will summarize the performance for November 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 communities 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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