After dropping more than 11% in June with only a modest bounce in July, the Canadian Cannabis LP Index continued to struggle in August, losing 6.7% to 266.31:
Over the past year, the index has declined 62.1%:
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 35.8% above that level at the end of August. The index has declined 32.4% from its close of 393.78 at the end of 2019:
The Canadian Cannabis LP Index, which is rebalanced monthly, included 34 qualifying publicly traded licensed producers that traded in Canada at the end of July, 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, 12 in the Canadian Cannabis LP Tier 2 Index and 18 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, fell 3.5% to 370.42. 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 42.3% 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, HEXO was the best performer, rising 3.3%. Canopy Growth declined 12.1%, with Aurora Cannabis dropping 5.6% and Aphria decreasing 0.5%.
Tier 2
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$20 million, fell 8.9% to 394.59. In 2019, it lost 44.3% after closing at 569.54 and is down 30.7% 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), 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 Auxly, down 28.6%, Aleafia Health, down 18.2%, and Cronos Group, down 15.7%, while Valens, up 4.8%, Organigram, up 2.5%, performed the best.
Tier 3
Tier 3, which included the 19 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, declined 5.9% as it closed at 71.40. It ended at 96.76 in 2019, declining 45.0%, and is down 26.2% in 2020. Six names in this group declined by more than 20% while three posted gains. The strongest performers, both of which gained more than 10%, included TerrAscend (CSE: TER) (OTC: TRSSF) and Rubicon Organics (CSE: ROMJ) (OTC: ROMJF).
The returns for the overall sector varied greatly, with 2 names gaining more than 10%, while 3 declined by more than 20%, with the entire group posting a median return of -7.9%:
For September, the overall index will have 31 constituents, with the removal of 48North, Benchmark Botanicals, CanadaBis Capital and FSD Pharma, which no longer meet the rules, and the inclusion of Adastra Labs (CSE: XTRX). With its recent quarterly revenue from Canada exceeding C$5 million, TerrAscend (CSE: TER) (OTC: TRSSF) 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.
