Cannabis Investors Shift Attention to Canadian Extraction Companies and Larger LPs in April

After a 54.9% gain in Q1, the Canadian Cannabis LP Index  backtracked marginally in April, declining 0.9% to 1081.95:

The index remains substantially below the all-time closing high of 1289.57 on October 15th, just ahead of Canadian legalization. It has increased 71.2% since bottoming on December 21st:

The index, which included 48 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 six in the Canadian Cannabis LP Tier 1 Index, three in the Canadian Cannabis LP Tier 2 Index and 39 in the Canadian Cannabis LP Tier 3 Index during the month.

Tier 1

Tier 1, which included the LPs that are generating sales of at least C$10 million per quarter (in 2018, we used C$4 million as the hurdle), advanced in  April, increasing 2.9% for a year-to-date gain of 72.8% after declining 7.7% in 2018. This group included Aphria (TSX: APHA) (NYSE: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), CannTrust (TSX: TRST) (OTC: CNTTF), Canopy Growth (TSX: WEED) (NYSE: CGC), HEXO Corp (TSX: HEXO) (NYSE American: HEXO)  and Organigram (TSXV: OGI) (OTC: OGRMF) . HEXO and Canopy growth were notably stronger than others within Tier 1.

Tier 2

Tier 2, which included the remaining LPs that generate quarterly sales between C$2.5 million and C$10 million, rose 2.1%, leaving it up 71.8% to begin 2019 after declining 35.0% in 2018.  This group included Cronos Group (TSX: CRON) (NASDAQ: CRON), Newstrike Brands (TSXV: HIP) (OTC: NWKRF) and Supreme Cannabis (TSX: FIRE) (OTC: SPRWF). Newstrike, which is being acquired by HEXO, was the leader of Tier 2.

Tier 3

Tier 3, which included the 39 LPs that generate quarterly sales less than C$2.5 million, lagged the other tiers as it declined 1.7%, leaving its year-to-date gain at 48.2% after declining 26.4% in 2018. The three top performers for the entire sector were all members of Tier 3 during April, including Valens GroWorks (CSE: VGW) (OTC: VGWCF), MediPharm Labs (TSXV: LABS) (OTC: MEDIF) and Neptune Wellness Solutions (TSX: NEPT) (NASDAQ: NEPT).

The returns for the overall sector varied greatly, with four names gaining more than 20%, while eight declined by more than 20%, with the top three all focused solely on extraction:

For May, the overall index remains the same. Additionally, MediPharm Labs advances from Tier 3 to Tier 1 this month, while Delta 9 (TSXV: NINE) (OTC: VNRDF), Flowr Corp (TSXV: FLWR) (OTC: FLWPF) and TerrAscend (CSE: TER) (OTC: TRSSF) move from Tier 3 to Tier 2. Readers should be aware that Tilray, with no Canadian listing, is not eligible for inclusion in the index, which is denominated in Canadian dollars.

In the next monthly review, we will summarize the performance for May 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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