Large LPs Lead Canadian Cannabis Producers Lower in May

After a 54.9% gain in Q1, the Canadian Cannabis LP Index  backtracked marginally in April and then fell sharply in May, declining 9.7% to 976.56:

The index remains substantially below the all-time closing high of 1289.57 on October 15th, just ahead of Canadian legalization. It has increased 54.5% since bottoming on December 21st and is up 38.6% year-to-date:

The index, which included 48 publicly-traded licensed producers that traded in Canada at the end of April, with equal weighting, is rebalanced monthly. Each of the members is also included in a sub-index, with seven in the Canadian Cannabis LP Tier 1 Index, six in the Canadian Cannabis LP Tier 2 Index and 35 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), declined the most among the three tiers in May, decreasing 12.3% for a year-to-date gain of 51.5% 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), MediPharm Labs (TSXV: LABS) (OTC: MEDIF)  and Organigram (TSXV: OGI) (OTC: OGRMF) . With the exceptions of Medifarm Labs, which increased 2.5%, and Organigram, which declined 1.5%, the balance of the group endured double-digit declines, with CannTrust, down 22%, performing the worst after pricing a large equity offering.

Tier 2

Tier 2, which included the LPs that generate quarterly sales between C$2.5 million and C$10 million, fell 9.0%, leaving it up 56.4% to begin 2019 after declining 35.0% in 2018.  This group included Cronos Group (TSX: CRON) (NASDAQ: CRON),  Delta 9 (TSXV: NINE) (OTC: VNRDF), Flowr Corp (TSXV: FLWR) (OTC: FLWPF), Newstrike Brands (for most of the month before its acquisition by HEXO Corp),  Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) and TerrAscend (CSE: TER) (OTC: TRSSF). Flowr was the only positive performer among the group, aided, perhaps, by its announcement that it is moving to the NASDAQ from the OTC.

Tier 3

Tier 3, which included the 39 LPs that generate quarterly sales less than C$2.5 million, declined 9.4%, leaving its year-to-date gain at 34.4% after declining 26.4% in 2018. The top 5 performers for the entire sector were all members of Tier 3 during May as were the 6 worst performers.

The returns for the overall sector varied greatly, with four names gaining more than 10%, while ten declined by more than 20%:

For June, the overall index increases to 50 constituents, with the removal of Newstrike Brands due to its acquisition and the addition of Auxly (TSXV: XLY) (OTC: CBWTF), Canadabis (TSXV: CANB) and MJardin Group (CSE: MJAR) (OTC: MJARF). Each of these are in Tier 3. Additionally, Flowr moved down from Tier 2 to Tier 3, while VIVO Cannabis (TSXV: VIVO) (OTC: VVCIF) and WeedMD (TSXV: WMD) (OTC: WDDMF) moved from Tier 3 to Tier 2. Readers should be aware that Tilray (NASDAQ: TLRY), with no Canadian listing, is not eligible for inclusion in the index, which is denominated in Canadian dollars. Note that the cut-off date for making changes to the index was 5/29.

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