Large LPs Nearly Double to Lead Canadian Cannabis Producer Stocks 24% Higher in November

While the Canadian Cannabis LP Index continued to lag the broader sector, it posted strong gains in November as it increased 23.6% to 288.97:

The index, which closed at a four-month high, is now down 28.6% 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 47% above that level at the end of November. The index has declined 26.6% from its close of 393.78 at the end of 2019:

The Canadian Cannabis LP Index, which is rebalanced monthly, included 28 qualifying publicly traded licensed producers that traded in Canada at the end of October, with equal weighting for each stock. Each of the members was 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 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 about 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 97.8% to 606.93. In 2019, it declined 38.5%, when it ended the year at 642.23, and Tier 1 went from the weakest to the strongest tier in 2020 after declining 5.5% 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) (NASDAQ: CGC) and HEXO Corp (TSX: HEXO) (NYSE: HEXO).

Among these largest LPs by revenue, Aurora Cannabis, the weakest stock thus far in 2020, was the best performer, soaring 184%, while HEXO Corp gained 77%, Aphria rose 82%, and Canopy Growth increased 49%.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$20 million, rose 20.3% to 412.20. In 2019, it lost 44.3% after closing at 569.54 and is down 27.6% 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), 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 performer in this tier included MediPharm Labs, down 30%, while TerrAscend gained 66%, Cronos Group rose 66% and Auxly increased 35%.

Tier 3

Tier 3, which included the 12 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, rose 2.2% as it closed at 65.16. It ended at 96.76 in 2019, declining 45.0%, and is down 32.7% in 2020. The strongest performer was The Green Organic Dutchman (TSX: TGOD) (OTC: TGODF), while Adastra Labs (CSE: XTRX) was the worst for the second consecutive month.

The returns for the overall sector varied greatly, with 6 names gaining more than 50% and 2 declining by more than 25%. The entire group posted a median return of 8.6%:

For December, the overall index will have 35 constituents, with the additions of Decibel Cannabis (TSXV: DB) (OTC: DBCCF) and Pure Extraction  (CSE: PULL) (OTC:  PURXF), both of which join Tier 3, and Village Farms (TSX: VFF) (NASDAQ VFF), which now fully controls Pure Sunfarms and joins Tier 1, and the returns of 48North (TSXV: NRTH) (OTC: NCNNF), Emerald Health (TSXV: EMH) (OTC: EMHTF), IntelGenx Technologies (TSXV: IGC) (OTC:IGXT) and Rapid Dose Therapeutics (CSE: DOSE) (OTC: RDTCF). Additionally, Aleafia Health  and MediPharm Labs move from Tier 2 to Tier 3 due to a decline in their revenue.

In the next monthly review, we will summarize the performance for December 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 community 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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