Smaller Companies Lead Canadian Cannabis Producer Stock Index 19% Higher in February

The Canadian Cannabis LP Index built upon its 27% increase in January, advancing 18.8% in February to 414.46 despite a substantial pullback from its peak on February 10th:

The index, which rallied 22.1% in Q4 but still fell 30.1% in 2020, is up 37.1% over the past year and 50.6% year-to-date in 2021:

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 111.4% above that level at the end of February:

The Canadian Cannabis LP Index, which is rebalanced monthly, included 36 qualifying publicly traded licensed producers that traded in Canada at the end of January, 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, 11 in the Canadian Cannabis LP Tier 2 Index and 21 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$25 million per quarter, extended on its 62% gain in January, increasing 8.0% to 855.20 in February. Tier 1, which dropped 23.9% in 2020 when it ended at 488.96, has rallied 74.9% in 2021. We have increased the minimum revenue required to be included over time. At the beginning of 2021, we raised it from C$20 million. 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, Canopy Growth was the worst performer, losing 18.1%. Aphria performed the best for the second consecutive month, rising 46.2%.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$25 million, rose 27.4% to 610.26. In 2020, it lost 35.9% in 2020, closing at 365.19, and it is up 67.1% in 2021. Prior to July 2020, companies needed revenue in excess of C$2.5 million to be included in this tier.

This group included Auxly (TSXV: XLY) (OTC: CBWTF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Delta 9 (TSX: DN) (OTC: VNRDF), Organigram (TSX: OGI) (NASDAQ: OGI), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), TerrAscend (CSE: TER) (OTC: TRSSF), Valens Company (TSX: VLNS) (OTC: VLNCF), Village Farms (TSX: VFF) (NASDAQ: VFF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and Zenabis Global (TSX: ZENA) (OTC: ZBISF).

The worst performer was Valens, which lost 2.8%, while WeedMD, up 77.0% and Organigram, up 68.4%, were the best performers.

Tier 3

Tier 3, which included the 21 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, rose 16.4% as it closed at 90.53. It ended at 66.59 in 2020, declining 31.2%, and is up 36.0% in 2021. The weakest performer was Decibel Cannabis (CSE: DB) (OTC: DBCCF), which was the best performing stock in the entire index in January but declined 14.3% in February. Indiva (TSXV: NDVA) (OTC: NDVAF) was the strongest name among Tier 3, rallying 71%. The company received a $22 million investment from Sundial during the month.

The returns for the overall sector varied greatly, with 6 names gaining more than 50% and 5 declining by more than 10%. The entire group posted a median return of 11.2%:

For March, the overall index will have 39 constituents with the additions of Experion, GTEC Holdings and Rapid Dose Therapeutics, each of which are in Tier 3.

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