After a 54.9% gain in Q1, the Canadian Cannabis LP Index has done a complete round-trip, with the index extending its losing streak to five months after declining in August by 11.2% to 703.05:
The index remains substantially below the all-time closing high of 1314.33 on September 25th, just ahead of Canadian legalization. It closed the month just 11.2% above the December bottom and is down 0.2% year-to-date:
The index, which included 49 publicly-traded licensed producers that traded in Canada at the end of July, with equal weighting, is rebalanced monthly. Each of the members is also included in a sub-index, with 8 in the Canadian Cannabis LP Tier 1 Index, 6 in the Canadian Cannabis LP Tier 2 Index and 36 in the Canadian Cannabis LP Tier 3 Index during the month.
Tier 1
Tier 1, which included the LPs that are generating cannabis-related sales of at least C$10 million per quarter (in 2018, we used C$4 million as the hurdle), fell 14.7%, leaving the year-to-date loss at -2.6% after declining 7.7% in 2018. This group included Aphria (TSX: APHA) (NYSE: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), CannTrust (TSX: TRST) (NYSE: CTST), Canopy Growth (TSX: WEED) (NYSE: CGC), HEXO Corp (TSX: HEXO) (NYSE American: HEXO), MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSXV: OGI) (NASDAQ: OGI) and Zenabis Global (TSX: ZENA) (OTC: ZBISF). Aphria led all stocks during the month with its 17.2% return. CannTrust, Canopy Growth, Organigram and Zenabis each declined more than 20%.
Tier 2
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, fell 4.9%, leaving it up 20.9% to begin 2019 after declining 35.0% in 2018. This group included Cronos Group (TSX: CRON) (NASDAQ: CRON), Delta 9 (TSXV: DN) (OTC: VNRDF), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), TerrAscend (CSE: TER) (OTC: TRSSF), Valens GroWorks (TSXV: VGW) (CSE: VGWCF), VIVO Cannabis (TSXV: VIVO) (OTC: VVCIF) and WeedMD (TSXV: WMD) (OTC: WDDMF). With the exception of Cronos Group, which fell 19%, the performance of the others in Tier 2 was tightly clustered near the average return.
Tier 3
Tier 3, which included the 36 LPs that generate cannabis-related quarterly sales less than C$2.5 million, declined 11.7%, leaving its year-to-date loss at -2.4% after declining 26.4% in 2018. 3 of the 7 companies in the entire sector that showed gains in the month were members of Tier 3 during August as the 6 worst performers. Green Organic Dutchman (TSX: TGOD) (OTC: TGODF) was a double-digit gainer, while Golden Leaf Holdings (CSE: GLH) (OTC: GLDFF), Flowr (TSXV: FLWR) (OTC: FLWPF) and Benchmark Botanics (CSE: BBT) (OTC: BHHKF) all declined more than 30%.
The returns for the overall sector varied greatly, with seven names posting positive returns, while twelve declined by more than 20%, for a median return of -10.5%:
For August, the overall index will have 49 constituents again. One change is that Zenabis (TSX: ZENA) (OTC: ZBISF) will move from Tier 1 to Tier 2, as we had mistakenly included it in the highest tier by not excluding a large portion of its revenue as not related to cannabis. Readers should be aware that Sundial Growers (NASDAQ: SNDL) and Tilray (NASDAQ: TLRY), with no Canadian listings, 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 7/29.
In the next monthly review, we will summarize the performance for August 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.
