The Canadian Cannabis LP Index fell for the third consecutive month in May, declining 3.9% to 354.97. but it also rallied 9.3% off the May 13th close of 324.84, the lowest close since early January:
The index, which rallied 22.1% in Q4 but still fell 30.1% in 2020 to end at 275.16, is up 11.2% over the past year and 29.0% 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 2020, it posted a new 52-week closing low of 196.10, a level not seen since late 2016, and it closed 81.0% above that level at the end of May:
The Canadian Cannabis LP Index, which is rebalanced monthly, included 39 qualifying publicly traded licensed producers that traded in Canada at the end of April, with equal weighting for each stock. Each of the members was also included in a sub-index, with 3 in the Canadian Cannabis LP Tier 1 Index, 15 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 2020, 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, fell 0.5% to 718.73 in May. Tier 1, which dropped 23.9% in 2020 when it ended at 488.96, has rallied 47.0% 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 Aurora Cannabis (TSX: ACB) (NASDAQ: ACB), Canopy Growth (TSX: WEED) (NASDAQ: CGC) and HEXO Corp (TSX: HEXO) (NYSE: HEXO).
Among these largest LPs by revenue, HEXO Corp was the best performer, gaining 4.6%, while Canopy Growth fell 8.7%.
Tier 2
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$25 million, rose 2.3% to 589.61. In 2020, it lost 35.9% in 2020, closing at 365.19, and it is up 61.5% 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 48North (TSXV: NRTH) (OTC: NCNNF), Aleafia Health (TSX: AH) (OTC: ALEAF), Auxly (TSX: XLY) (OTC: CBWTF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Decibel Cannabis (TSXV: DB) (OTC: DBCCF), Delta 9 (TSX: DN) (OTC: DLTNF), 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), 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 best performer was Decibel Cannabis, which gained 45.7%, with Zenabis gaining over 20%. Aleafia lost 17.3%.
Tier 3
Tier 3, which included the 21 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, fell 8.9% as it closed at 72.00. It ended at 66.59 in 2020, declining 31.2%, and is up 8.1% in 2021. The Green Organic Dutchman (TSX: TGOD) (OTC: TGODF) was the strongest name among Tier 3 companies, rallying 35.4%
The returns for the overall sector varied greatly, with 3 names gaining more than 20% and 5 declining by more than 20%. The entire group posted a median return of -5.1%:
For June, the overall index will again have 39 constituents, with the addition of Tilray (TSX: TLRY) (NASDAQ: TLRY) to Tier 1. Discovery Wellness has been removed after falling below the minimum price. Additionally, TerrAscend will move from Tier 2 to Tier 3, while The Green Organic Dutchman (TSX: TGOD) (OTC: TGODF) moves to Tier 2 from Tier 3.
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.
