After a 54.9% gain in Q1, the Canadian Cannabis LP Index gave up about half the gains in Q2. In July, following the surprise termination of Bruce Linton as co-CEO of Canopy Growth and then the shocking revelation that CannTrust broke Health Canada rules by growing cannabis in unlicensed rooms in its cultivation facility, the index sank 11.4% to 792.12:
The index remains substantially below the all-time closing high of 1314.33 on September 25th, just ahead of Canadian legalization. It has increased 25.3% since bottoming on December 21st and is up 12.4% year-to-date:
The index, which included 50 publicly-traded licensed producers that traded in Canada at the end of June, 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 sales of at least C$10 million per quarter (in 2018, we used C$4 million as the hurdle), fell 19.6%, leaving the year-to-date gain at 14.2% 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). CannTrust, declining 52.9%, was the worst performer in this group and among all LPs. Only MediPharm Labs, which uplisted to the TSX during the month, achieved a gain, rising 6.0%.
Tier 2
Tier 2, which included the LPs that generate quarterly sales between C$2.5 million and C$10 million, fell 9.7%, leaving it up 27.2% 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), VIVO Cannabis (TSXV: VIVO) (OTC: VVCIF) and WeedMD (TSXV: WMD) (OTC: WDDMF). Most of the stocks returned near the average.
Tier 3
Tier 3, which included the 36 LPs that generate quarterly sales less than C$2.5 million, declined 9.9%, leaving its year-to-date gain at 10.6% after declining 26.4% in 2018. 7 of the top 8 performers for the entire sector, including the top 3, were all members of Tier 3 during July as were the 9 of the 10 worst performers. Neptune Wellness Solutions (TSX: NEPT) (NASDAQ: NEPT), which priced a secondary offering during the month, was the clear leader among this group and the entire sector, rallying 32.5%.
The returns for the overall sector varied greatly, with eight names posting positive returns, while fourteen declined by more than 20%, for a median return of -12.6%:
For July, the overall index now has 49 constituents, with BlissCo removed following its acquisition by Supreme Cannabis. Additionally, Valens GroWorks (TSXV: VGW) (CSE: VGWCF) moves from Tier 3 to Tier 2 following its recent financial report. 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 7/29.
In the next monthly review, we will summarize the performance for July 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.
