Canadian licensed producers experienced their ninth consecutive monthly decline during December, with the Canadian Cannabis LP Index falling 2.8% to 393.78:
The index remains substantially below the all-time closing high of 1314.33 on September 25th a year ago, just ahead of Canadian legalization. It closed the month near its new 52-week low set on December 30th at 373.28, a level not seen since September 2017, and ended the month down 44.1% year-to-date:
The index, which included 52 publicly-traded licensed producers that traded in Canada at the end of November, with equal weighting, is rebalanced monthly. Each of the members is also included in a sub-index, with 9 in the Canadian Cannabis LP Tier 1 Index, 6 in the Canadian Cannabis LP Tier 2 Index and 37 in the Canadian Cannabis LP Tier 3 Index during the month.
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), showed relative strength as they fell 2.0%, leaving the year-to-date loss at -38.5% after declining 7.7% in 2018. This group included Aphria (TSX: APHA) (NYSE: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), Canopy Growth (TSX: WEED) (NYSE: CGC), Cronos Group (TSX: CRON) (NASDAQ: CRON), HEXO Corp (TSX: HEXO) (NYSE American: HEXO), MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSXV: OGI) (NASDAQ: OGI), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) and Valens Company (TSXV: VGW) (CSE: VGWCF). Canopy Growth, Valens and Cronos Group all managed double-digit gains, while Hexo Corp, Aurora Cannabis and Organigram posted double-digit losses. HEXO’s recent capital raise weighed heavily on its performance.
Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, rose 1.5%%, leaving it down 44.3% in 2019 after declining 35.0% in 2018. This group included Delta 9 (TSXV: DN) (OTC: VNRDF), Emerald Health (TSXV: EMH) (OTC: EMHTF) TerrAscend (CSE: TER) (OTC: TRSSF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and Zenabis Global (TSX: ZENA) (OTC: ZBISF). Delta 9 helped boost this sub-index, gaining over 77%. Emerald Health was the weakest name, declining over 22% as it raised capital during the month.
Tier 3, which included the 37 LPs that generate cannabis-related quarterly sales less than C$2.5 million, declined 3.6%, leaving its year-to-date loss at 45.0% after declining 26.4% in 2018. 4 Tier 3 companies produced returns in excess of 20%, while 8 dropped by more than 20%.
The returns for the overall sector varied greatly, with 10 names posting double-digit returns, while 10 declined by more than 20%, for a median return of -8.2%:
For January, the overall index will have 41 constituents, as we have removed 11 names following a review of our methodology for inclusion that resulted in our first change in the rules since the end of 2018. Going forward, in order to qualify for inclusion, stocks must trade at C$0.20 or higher or have quarterly cannabis revenue in excess of C$1 million. As a result of the change, we have removed AgraFlora Organics International (CSE: AGRA) (OTC: AGFAF), Beleave (CSE: BE) (OTC: BLEVF), CanadaBis Capital (TSXV: CANB), Canada House Wellness Group (CSE: CHV) (OTC: SARSF), Experion Holdings(TSXV: EXP) (OTC: EXPFF), Golden Leaf Holdings (CSE: GLH) (OTC: GLDFF), Geyser Brands (TSXV: GYSR) (OTC: GYSRF), Pure Global Cannabis (TSXV: PURE) (OTC: PRCNF), RavenQuest Biomed (CSE: RQB) (OTC: RVVQF) and Sugarbud Craft Growers (TSXV: SUGR) (OTC: RLLRF). Additionally, going forward, we will remove stocks where trading has been suspended for more than a month. Consequently, Wayland (CSE: WAYL) (OTC: MRRCF) has been removed. Readers should be aware that Sundial Growers (NASDAQ: SNDL) and Tilray (NASDAQ: TLRY), with no Canadian listings, are not eligible for inclusion in the index, which is denominated in Canadian dollars. Note that the date for making changes to the index was 12/27.
In the next monthly review, we will summarize the performance for January 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.