Large LPs Lead Canadian Cannabis Stocks Lower by Nearly 10% in July

After breaking a three-month losing streak with a 1% gain in June, the Canadian Cannabis LP Index fell sharply in July, declining 9.8% to  324.18:

The index, which fell 30.1% in 2020 to end at 275.16, is up 13.6% over the past year and 17.8% 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 65.3% above that level at the end of July:

The Canadian Cannabis LP Index, which is rebalanced monthly, included 38 qualifying publicly traded licensed producers that traded in Canada at the end of June, 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 20 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 20.6% to 558.85 in July. Tier 1, which dropped 23.9% in 2020 when it ended at 488.96, has rallied 14.3% 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 Tilray (TSX: TLRY) (NASDAQ: TLRY).

Among these largest LPs by revenue, Aurora Cannabis was the worst performer at -22%, while Tilray, which fell 18.6%, declined the least.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$25 million, fell 10.0% to 503.90. In 2020, it lost 35.9% in 2020, closing at 365.19, and it is up 38.0% 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),  Entourage Health (TSXV: ENTG) (OTC: WDDMF), HEXO Corp (TSX: HEXO) (NYSE: HEXO), Indiva (TSXV: NDVA) (OTC: NDVAF) MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSX: OGI) (NASDAQ: OGI),  The Green Organic Dutchman (CSE: TGOD) (OTC: TGODF), Valens Company (TSX: VLNS) (OTC: VLNCF), Village Farms (TSX: VFF) (NASDAQ: VFF) and VIVO Cannabis (TSX: VIVO) (OTC: VVCIF).

The best performer for the third straight month was Decibel Cannabis, which gained 7.8%. The weakest name was HEXO Crop, down 31.3%.

Tier 3

Tier 3, which included the 20 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, sank 8.0% as it closed at 70.26. It ended at 66.59 in 2020, declining 31.2%, and is up 5.5% in 2021. Pure Extraction Technologies(CSE: PULL) (OTC: PRXTF), which has been heavily promoting its stock, was the strongest performer, gaining 62.5%. The worst performer was Neptune Wellness (TSX: NEPT) (NASDAQ: NEPT), falling 29.9%.

The returns for the overall sector varied greatly, with 4 names posting gains and 6 declining by more than 20%. The entire group posted a median return of -11.0%:

For August, the overall index will have 39 constituents, with the addition of Cannara Biotech (TSXV: LOVE) (OTC: LOVFF) to Tier 2.

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.

Based in Houston, Alan leverages his experience as founder of online community 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