Canadian Cannabis Licensed Producer Index Sinks 16% in November

Canadian licensed producers experienced another rough month in November, with the Canadian Cannabis LP Index falling 16.0% to 404.94, the eighth consecutive monthly loss:

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 November 18th at 392.73, a level not seen since late 2017, and ended the month down 42.5% year-to-date:

The index, which included 49 publicly-traded licensed producers that traded in Canada at the end of October, 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 34 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), showed relative strength as they fell 9.5%, leaving the year-to-date loss at -37.3% 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 GroWorks (TSXV: VGW) (CSE: VGWCF).  Valens GroWorks led all LPs in returns for the month, increasing 13.6%, while HEXO, which was the weakest performer in October, managed a small gain. Aurora Cannabis was the worst performer, losing 29.7%, while last month’s winner, MediPharm Labs, declined 19.2%.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$2.5 million and C$10 million, fell 25.0%%, leaving it down 45.1% so far 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 (TSXV: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and  Zenabis Global (TSX: ZENA) (OTC: ZBISF). Zenabis, which conducted a rights offering at a massive discount to its share price, fell a stunning 75.3%, with Emerald Health, which has a dispute with its greenhouse JV, Pure Sunfarms, the second worst performer at -37.7%. Emerald Health, embroiled in a dispute with its JV partner at Pure Sunfarms, lost 48.1%, while Zenabis, last month’s worst performer among Tier 2 names, posted the best return by losing 8.5% after it completed its rights offering.

Tier 3

Tier 3, which included the 34 LPs that generate cannabis-related quarterly sales less than C$2.5 million, declined 16.1%, leaving its year-to-date loss at 43.0% after declining 26.4% in 2018. 8 Tier 3 companies showed gains in the month out of 9 in total, while 8 of the 10 worst performers in the entire sector were from Tier 3.

The returns for the overall sector varied greatly, with  9 names posting positive returns, while 15 declined by more than 25%, for a median return of -15.1%:

For December, the overall index will have 52 constituents, as we have added Rapid Dose Therapeutics (CSE: DOSE) (OTC: RDTCF), RMMI Corp (CSE: RMMI) and SugarBud Craft Growers (TSXV: SUGR) (OTC: RLLRF), all of which are par of the Tier 3 index as well. 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 cut-off date for making changes to the index was 11/27.

In the next monthly review, we will summarize the performance for December and discuss any additions or deletions. We are expecting to reduce the number of companies that qualify for inclusion in the index and will share the updated rules then as well. 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 communities 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