Canadian Cannabis Stocks Drop 5.5% in November

After retreating almost 27% in Q3, the Canadian Cannabis LP Index extended its losing streak to five months as it fell again in November, declining 5.5.% to 225.26:

The index, which fell 30.1% in 2020 to end at 275.16, is down 22% over the past year and down 18.1% year-to-date in 2021:

It remains substantially below the all-time closing high of 1314.33 in September 2018, just ahead of Canadian adult-use 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 14.9% above that level at the end of November:

The Canadian Cannabis LP Index, which is rebalanced monthly, included 39 qualifying publicly traded licensed producers that traded in Canada at the end of October, with equal weighting for each stock. During the month, Citizen Stash was removed when it was acquired. Each of the members was also included in a sub-index, with 4 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 more than a 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, fell5.1% to 402.42 in November. Tier 1, which dropped 23.9% in 2020 when it ended at 488.96, has declined 17.7% 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), Tilray (TSX: TLRY) (NASDAQ: TLRY) and Village Farms (TSX: VFF) (NASDAQ: VFF).

Among these largest LPs by revenue, Tilray was the best performer at +1.5%, while Canopy Growth was the worst for the second straight month at -12.3%.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$25 million, fell 15.0% to 302.79. In 2020, it lost 35.9% in 2020, closing at 365.19, and it is down 17.1% 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 Aleafia Health (TSX: AH) (OTC: ALEAF), Auxly (TSX: XLY) (OTC: CBWTF), Cannara Biotech (TSXV: LOVE) (OTC: LOVFF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Decibel Cannabis (TSXV: DB) (OTC: DBCCF), Delta 9 (TSX: DN) (OTC: DLTNF), Entourage Health (TSXV: ENTG) (OTC: ETRGF), HEXO Corp (TSX: HEXO) (NASDAQ: HEXO), Indiva (TSXV: NDVA) (OTC: NDVAF) MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSX: OGI) (NASDAQ: OGI), TerrAscend (CSE: TER) (OTC: TRSSF), The Green Organic Dutchman (CSE: TGOD) (OTC: TGODF), Valens Company (TSX: VLNS) (OTC: VLNCF) and VIVO Cannabis (TSX: VIVO) (OTC: VVCIF).

TerrAscend and Auxly performed the best, up 5.1% and 4.7%, respectively, while the weakest names were Entourage Health, down 43.8%, and Aleafia Health, down 40.0%.

Tier 3

Tier 3, which included the 20 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, rose 0.4% as it closed at 53.35. It ended at 66.59 in 2020, declining 31.2%, and is down 19.9% in 2021. Two names helped boost Tier 3, including Greenway Greenhouse Cannabis (CSE: GWAY), which rallied 126.3%, and IM Cannabis (CSE: IMCC) (NASDAQ: IMCC), which gained 59.8%.

The returns for the overall sector varied greatly, with 4 names posting double-digit gains and 11 declining by more than 20%. The entire group posted a median return of -10.6%:

For December, the overall index will have 25 constituents after a change in the minimum qualifications. Going forward, we have revised the Tier 1 minimum quarterly revenue through LP operations to be C$30 million. Tier 2 will include companies with revenue between C$7.5 million and C$30 million, while Tier 3 now requires minimum revenue of C$2.5 million. HEXO has moved to Tier 1 from Tier 2, while several names have moved from Tier 2 to Tier 3. 13 companies no longer qualify for inclusion due to insufficient revenue.

In the next monthly review, we will summarize the performance for December 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