The Canadian Licensed Producer Index Is Now Down 4% in 2021

After breaking a three-month losing streak with a 1% gain in June and then retreating almost 10% in July and 7.5% in August, the Canadian Cannabis LP Index fell sharply again in September, declining 12.2% to 263.39 and ending Q3 down 26.7%:

The index, which fell 30.1% in 2020 to end at 275.16, is up 16.9% over the past year but down 4.3% 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 34.3% above that level at the end of September:

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 4 in the Canadian Cannabis LP Tier 1 Index, 15 in the Canadian Cannabis LP Tier 2 Index and 19 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, fell 13.9% to 470.738 in July. Tier 1, which dropped 23.9% in 2020 when it ended at 488.96, has declined 3.7% 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, Aurora Cannabis was the best performer at -6%, while Canopy Growth, at -19%, was the worst. This was the case last month as well.

Tier 2

Tier 2, which included the LPs that generate cannabis-related quarterly sales between C$5 million and C$25 million, fell 14.9% to 397.18. In 2020, it lost 35.9% in 2020, closing at 365.19, and it is up 8.8% 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).

Three stocks dropped more than 25%, including The Green Organic Dutchman, Emerald Health and HEXO Corp. Delta 9 and Indiva were the only Tier 2 names to post gains.

Tier 3

Tier 3, which included the 19 qualifying LPs that generate cannabis-related quarterly sales less than C$5 million, sank 9.7% as it closed at 58.17. It ended at 66.59 in 2020, declining 31.2%, and is down 12.6% in 2021. Nextleaf Solutions (CSE: OILS) (OTC: OILFF) was the strongest Tier 3 name, gaining 26%. The worst performer was Agra Ventures (CSE: AGRA) (OTC: AGFAF), falling 48%.

The returns for the overall sector varied greatly, with 3 names posting double-digit gains and 7 declining by more than 25%. The entire group posted a median return of -15.2%:

For October, the overall index will have 39 constituents, with the addition of Eve & Co (TSXV: EVE) (OTC: EEVVFF), which rejoins Tier 3.

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