Canadian LPs Continue to Lag American Cannabis Stocks in August with 7% Decline

Just after dropping far more than 11% in June with only a modest bounce in July, the Canadian Cannabis LP Index continued to struggle in August, losing six.7% to 266.31:

More than the previous year, the index has declined 62.1%:

The index remains substantially under the all-time closing higher of 1314.33 in September 2018, just ahead of Canadian legalization. In March, it posted a new 52-week closing low of 196.ten, a level not observed due to the fact late 2016, and it closed 35.eight% above that level at the finish of August. The index has declined 32.four% from its close of 393.78 at the finish of 2019:

The Canadian Cannabis LP Index, which is rebalanced month-to-month, incorporated 34 qualifying publicly traded licensed producers that traded in Canada at the finish of July, with equal weighting for each and every stock. Each and every of the members is also incorporated in a sub-index, with four in the Canadian Cannabis LP Tier 1 Index, 12 in the Canadian Cannabis LP Tier two Index and 18 in the Canadian Cannabis LP Tier three Index through the month. At the finish of June, we revised the guidelines for inclusion, requiring corporations to have a cost of at least C$.20 unless they are creating at least C$two.five million quarterly from their cannabis production operation. Previously, we needed income in excess of C$1 million for stocks trading under C$.20. There are presently more than two dozen publicly traded LPs that fail to qualify.

Tier 1

Tier 1, which incorporated the LPs that are creating cannabis-connected sales of at least C$20 million per quarter, fell three.five% to 370.42. In 2019, it declined 38.five%, when it ended the year at 642.23, and Tier 1 remains the weakest sub-sector in 2020 just after declining 42.three% so far this year. We have elevated the minimum income needed to be incorporated more than time. Through 2019 and the 1st half of 2020, corporations necessary to produce income in excess of C$ten million for inclusion. In 2018, we utilized C$four million as the hurdle.

This group incorporated Aphria (TSX: APHA) (NASDAQ: APHA), Aurora Cannabis (TSX: ACB) (NYSE: ACB), Canopy Development (TSX: WEED) (NYSE: CGC) and HEXO Corp (TSX: HEXO) (NYSE: HEXO).

Amongst these biggest LPs by income, HEXO was the very best performer, increasing three.three%. Canopy Development declined 12.1%, with Aurora Cannabis dropping five.six% and Aphria decreasing .five%.

Tier two

Tier two, which incorporated the LPs that produce cannabis-connected quarterly sales involving C$five million and C$20 million, fell eight.9% to 394.59. In 2019, it lost 44.three% just after closing at 569.54 and is down 30.7% in 2020. Prior to July, corporations necessary income in excess of C$two.five million to be incorporated in this tier.

This group incorporated Aleafia Overall health (TSX: AH) (OTC: ALEAF), Auxly (TSXV: XLY) (OTC: CBWTF), Cronos Group (TSX: CRON) (NASDAQ: CRON), Delta 9 (TSX: DN) (OTC: VNRDF), MediPharm Labs (TSX: LABS) (OTC: MEDIF), Organigram (TSX: OGI) (NASDAQ: OGI), Radient Technologies (TSXV: RTI) (OTC: RDDTF), Supreme Cannabis (TSX: FIRE) (OTC: SPRWF), Valens Enterprise (TSX: VLNS) (OTC: VLNCF), VIVO Cannabis (TSX: VIVO) (OTC: VVCIF), WeedMD (TSXV: WMD) (OTC: WDDMF) and Zenabis International (TSX: ZENA) (OTC: ZBISF).

The worst performers in this tier incorporated Auxly, down 28.six%, Aleafia Overall health, down 18.two%, and Cronos Group, down 15.7%, when Valens, up four.eight%, Organigram, up two.five%, performed the very best.

Tier three

Tier three, which incorporated the 19 qualifying LPs that produce cannabis-connected quarterly sales much less than C$five million, declined five.9% as it closed at 71.40. It ended at 96.76 in 2019, declining 45.%, and is down 26.two% in 2020. Six names in this group declined by far more than 20% when 3 posted gains. The strongest performers, each of which gained far more than ten%, incorporated TerrAscend (CSE: TER) (OTC: TRSSF) and Rubicon Organics (CSE: ROMJ) (OTC: ROMJF).

The returns for the general sector varied tremendously, with two names gaining far more than ten%, when three declined by far more than 20%, with the complete group posting a median return of -7.9%:

For September, the general index will have 31 constituents, with the removal of 48North, Benchmark Botanicals, CanadaBis Capital and FSD Pharma, which no longer meet the guidelines, and the inclusion of Adastra Labs (CSE: XTRX). With its current quarterly income from Canada exceeding C$five million, TerrAscend (CSE: TER) (OTC: TRSSF) will move from Tier three to Tier two .

In the subsequent month-to-month evaluation, we will summarize the efficiency for September and talk about any additions or deletions. Be confident to bookmark the pages to keep existing on LP stock cost movements inside the day or from day-to-day.

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Alan Brochstein, CFA
Primarily based in Houston, Alan leverages his encounter as founder of on-line communities 420 Investor, the 1st and nevertheless biggest due diligence platform focused on the publicly-traded stocks in the cannabis sector. With his substantial network in the cannabis neighborhood, Alan continues to locate new techniques to connect the sector and facilitate its sustainable development. At New Cannabis Ventures, he is accountable for content material improvement and strategic alliances. Just before shifting his concentrate to the cannabis sector in early 2013, Alan, who started his profession on Wall Street in 1986, worked as an independent analysis analyst following more than two decades in analysis and portfolio management. A prolific writer, with more than 650 articles published due to the fact 2007 at Searching for Alpha, exactly where he has 70,000 followers, Alan is a frequent speaker at sector conferences and a frequent supply to the media, like the NY Occasions, the Wall Street Journal, Fox Enterprise, and Bloomberg Television. Make contact with Alan: Twitter | Facebook | LinkedIn | E mail

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