Wednesday , 13 November 2019

Cannabis Central: Which Of These 7 Indexes Track Pot Stock Performance the Best?

There is a great deal of confusion in the marijuana space – by cannabis market commentators, financial advisors, individual investors, and analysts alike – as to how to best measure the performance of Canadian, American and global pot stocks. Why? Because no one, until now, has done a deep dive analysis into the makeup, merits and limitations of the industry’s 7 indexes that track the performance of marijuana stock prices and come up with the most informative indexes to reflect the performance of the industry globally and, specifically, in Canada and the U.S.. This article does just that.

By Lorimer Wilson

The marijuana market consists of 313 companies (see list here) from which various numbers of them are included in the following 7 indexes to provide a supposed overview of the industry’s stock price performance based on specific criteria:

  1. United States Marijuana Index
  2. American Cannabis Operator Index
  3. Canadian Marijuana Index
  4. Canadian Cannabis LP (Licensed Producer) Index
  5. North American Marijuana Index
  6. Global Cannabis Stock Index
  7. EQM Global Cannabis Index

(The Innovation Labs Cannabis Index and OTCQX Cannabis Index also exist but they are not included in this analysis.)

1. The United States Marijuana Index consists of:

  • 25 constituents (see list here) of which:
    • 9 have a market cap of +$500M (36%),
    • 7 are between $200M and $499.9M (28%) and
    • 9 are less than $200M (36%).
  • The average market cap of the constituents is an even $1B.

2. American Cannabis Operator Index consists of:

  • 29 constituents (see list here) of which:
    • 7 have a market cap of +$500M (24%)
    • 9 are between $200M and $499.9M (31%)
    • 10 are between $50M and $199.9M (34.5%)
    • 3 have a market cap of less than $50M (10.5%)
  • The average market cap of the constituents is $610M

3. The Canadian Marijuana Index consists of:

  • 20 constituents (see list here) of which:
    • 10 have a market cap of +$500M (50%)
    • 10 are between $200M and $499.9M (50%)
  • The average market cap of the constituents is $1.74B.

4. The Canadian Cannabis LP Index consists of:

  • 48 constituents (see list here) of which:
    • 8 have a market cap of +$500M (16.7%)
    • 24 are between $200M and $499.9M (50%)
    • 16 are below $50M (33.3%)
  • The average market cap of the constituents is $700M.

5. The North American Marijuana Index consists of:

  • 44 constituents (see list here) of which:
    • 13 have a market cap of +$1B (29.5%)
    • 7 are between $500M and $999.9M (16%)
    • 12 are between $200M and $499.9M (27%)
    • 10 are between $50M and $199.9M (23%)
    • 2 are less than $50M (4.5%)
  • The average market cap of the constituents is $1.3B.

6. The Global Cannabis Stock Index consists of:

  • 45 constituents (see list here) of which:
    • 22 have a market cap of +$500M (49%)
    • 16 are between $200M and $499.9M (35.5%)
    • 7 are between $50M and 199.9M (15.5%)
  • The average market cap of the constituents is $1.4B.

7. The EQM Global Cannabis Index consists of:

  • 57 constituents (see list here) of which:
    • 22 have a market cap of +$500M (38.5%)
    • 9 are between $200M and $499.9M (16%)
    • 26 are between $50M and $199.9M (45.5%)
  • The average market cap of the constituents is $1.0B.

Comparing the  U.S. Cannabis Indexes

From my perspective the American Cannabis Operator Index (#2 above) should provide a more accurate picture of how U.S. companies are performing than the United States Marijuana Index (#1) in that it:

  • has more constituents (29 vs. 20) and
  • is more diverse as the average market cap of its constituents is more concentrated in the smaller cap stocks (76%).

Comparing the Canadian Cannabis Indexes

Again, from my perspective, the Canadian Cannabis LP Index (#4) is the best choice for determining how well the Canadian marijuana companies are doing for the same reasons as above:

  • almost 3x as many constituents compared to the Canadian Cannabis Index (i.e. 48 vs. 20) and
  • more smaller cap companies (83.3%).

Comparing the Global Cannabis Indexes

While both global indexes (#6 & #7) have a similar number of constituents the EQM Global Cannabis Index:

  • includes 35 companies (61% of the total) with market caps of less than $500M compared to only 23 companies in the Global Cannabis Stock Index

I put a lot of emphasis on the number of smaller cap companies because such stocks make up over 90% of the market place and, therefore, indexes that reflect that fact are more informative as to what is actually going on in the marijuana segment.

Comments on the North American Marijuana Index 

I have noticed that the North American Marijuana Index is most often referred to as the go-to index but that is very misleading as that it:

  • tracks only a very few (27.5%) nano- and micro-cap stocks.

If you found the above article of value and you are at all interested in gold and silver mining stocks you might find the article below of interest as well: BIG Differences In HUI, XAU, GDX & GDXJ Indicies (+10K Views)

 

 

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