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Inside the Market Small-cap stars on the rise: The little-known TSX Venture stocks with eye-popping returns

In the small-cap space, you can tap into the kind of growth that gets the pulse racing. But it’s also part of the equity ecosystem that’s home to future incumbents of mainstream investing.

On Thursday, the TSX Venture Exchange released its annual Venture 50, showing the fastest-growing stocks in the Canadian small-cap ranks.

The group of listings, featuring cannabis companies, emerging tech names and junior resource stocks, generated an average return of 94 per cent last year – a mark that no company in the S&P/TSX Composite Index managed to match. The average stock in the Canadian large-cap index declined by 13 per cent in what was a difficult year for stocks globally.

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“If you can get on these stories early and let them play out, that's where you get some outsized returns,” said Peter Imhof, portfolio manager at AGF Investments and a veteran small-cap investor.

There aren’t many investors paying attention to Canadian small-caps these days, Mr. Imhof added. Declining commodity prices have taken a toll.

Traditionally dominated by junior energy and mining companies, the Venture’s fates have typically been closely aligned with resource prices. Several years into a downturn in the global commodity cycle, the TSX Venture Composite Index is currently trading below the lows set during the global financial crisis.

The Venture Exchange is in the midst of what it calls a “revitalization” to try to diversify beyond resources, and the cannabis sector has been central to that effort in recent years.

The top-ranked stock in the Venture 50 is Aleafia Health Inc., which operates a chain of medical-marijuana clinics. Aleafia started 2018 with a market capitalization of $26-million and ended the year a $226-million company.

The investor frenzy for cannabis stocks has drawn considerable interest to at least one sector of the Venture. Canada’s four biggest cannabis listings – Canopy Growth Corp., Aurora Cannabis Inc., Cronos Group Inc. and Aphria Inc., which together account for about $39-billion in market capitalization – all started public life on the Venture.

Graduating to the Toronto Stock Exchange is a time-honoured tradition, with Venture alumni accounting for roughly one in five current members of the S&P/TSX Composite Index.

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More than 650 companies have made the leap since 2000, a process that generally rewards a company’s earliest investors the most.

Here are last year’s top-performing stocks from each of the Venture’s five sectors.

Aleafia Health Inc., cleantech and life-sciences sector

2018 share price performance: 107 per cent

Last year, Aleafia bought a 160,000 square-foot greenhouse in Niagara, launched a recreational retail and brands division, and announced the $173-million deal to acquire competitor Emblem Corp. If completed, the takeover will result in a network of 40 clinics.

theScore Inc., diversified industries sector

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2018 share price performance: 88 per cent

TheScore is one of few ways to bet on the professional gaming market in Canada. And in December, the company said it set a new monthly record for video views on its YouTube e-sports channel, with 15.6 million views in October. TheScore also offers apps providing sports news, scores and stats.

Alvopetro Energy Ltd., energy sector

2018 share price performance: 137 per cent

An energy exploration company focused on Brazil, Alvopetro’s 2018 share price gains mostly came in two big chunks. The first was in May, when it announced a sales agreement with a Brazilian state-owned gas distribution company. The second was in June, when the company announced better-than-expected reserves.

Westhaven Ventures Inc., mining sector

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2018 share price performance: 980 per cent

This junior miner saw enormous share price upside in 2018, which mostly centred on drilling results and geophysics surveys at the Shovelnose gold property in Interior B.C.

Kraken Robotics Inc., tech sector

2018 share price performance: 111 per cent

Based in St. John’s, Kraken makes underwater sonars and sensors, which have a range of military and commercial applications, such as sweeping for underwater mines and mapping pipelines. The stock started to take off in June, when the company announced a $2.3-million private placement with Texas-based Ocean Infinity Ltd.

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