I think I found the problem. The cylinder is mounted incorrectly. It's supposed to be mounted horizontally, not vertically as it is now.
Guys, I'm pretty sure it’s not a compression issue. I have enough experiance on two strokes to know a compression issue when I see one. Yes, the compression might be a bit low but it’s not the root cause of this problem.
How does the ignition advance work on these things? I like the clutch idea as well. That could explain the perceived loss of power