The Canadian Cannabis Report - Monday, June 22

Editors' note: This article discusses one or more penny stocks and/or microcaps. Such stocks are easily manipulated; do your own careful due diligence.

MACRO

For the trading week ended 6/19/20, my proprietary Canadian Cannabis Company Index (MCCCI) increased by 3.2% compared to last week's decrease of 3.1%. The index consists of 25 stocks, many of which are among the most widely held holdings of the 3 ETFs (MJ, CNBS, and THCX) that I consider to be a reliable barometer of the Canadian cannabis sector. The MCCCI's differentiated business model is both weighted and market capitalization based because I believe that this approach best represents the current landscape of the Canadian cannabis sector.

As I’ve said here before, I believe there will be a pronounced reset in this sector, likely in Q3 or Q4 of this year, including but not limited to business failures, consolidation, and a significant downtrend in valuation. The survivors will be those companies that can operate profitably when the equilibrium price is established by the supply/demand dynamics. Let’s look at this week’s good, bad, and ugly stocks.

MICRO: THE GOOD

There were no stocks that increased by more than 10%, which is my threshold for inclusion in this category: I believe that this is noteworthy because it is more evidence regarding the bifurcation of this volatile sector, which I talked about last week.

THE BAD

There was one stock that decreased between 10% and 20% (note clarification of definition per reader inquiry) which is my threshold for inclusion in this category: Emerald Health Therapeutics (EMHTF) -16.7%. I sent out an alert after the market closed 6/19/20 to my private clients regarding where I see this stock is headed. EMHTF's volume went ballistic last Friday, and this is one of the lowest-capitalization stocks in the MCCCI. Look for continued volatility going forward.

THE UGLY

There were two stocks that decreased more than 20% (note clarification of definition per reader inquiry) which is my threshold for inclusion in this category: Zenabis Global Inc (ZBISF) - ~34% HEXO Corp. (HEXO) -26.1% Both of these stocks are on my danger list, albeit for different reasons. ZBISF is a relative newcomer to the “problem child” category but when a stock trades almost 10 times its day to day average volume (which it did last Friday) I take careful note. ZBISF is the lowest capitalization stock in the MCCCI, and for a valid reason. Watch how ZBISF trades this week, given its weak financials and pronounced volatility of late. HEXO has a reputation worse than that of a Saigon tea girl. I’ve written extensively about the company’s struggle to maintain a NYSE listing, which is now its #1 claim to fame. 

RECAP

The overall index increased by 6.9 % compared to last week’s decrease of 15.8% as 14 of the 25 MCCCI stocks increased. In addition, 6 of the 7 highest market capitalization portfolio stocks increased, which boosted the %. My modeling work continues to signal increased bifurcation in the sector. Let’s see how this volatile sector has performed at the same time next week, shall we?