The Canadian Cannabis Report - Monday, Nov. 2

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

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The Canadian Cannabis Report - Monday, Nov. 2 For the trading week ended October 30, my (proprietary) Canadian Cannabis Company Index (MCCCI) decreased by 4.2% compared to last week when it increased by 7.0%. 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 have said here before, I also 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. My mid-year report showed that the MCCCI had decreased by 36% YTD, which may be a guidepost for the rest of 2020. The survivors will be those companies that can operate profitably when the equilibrium price is established by the supply/demand dynamics. Based on the 1st month of Q4, it appears more likely that the sector will experience continued frothiness going forward, especially given the upcoming U.S. presidential election. Now let us look at this week’s good, bad, and ugly stocks.

THE GOOD

There was 1 stock that (barely) increased by more than 10%, which is my metric for inclusion in this category: CBWTF +10.1%. In the last 3 weeks, Auxly Cannabis Group Inc. has gone from a “good stock” (+80.3%) to an “ugly stock” (-28.2%) and back to a “good stock” this week. Kudos to short-term traders who continue to play this trade correctly; I hope that they’ve stocked up on Pepto Bismol as where this stock trades going forward is an enigma wrapped in a puzzle to me.

THE BAD

There were 2 stocks that decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category: ACB -14.4% and NXTTF -13.6%. Aurora Cannabis Inc. is also a 3- peater as it was an “ugly” stock 3 weeks ago and a “bad” stock for the last 2 weeks. Readers are encouraged to consider ACBs news of 10/30/20 which I believe may “steady the ship” short-term but shareholder dilution appears to be on the horizon. Namaste Technologies Inc. reported lackluster Q3 results on 10/29/20 which readers can view here.

THE UGLY

There was 1 stock that decreased by 20% or more, which is my metric for inclusion in this category: HEXO -20.9%. I issued a “code blue alert” regarding HEXO Corp. in my SeekingAlpha article of 1/8/20. Since that date, the stock is down 56.8%.

VALUATION METRIC REVIEW

There was a decrease of 4.0% in the “Big Four” compared to the last week’s increase of 8.7%. I am inclined to view the MCCCI through the lens of the Tier 1 holdings given the prevailing environment.

RECAP

The relative strength index decreased by 4.8% compared to last week’s decrease of 6.1%. Absent materials developments in the sector, I believe portfolio “equilibrium” is likely going forward. Let us see how this volatile sector has performed at the same time next week shall we?