Summary

My Canadian Cannabis Company Index (MCCCI) decreased 47% in 2021, which was much worse than the 21% decline in 2020, and the sentiment that I expressed in my article here on 1/4/21. The MCCCI had to be rebalanced 3 times during the year due to M&A activity, and there are now 22 constituent companies in the portfolio.

Image by Herbal Hemp from Pixabay

Given the uncertainty of passage of legislation favorable to the sector, I am agnostic about how the sector will perform in 2022. That said, I remain steadfast in my belief that consolidation- perhaps involving 2 high-capitalization- is likely. Micro OrganiGram Holdings Inc. (OGI) +31.6% was the only “good” MCCCI stock. Tilray, Inc. (TLRY) -14.9% was the only “bad” MCCCI stock. There were 19 “ugly” MCCCI stocks, which had a median loss of 61%. By far, the ugliest of the “ugly” stocks was HEXO Corp., which decreased 81.0%. This stock has decreased 87.4% since my “Code Blue Alert” article was published on SeekingAlpha on 1/8/20, much to the benefit of many of my private clients. HEXO closed 2021 at $0.70, and in my view faces an uncertain 2022.

Valuation Metric Review

As a group, the “Big Four” (- 40%) was hammered in 2021, but the performance (or lack thereof) of Canopy Growth Corporation (CGC) was truly sub-optimal as the stock decreased 64.6%. CGC has a market capitalization of $3.5B, which ranks it #1 cannabis company, and is active in the option arena. I have been commissioned by a group that is attracted to option trading (for the record I am NOT) for my thoughts about CGC and 2 of the other 3 highest capitalization stocks in the MCCCI portfolio, which means my narrative here will be limited.

Recap

My thesis regarding the Canadian cannabis sector has been bearish since the inception of the MCCCI, which was introduced here in my initial article of 3/30/20. I invite readers to view my 4/6/20 article and see how 3 stocks I was bearish on then have fared since.

Spoiler Alert: CGC was $23.49 then. It closed 2021 at $8.73, which is a 62.5% decrease. 2022 promises to be another volatile environment, and I expect future rebalancing to the MCCCI for 2 reasons- a potential blockbuster transaction involving 2 high-capitalization companies and/or M&A activity among the lowest capitalization MCCCI stocks.