MACRO

For the trading week ended August 7, my proprietary Canadian Cannabis Company Index (MCCCI) decreased by 6.9% compared to last week when it increased by 4.6%.** 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 MCCCIs 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 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 recent mid-year report showed that the MCCCI had decreased 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 first 5 weeks of trading in Q3, there is evidence that we may be seeing more evidence of a “reversion to the mean” stability developing here. Now let’s look at this week’s good, bad, and ugly stocks.

MICRO THE GOOD

The following stock increased by more than 10% which is my metric for inclusion in this category: Zenabis Global Inc. (PINK: ZBISF + 20%. This increase had a minimal effect on the MCCCI since this company is 1 of the lowest capitalization stocks in the portfolio, and the stock trades at $0.10.

THE BAD

The following stock decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category: Cronus Group Inc.(NASDAQ: CRON) -13.9%. I’ve railed about this company here several times before as I’m very bearish on CRON. Since this company is the 2nd highest market capitalization MCCCI stock, this decrease had a significant effect on the index. In addition, Canopy Growth (NYSE: CGC) is the highest capitalization MCCCI stock and it has decreased more than 8.5 % in each of the last 2 weeks. I believe this is telling as U.S based companies are increasing in value much faster than their Canadian brethren. This could lead to more selling pressure for the “Big Four.”

THE UGLY

There were no stocks that decreased by 20% or more, which is my metric for inclusion in this category.

VALUATION METRIC REVIEW

The metric that I introduced in Q3 measures the valuation of the top 4 market capitalization stocks in the MCCCI as a % of the valuation of the 25 stocks in the portfolio. Based on what I see as a VIP change in the environment going forward. I’m going to report this metric in what I believe is a more meaningful way. I will re-calculate the data and update it on a cumulative basis next week.

RECAP

The relative strength index decreased by 1.9 % compared to last week’s decrease of 2.8%, which indicates that valuations going forward may be under more pressure. What is of great concern is that the “Big Four” all decreased this week. I suspect that the emergence of the U.S. MSOs as a more promising area of investment will result in a valuation re-set for the Canadian cannabis sector. Let’s see how this volatile sector has performed at the same time next week shall we? ** % reported last week was incorrect…mea culpa.