MACRO

For the trading week ended August 28, my proprietary Canadian Cannabis Company Index (MCCCI) increased by 4.9% compared to last week when it decreased by 9.6%. 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 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 recent 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 Q3s continued volatility, it appears that the sector will most likely experience more frothiness going forward. Now let’s look at this week’s good, bad, and ugly stocks.

MICRO

THE GOOD

There was one stock that increased by more than 10% which is my metric for inclusion in this category: Emerald Health Therapeutics, Inc. (OTCQX: EMHTF) +25.4%. Since this stock is one of the lowest capitalization stocks in the portfolio and is thinly traded, this had a minimal effect on the overall performance of the MCCCI.

THE BAD

There was 1 stock that decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category: Auxly Cannabis Group Inc. (OTCQX: CBWTF) -16.9%. It appears to me that CBWTF will need additional capital in the coming months, and on increasingly onerous terms.

THE UGLY

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

VALUATION METRIC REVIEW

There was a 5.4 % increase in the “Big Four, all of which increased in comparison to last week when they all decreased. I maintain a serious reservation about 1 of the highest-capitalization stocks which I have shared with my private clients.

RECAP

The relative strength index decreased by 4.9% compared to last week’s decrease of less than 1%. Note the statistical oddity of a + and – 4.9%. My initial reaction to this situation is perhaps the 2nd and 3rd quartile portfolio stocks are weakening, and there is where there is the most potential for trading opportunities in Q4, which begins tomorrow. Any fellow “Robinhoodies” (what I call Robinhood.com account holders) may take note of this information Let’s see how this volatile sector has performed at the same time next week shall we?