E The Canadian Cannabis Report - Monday, Oct. 12

For the trading week ended October 9, my proprietary Canadian Cannabis Company Index (MCCCI) increased by 22.8% compared to last week when it decreased by 5.7%. 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 Q3's volatility, and the 1st 2 weeks of Q4, it appears that the sector will most likely experience more frothiness going forward.

Now let us look at this week’s good, bad, and ugly stocks.

THE GOOD: There were 14 stocks that increased by more than 10%, which is my metric for inclusion in this category: VVCIF + 33.3%; APHA + 30.0%; CGC + 28.4%; MEDIF + 26.7%; TGODF + 25.3%; NEPT + 24.4%; VLNCF + 22.2%; SPRWF + 20.4%; HEXO + 17.6%; OGI + 17.0%; CRON + 14.9%; RDDTF + 14.3%; TRSSF + 12.4%; and FLWPF + 11.4%

THE BAD: There were no stocks that decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category.

THE UGLY: There was 1 stock that decreased by 20% or more, which is my metric for inclusion in this category: VVCIF -33.3%.

VALUATION METRIC REVIEW

There was a blockbuster increase of 24.7% in the “Big Four” compared to last week’s de minimis decrease of 0.08% as 19 of the 20 highest market capitalization stocks in the MCCCI increased. My strong sense is that we have entered a stock picker’s market of indeterminate length which will substantially increase option activity, I do not participate this arena, but for those that do I would urge caution.

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William K. 4 months ago Member's comment

Certainly interesting, even though I have no investments in the area. Here we have an excellent example of the fact that the cannabis sector has both Highs and lows, but probably not the munchies. (a really bad pun hidden there.)