For the trading week ended October 16, my (proprietary) Canadian Cannabis Company Index (MCCCI) increased by 7.0% compared to last week when it decreased by 4.5%. 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. It appears that the sector will most likely experience continued frothiness going forward. Now let us look at this week’s good, bad, and ugly stocks.

THE GOOD

There were 3 stocks that increased by more than 10%, which is my metric for inclusion in this category: ACB + 16.4 %; NXTTF + 14.6%, and CGC +11.0%. Aurora Cannabis Inc. rebounded somewhat from last week’s “ugly” stock performance of 20.1%. Namaste Technologies Inc. did not report any news and has a history of “fits and starts.” Canopy Growth Corporation also has a frothy trading pattern and appears to react to geopolitical issues.

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: VLNCF -10.2%. The Valens Company has a 1.63 beta, which illustrates that it can be volatile, even absent news.

THE UGLY

There was 1 stock that decreased by 20% or more, which is my metric for inclusion in this category: CBWTF -28.2%. Auxly Cannabis Group went from a “good stock” last week (+80.3%) to an “ugly stock” this week as the euphoria about Back Forty evaporated, and then some. Day traders who had this one right likely made one of their best % gains of 2020, by far.

VALUATION METRIC REVIEW

There was an increase of 8.7% in the “Big Four” compared to the last week’s decrease of 5.7%. The strong performances of both ACB and CGC were a significant factor in this “reversion to the mean” in my view. My continued “neutral” status on both of these stocks is rooted in the lack of a catalyst to support an optimistic outlook regarding the sector as a whole.

RECAP

The relative strength index decreased by 6.1% compared to last week’s increase of 4.3%. As I stated last week, how the “Big Four” trades for the remainder of 2020 will likely influence the performance of the MCCCI portfolio. Let us see how this volatile sector has performed at the same time next week shall we?