The Canadian Cannabis Report - Monday May 25

MACRO

For the trading week ended 5/22/20 my Canadian Cannabis Company Index (MCCCI) increased by a YTD high of 25.6%, compared to the prior week’s increase of 4.4%.

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 industry as a whole. 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 industry.

As I’ve 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. The survivors will be those companies that can operate profitably when the equilibrium price is established by the supply/demand dynamics. Let’s take a look at this week’s good, bad and ugly stocks.

MICRO

THE GOOD This was a truly unique week for the MCCCI as 14 of the 25 portfolio stocks gained 10% or more. TGODF increased by ~75% and closed at $0.35. Average daily volume during the past week was ~5 times more than the 90-day average. The stock has a 52 week high of $3.18 so we may very well have a proverbial “dead cat bounce” scenario. The stratospheric price spike was largely due to a new financing deal announced 5/20/20 and the new funding is sorely needed, as the company also announced a new supply agreement on 5/20/20.

THE BAD AND THE UGLY There were no stocks in the MCCCI that decreased by more than 10%, which is my threshold for this category, once again highlighting the uniqueness of sector trading for the week ended 5/22/20.

RECAP The overall index increased by a mind-boggling 37.2 % compared to the relative strength index which increased by 25.6%. This is largely because the 4 largest market cap MCCCI stocks each closed at least 20% higher for the week. Whether this data point signals a developing trend is to be determined Let’s see how this volatile sector has performed same time next week, shall we?

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