For the trading week ended September 4, my proprietary Canadian Cannabis Company Index (MCCCI) increased by 3.1% compared to last week when it increased by 4.9%.

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.  

THE GOOD

There were no stocks that increased by more than 10% which is my metric for inclusion in this category:

THE BAD

There was one stock that decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category: Aurora Cannabis Inc. (NYSE ACB) -13.3%. This “Big Four” stock has a market capitalization of ~ $963M and is expected to report consensus earnings of - $0.27 on or about 9/9/20. ACB closed at $8.51 on 9/4/20. In my view, margin expansion is key for the company, which has decreased in value by ~87% in the last year. I have advised my private clients with a high- risk profile regarding short-term trading opportunities in this 1.33 beta stock.

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 4.6 % decrease in the “Big Four,” all of which decreased in comparison to last week when they all increased. My continued serious reservation about one of the highest-capitalization stocks appears to be headed towards an inflection point, and cause increased volatility in the sector for the foreseeable future.

RECAP

The relative strength index increased by 3.1% compared to last week’s decrease of 4.9%. The “box and whiskers” plot I use indicates that 3rd quartile portfolio stocks are weakening, which may be of interest to “swing traders.” I’ve also been made aware of an interesting development involving a 1st quartile stock, which I intend to alert my investors about, and may report on here if they “green light” me doing so. Let’s see how this volatile sector has performed at the same time next week shall we?