MACRO

For the trading week ended August 14, my proprietary Canadian Cannabis Company Index (MCCCI) increased by a modest 2.4% compared to last week when it decreased by 6.9%. 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 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 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. Now let’s look at this week’s good, bad, and ugly stocks.

MICRO THE GOOD

The following 3 stocks increased by more than 10% which is my metric for inclusion in this category: The Valens Company Inc. (OTCQX: VLNCF) +21.5%, OrganiGram Holdings Inc. (NASDAQ: OGI) +15.7% and HEXO Corp. (NYSE: HEXO.) VLNCF issued a press release on 8/13/20 regarding a custom manufacturing agreement with Verse Cannabis. HEXO announced on 8/13/20 the completion of a C$34.5 Million At-the-Market Offering Program.

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

VALUATION METRIC REVIEW

As I mentioned last week, based on what I see as a VIP change in the environment going forward. I’m going to report this metric in what I believe is a more meaningful way. I will disclose the weekly % changes in the 4 highest market capitalization stocks in the MCCCI. There was a 3.2% decrease in the “Big Four.” Canopy Growth Corporation (NYSE: CGC) decreased 6% and I have advised my investors what I believe is the appropriate action to take regarding CGC going forward.

RECAP

The relative strength index decreased by 3.8 % compared to last week’s decrease of 1.9 %. This 100% increase is more evidence that valuations going forward may be under increasing pressure. As I said last week, I suspect that the U.S. MSOs are establishing themselves as a more promising area of investment which will result in a valuation re-set for the Canadian cannabis sector. Let’s see how this volatile sector has performed at the same time next week shall we?