E The Canadian Cannabis Report - Monday, Oct. 19

For the trading week ended October 16, my (proprietary) Canadian Cannabis Company Index (MCCCI) decreased by 4.5% compared to last week when it increased by 22.8%. 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 3 weeks of Q4, 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: CBWTF + 80.3%; VVCIF + 16.7%, and TRSSF +12.0%. The euphoria in Auxly Cannabis Group Inc. ostensibly was due to their introduction of Back Forty, a new cannabis brand which the company says is “all about embracing simplicity and getting back to the basics.” CBWTF is a 3rd quartile MCCCI stock, which means that this week’s meteoric price rise had a muted effect on the Index. TRSSF has now been “good” stock 2 weeks in a row. It appears to me there is increased optimism regarding the company recent mega-expansion in California, and it may attract more scrutiny from “swing traders” based on this event. VVCIF rebounded this week from being a (very) “ugly” stock the week before when it decreased by 33.3%.

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