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%.

THE BAD

There were 4 stocks that decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category: APHA -19.2%; TGODF -12.5%; NEPT -10.5% and MEDIF -10.1%. Aphria Inc. appears vulnerable for a correction due to recent disappointing revenue numbers. I intend to do more modeling work on the company based on my preliminary assessment after consulting with my private clients.

THE UGLY

There were 2 stocks that decreased by 20% or more, which is my metric for inclusion in this category: BHHKF - 29.6% and ACB - 20.1%. Benchmark Botanics Inc. is among the lowest capitalization MCCCI stocks, and I believe lives in uncertain times. Aurora Cannabis is 1 of the “Big Four” and the company’s recent price weakness is a growing concern. ACB has a YTD decrease of over 90%, which may accelerate option activity for those traders who use this metric as a guidepost for their strategy going forward.

VALUATION METRIC REVIEW

There was a decrease of 5.7% in the “Big Four” compared to the last blockbuster increase of 24.7%. I would note my view of ACB last week was sustained as discussed earlier in this report.

RECAP

The relative strength index increased by 4.3% compared to last week’s 2020 high increase of 25.3%, which was reported incorrectly in the 10/9 report as 22.8% due to an “operator error” (me). My most pressing concern at present is the growing instability of 2 of the “Big Four” MCCCI companies (ACB and APHA) discussed here, and how they (and their cohorts) trade going forward. As a continued caveat to any “Robinhoodies” reading this report, option trading should be left to the professionals. Let us see how this volatile sector has performed shall we?