For the trading week ended October 9, my proprietary Canadian Cannabis Company Index (MCCCI) increased by 22.8% compared to last week when it decreased by 5.7%. 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 2 weeks of Q4, it appears that the sector will most likely experience more frothiness going forward.

Now let us look at this week’s good, bad, and ugly stocks.

THE GOOD: There were 14 stocks that increased by more than 10%, which is my metric for inclusion in this category: VVCIF + 33.3%; APHA + 30.0%; CGC + 28.4%; MEDIF + 26.7%; TGODF + 25.3%; NEPT + 24.4%; VLNCF + 22.2%; SPRWF + 20.4%; HEXO + 17.6%; OGI + 17.0%; CRON + 14.9%; RDDTF + 14.3%; TRSSF + 12.4%; and FLWPF + 11.4%

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 was 1 stock that decreased by 20% or more, which is my metric for inclusion in this category: VVCIF -33.3%.

VALUATION METRIC REVIEW

There was a blockbuster increase of 24.7% in the “Big Four” compared to last week’s de minimis decrease of 0.08% as 19 of the 20 highest market capitalization stocks in the MCCCI increased. My strong sense is that we have entered a stock picker’s market of indeterminate length which will substantially increase option activity, I do not participate this arena, but for those that do I would urge caution.

In my view, ACB is on the radar, and since the company trades on the NYSE there is ample opportunity to do so. The company closed at $5.03 on 10/9 and has decreased more than 80% YTD. I have shared my thoughts regarding the stock with my private clients.

RECAP

The relative strength index increased by a 2020 high of 22.8% compared to last week’s decrease of 11.8%. So Q4 has started akin to the “tale of 2 cities” and then some. Volatility in the MCCCI portfolio is at record-setting levels, which I expect to subside soon unless there is material industry news. In the interim, “swing traders” who are successful have the best chance so far this year to profit handsomely. Let us see how this volatile sector has performed at the same time next week, shall we?