E The Canadian Cannabis Report - Monday, Oct. 12

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.

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