For the trading week ended September 11, my proprietary Canadian Cannabis Company Index (MCCCI) decreased by 6.0% compared to last week when it increased by 3.1%. 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 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 recent 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 Q3s continued volatility, 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 no stocks that increased by more than 10% which is my metric for inclusion in this category:

THE BAD

There were 2 stocks that decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category: The Supreme Cannabis Company, Inc. (OTCQX: SPRWF) -19.1%. This stock has been a “frequent flier” here and continues to struggle both financially and operationally. Aurora Cannabis Inc. (NYSE ACB) -18.0%. This stock was also on last week’s “bad” category and anybody who has read my prior articles should realize my view on ACB, which replaced their CEO last week and indicated that they may incur a goodwill impairment charge of $1.8B when they host an investor conference call on 9/22/20. I have shared my thoughts regarding how to deal with the expected forthcoming volatility with my private clients. I wrote a 7/9/20 article at SeekingAlpha which expressed my bearish sentiment on both SPRWF and ACB, which have decreased by 38.5% and 35.3% respectively in a tad more than 2 months. Although this article is paywalled, anyone who is interested in reading my article are welcome to follow me and leave me a direct message there.

THE UGLY

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

VALUATION METRIC REVIEW

There was a 2.0% decrease in the “Big Four,” 3 of which decreased in comparison to last week when they all increased. My continued serious reservation is that 1 of the highest-capitalization stocks will reach an inflection point by the end of the month and I expect increased volatility in the sector as we head into Q4.

RECAP

The relative strength index decreased by 6.0% compared to last week’s increase of 3.1%. I consider this a “reversal of fortune” event as only 1 of the 14 highest-capitalization stocks in the MCCCI portfolio increased last week. Let us see how this volatile sector has performed at the same time next week shall we?