The Canadian Cannabis Report
MACRO
For the trading week ended August 21, my proprietary Canadian Cannabis Company Index (MCCCI) decreased by 9.6% compared to last week when it increased by 2.4%. 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 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 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. Now let’s look at this week’s good, bad, and ugly stocks.
MICRO 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 4 stocks that decreased by more than 10% (but less than 20%) which is my metric for inclusion in this category: Benchmark Botanics Inc. (PINK: BHHKF) -19.6%, Delta 9 Cannabis Inc. (OTCQX: VRNDF) -16.6%, VIVO Cannabis Inc. (OTCQB: VVCIF -14.5%, and OrganiGram Holdings Inc.(NASDAQ: OGI) -12.5%.
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 6.5% decrease in the “Big Four, all of whom decreased. I have alerted my investors that I have added concerns about 1 of these companies going forward. RECAP The relative strength index decreased by less than 1% compared to last week’s decrease of 3.8%. This was a unique week for the MCCCI as the top 10 highest market capitalization all decreased. The broad-based decline was historic as 21 of the 25 portfolio companies decreased, which signals that valuations going forward may be under increasing pressure. Let’s see how this volatile sector has performed at the same time next week shall we? .