Big Cannabis Goes Parabolic: MLCC Index Hits All-Time High

The Midas Letter Canadian Cannabis Index has reached fresh all-time highs this morning, boosted by a euphoric, multi-buying spree in Canopy Growth Corp. and Aurora Cannabis Inc. over the past several sessions. It seems that far from taking a wait-and-see approach heading into full legalization come October, investors are clamoring to stake positions now.

Now more is this evident than in the insatiable buying of Canopy Growth stock, which is up an incredible ↑26.23%, trough-to-peak, since June 12. This headlong dive into big cannabis names has filtered into Aurora Cannabis—and to a lesser extent—Aphria Inc. All told, inflows into the leading stocks with over $500 million in market capitalization has pushed the MLCC Index to a record high of 7379.07 this morning.

Incidentally, the other junior indexes haven’t quite followed suit. The Midas Letter Canadian Venture Cannabis (MLCVC) Index is still ↓19.37% off its peak January 2018 high. The MLCVC is comprised of the top Toronto Stock Exchange Venture stocks with market capitalizations below $500 million at the time of weighting.

As well, the Midas Letter CSE Canadian Cannabis (MLCCC) Index, featuring the top cannabis companies listed on the Canadian Securities Exchange, is still off ↓38.23% from its January 2018 highs.

This sliding scale of performance from top to bottom is quite telling. It shows that Big Cannabis has garnered the preponderance of investment capital over the past 6-months. Of course, this is expected as Canopy Growth, Aurora Cannabis et al have the scale, low-cost production capacity and assets to attract deep-pocketed fund buying.

The sliding scale of performance should also give warning that investors should focus on quality names in their portfolio. The real “bubble” in cannabis stocks is not the inflows into blue collar names like Canopy Growth and Aurora Cannabis; it’s in some of the lower-quality names dotting the MLCVC and MLCCC landscape that won’t survive over the next 24-months (think NASDAQ internet bubble, but to a smaller degree).

Many of the Tier-2’s and Tier-3’s simply won’t have the cost structure, distribution, branding or funding to capitalize on the immense market opportunities in the market. Aphria front man Vic Neufeld warned of this just weeks ago in the Midas Letter studios.

Aphria Inc CEO Vic Neufeld Warns Licensed Producer Squeeze Is Coming

For now, investors should celebrate the euphoric atmosphere brought about by royal assent this afternoon. It’s truly an historic market for a movement that has been attempting to obtain legal recognition for decades. But now more than ever, investors should become intricately aware of the quality of companies owned in a portfolio.

The inflows into Big Cannabis are masking some skeletons in an otherwise small broom closet.

Original article: Big Cannabis Goes Parabolic: MLCC Index Hits All-Time High

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