Newstrike Resources Ltd, Small Cap SI Leaders Surge On Market Turnaround

Benjamin A. Smith
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Newstrike Resources Ltd. (CVE:HIP) (OTCMKTS:NWKRF) (FRA:0N8) and other short interest leaders were among the top percentage gainers in the cannabis space today. As usual, small caps took their cue from Canopy Growth’s substantial rebound, helping pare losses which surpassed 25-percent over a four day span.

On a percentage basis, Newstrike Resources bounce-back stands out. The southern Ontario cannabis operator jumped ↑15.68% just one day after we presented a neutral bottom call case. It’s certainly welcome news for a stock which has been crushed like no other since January’s euphoric sector highs.

As elucidated yesterday, Newstrike Resources had been down ↓22.38% since June 22, mirroring Canopy Growth’s swoon and moderately underperfoming the small cap cannabis space in general. It’s deeply oversold condition was bordering on epic proportions, considering it’s strong cash position, branding appeal and modestly-sized, but operational grow facilities in Brantford and Niagara.

Adding kerosene to today’s move was likely a good heaping of short covering. According to the ShortData.ca, Newstrike Resources was the 4th most shorted issue on the Toronto Venture Exchange as of June 18, 2018. Although the $23.77 million in notional short positioning represents a small proportion of the overall float (perhaps 2.5-3.5% aggregate), there may enough fodder to materially impact prices on a limited scale.

Company Name Symbol 15 Jun 2018 31 May 2018 Net Change % Change
% Total Traded Value
OGI OrganiGram Holdings Inc. 35,678,992 15,531,983 20,147,009 56.47% 21.668
KBLT Cobalt 27 Capital Corp. 29,474,605 3,975,161 25,499,444 86.51% 48.199
THCX The Hydropothecary Corporation 27,983,905 42,619,505 -14,635,600 -52.30% 16.883
HIP Newstrike Resources Ltd. 23,774,318 21,120,613 2,653,705 11.16% 50.82
N Namaste Technologies Inc. 9,905,703 9,064,101 841,602 8.50% 20.84
EMH Emerald Health Therapeutics, Inc. 9,517,614 16,150,417 -6,632,803 -69.69% 19.299

With the company plunging in recent days—and with the company completing its round-trip from pre-CanniMed acquisition levels—a material bounce was both due and logical. Under those auspices, we’re glad to have bottom-ticked the market.

Namaste Technologies Inc. was another solid winner today. The online retailer of medical cannabis delivery systems jumped $0.20 to $1.52/share (↑15.15%). Beyond the minor short covering factor, Namaste announced its intention to commence a normal course issuer bid to repurchase up to 10% of its public float. That represents a buyback of 25,308,136 common shares, totaling approximately 8.9% of the company’s issued and outstanding common shares on a fully diluted basis. Namaste’s board of directors believes that market price of the common shares does not adequately reflect the company’s underlying value.

Namaste Technologies Inc. CEO Sean Dollinger talks technology with Midas Letter’s James West

While this news is obviously noteworthy on a company-specific level, it’s one of the few instances where a cannabis company has pledged to repurchase their own stock due to inadequate valuation multiples set by the marketplace. By all accounts, most of the sector is considered richly valued and deeply forward-looking. Should the summer selloff deepen, it will be interesting to see whether additional companies follow suit.

Overall, all classes of the cannabis spectrum litter the Top 10 gainers list today. Practically everyone participated, but there were some exceptions.

Company Last Change % Change Volume
Newstrike Resources Ltd. 0.59 0.08 15.69% 3.74m
Namaste Technologies Inc. 1.52 0.20 15.15% 2.09m
Cannabix Technologies Inc 2.23 0.28 14.36% 1.45m
Isodiol International Inc. 0.42 0.05 13.51% 9.45m
Canopy Growth Corporation 40.51 3.58 9.69% 10.92m
MYM Nutraceuticals Inc 1.50 0.10 7.14% 393.96k
MedReleaf Corp. 27.12 1.61 6.31% 783.01k
Emerald Health Therapeutics Inc. 3.92 0.23 6.23% 649.41k
OrganiGram Holdings Inc 5.35 0.30 5.94% 842.31k
InMed Pharmaceuticals Inc. 0.76 0.04 5.56% 287.82k

Premier cannabis dispensary MedMen Enterprises Inc. finished off $0.34 to $4.33/share (↓7.28%), despite the news it was imminently opening a marquee location in the heart of Downtown Las Vegas. The store will be remodeled and rebranded with MedMen’s signature design, with a grand reopening scheduled for mid-July.

A select snippet of small cap names, including Green Thumb Industries Inc., Maricann Group Inc. and Emblem Corp. also failed to heed Canopy Growth’s lead on the day.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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