• Ted Ohashi

Cannabis investors could be big losers in Canadian federal election

In the financial markets, one quality that will serve you well over time is the ability to adjust to new information. Sometimes investors are unable to retain flexibility of thinking when it comes to their investments.

As regular readers know, I have favoured companies with a U.S. or international business base. In the case of the U.S. market it was a more attractive political outlook in America than in Canada. That is what has changed. We’ve commented about this several times recently.

We have reached the point where the wheels are starting to get off the Liberal bandwagon, or more accurately, off Prime Minister Justin Trudeau’s bandwagon.

If the Liberals lose, the October 21, 2019 election, the real loser will be the Canadian cannabis industry. The shame of it is the issue at the heart of the scandal is less problematic than the way the Prime Minister has handled it. The majority of my readers are not Canadian so you’ll have to take my word when I tell you the SNC-Lavalin case would not be a stunning revelation to any voter. A prime minister, especially a Liberal prime minister directly representing constituents was trying to do a political favour for a major company headquartered in Quebec? It happens all the time. The problem was in the way Trudeau tried to handle it.

Let’s quickly recap the lead up to the last Federal election on October 19, 2015 identified with the arrow marked “A” on the graph above. Trudeau ran on a cornucopia full of wonderful promises for everyone: women’s equality, reconciliation with the indigenous peoples, open and transparent government, election-reform and of course, legalization of cannabis.

The incumbent Conservative government ran hard on an anti-cannabis plank. They dusted off all the old bits of myth-information and disinformation and stumped the country telling people marijuana was a gateway drug, people were dying from the use of cannabis, more people were dying from cannabis use than from tobacco use, and so on. It would have been funny if it wasn’t so sad. The truth of the matter was that under Stephen Harper as Conservative Party Prime Minister, the United Nations International Children’s Emergency Fund (UNICEF) found that among 29 countries surveyed, Canada had the highest percentage of children aged 11 to 15 who smoke marijuana. But the Canadian people were tired of a Prime Minister seeking a fourth consecutive term in office and didn’t buy into the NDP’s socialist platform so Trudeau was handed the reins of power.

For almost his first year as Prime Minister, Trudeau enjoyed the “honeymoon,” shown as “B” in the chart above that is granted to most first time Prime Ministers. I recall those giddy days for Trudeau. The Irish Times had him at the top of their list of “hot politicians.” Unfortunately the list included Kim Jong Un, leader of North Korea so that spoiled it a bit. posted ’50 hot pictures of Justin Trudeau that will make you swoon.” CBS News listed Justin Trudeau at the top of their Sexiest World Leaders and Royals. Vogue Magazine named him to a list of Unconventional alternatives to the “Sexiest Man Alive.” Enough of that. You get the message.

But since that time, his popularity has been in a downtrend and most recently in a free fall. I pointed out the Conservatives taking the lead from the Liberals recently as shown in the circle marked “C” in the chart above. I use the CBC Poll Tracker because it gives us an aggregate of all public polling data weighted by the date, sample size and track record of the pollster. The most recent individual poll results are shocking.

  • The latest IPSOS Reid poll conducted for Global News shows:

  • Ø If the election were held now, the Opposition Conservatives would receive 40% of the decided vote compared with just 30% for the incumbent Liberals. This is nearly enough to give them a majority.

  • Ø Prime Minister Trudeau’s popularity among Canadians has dropped to 40%. That means he is less popular among Canadians than President Donald Trump is among Americans (43%).

  • Ø Trudeau has lost the popular support of two key demographics that were behind him in the last election: women and young people.

Up until now, I thought that Trudeau and the Liberals had the ability and time to recover. But unfortunately, the Prime Minister remains inept. He is the gift that keeps on giving – to the Opposition. Last week, Trudeau was speaking at a Liberal Party fundraiser where attendees made political contributions to participate. Suddenly an Indigenous woman interrupted to protest on behalf of native people in the community of Grassy Meadows dying from mercury poisoning as they have been for over 40 years. As the protestor was removed from the room by security, Trudeau said sarcastically, “Thank you very much for your donation tonight. I really appreciate it.” The audience of Liberal financial supporters broke into applause and laughter.

If I taught a course in politics, I would stress at the start of every class “Be careful what you say or do in public because someone will be videotaping you.” And someone was. So the next day, Trudeau was out there apologizing for another gaff on the pre-campaign trail. Before you will see your support increasing, you have to see stop decreasing. For Trudeau and the Liberals, this hasn’t happened yet.

If the Opposition Conservatives win the next election or be the lead party in a minority government, cannabis investors will have fled the scene. It’s virtually certain that a new Conservative government will not try to unwind legalization. But that possibility will always be there no matter how small the odds and the market detests uncertainty. What is more likely to happen is the pace of liberalization will slow to a crawl. As this happens the return on investment in cannabis companies operating primarily in Canada will also slow down and turn negative. In Canada and the U.S., you have to have a special kind of incompetence to not win a second term. So if the Conservatives win, 2020 might be first year of eight in which cannabis industry growth slows to and stays at a snail’s pace. Finally in Canada there are no term limits. So if the Conservatives win, it will certainly be depressing for four years and it could be twelve years.

Remember this is the stock market I’m talking about and by the time most investors figure out what is going on, it will be too late. So we have to be among those at the head of the pack.

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