Potential change in Canadian government could affect edibles

There are storm clouds on the horizon in Canada that could have a significantly negative impact on the domestic cannabis industry. I’m talking about the recent political problems of Prime Minister Justin Trudeau and the Federal Liberal Party. As many readers know and we reported in great detail back in 2015, cannabis legalization was a hotly contested issue. The current Liberal government had legalization of marijuana as one of its main election planks. The then ruling Conservative party and Prime Minister Stephen Harper were so anti-cannabis, they consistently campaigned on cannabis “facts” that were inaccurate and in some case untrue.

I should make one thing clear. The Canadian cannabis genie is out of the bottle, that is, it is too late to go from the current legalized status back to the former illegal state of affairs. The leader of the opposition Conservative party has acknowledged this. But the anti-cannabis culture that dominated the Conservatives four years ago is still present. So while cannabis will not go back to an illegal status, a newly elected Conservative Government and Prime Minister could certainly impede progress.

Perhaps the sector at greatest risk should this election possibility become a reality is the entire edibles sector. The current government promised edibles would be legalized within one year of The Cannabis Act being put into effect. That one year date would be Thursday October 17, 2019, the first anniversary of legalization in Canada. The date of the next Federal election in Canada is the following Monday, October 21, 2019. The ruling Liberal party has already said that alcoholic beverages infused with cannabis will not be approved by this date and there is also a precedent that the effective date of legalization does not have to coincide with the approval of legislation. For example, the legislation to legalize cannabis in Canada received Royal Assent (final approval) on June 21, 2018 but the effective date of legalization was October 17, 2018. The same could happen with edibles. Approved on September 15, 2019, say, but effective January 15, 2020. If the government changed on October 21, 2019 in this hypothetical, there would be ample time to delay, stall or cancel the legislation.

Also at risk are those still waiting for a production license. For example, a new government could freeze the approval of new licenses for an undetermined period. Or delay inspections. Or do a number of things that bring the number of new approvals to a crawl. I would not want to have spent money on building a grow site that is not approved before October 21, 2019.

The real issue is the ability of the Liberal Government to be re-elected. This has been put in jeopardy for reasons totally unrelated to cannabis. The issues are typically Canadian and therefore convoluted. At the root of the issue is SNC-Lavalin, a Canadian company whose executives are facing possible criminal charges related to its international activities. If executives are found guilty, SNC-Lavalin would be banned from bidding on Federal government projects.

SNC-Lavalin is headquartered in the francophone (French history and culture) Canadian province of Quebec. Historically, almost all Federal Governments in one way or another have pandered for the French-Canadian vote. At the 1976 Olympics when Montreal Mayor Jean Drapeau and/or Premier Robert Bourassa were rumoured to have made an under-the-table deal with construction union leader Andre Desjardins to get construction work completed. Since that time and possibly earlier, Canadians have harboured a suspicion, rightly or wrongly, that the underground economy in Quebec was a much larger force than in other regions of the country.

But there’s more. Prime Minister Trudeau and the Liberals ran and were elected on an agenda that featured reconciliation with aboriginal people and the equality of women. The Justice Minister of the day was Jody Wilson-Raybould who is both aboriginal and a woman. In addition, Wilson-Raybould is a lawyer and daughter of Bill Wilson, who is also a lawyer, the Kwagiulth hereditary chief and one of most influential aboriginal leaders in Canada.

The speculation goes that someone in the Prime Minister’s Office or perhaps the Prime Minister himself spoke in some way to Justice Minister Wilson-Raybould about dropping the charges against SNC-Lavalin’s executives and fining the company instead. If this is true it would amount to political interference in a prosecution. The allegations continue that Wilson-Raybould refused triggering her removal from Justice to Associate Minister of National Affairs and Minister of Veteran’s Affairs which was a clear demotion. When facing criticism about firing Wilson-Raybould from Justice, the Prime Minister said words to the effect that everything is okay and the proof is she is still in cabinet. Almost immediately Wilson-Raybould resigned her ministerial positions meaning she was no longer in cabinet. Needless to say, her daddy is not pleased.

As all this was happening, Gerry Butts, the Principal Secretary, Chief Strategist and long-time friend of the Prime Minister resigned spawning speculation that he was the “someone” from the Prime Minister’s Office that did the dirty deed. In the meantime, the government’s strategy of deny, deny, deny went from “Wilson-Raybould wasn’t “directed” to she wasn’t “influenced” to she wasn’t “inappropriately influenced.” Deny, deny, deny became backtrack, backtrack, backtrack and not “inappropriately influenced” seems to imply Wilson-Raybould was “appropriately influenced.”

This chart shows the CBC Poll Tracker from 2009 to the present. The Poll Tracker averages the combined results from major political polls in Canada. The ruling pro-cannabis Liberal government popularity is shown in red. The opposition anti-cannabis Conservative party is shown in blue. The New Democratic Party (NDP) is in orange. What does the data tell us?

1. Despite the recent SNC-Lavalin problems, the incumbent Liberals are still polling ahead of the Official Opposition Conservatives. But with regard to SNC-Lavalin, the worst may be yet to come.

2. The fact that the Liberals are still leading in the polls is a reflection of the weakness in the leadership of the Conservatives and NDP and not the strength of the Liberals. Andrew Scheer, the leader of the Opposition, has been unable to really take advantage of the Liberal problems. Jagmeet Singh, the leader of the NDP, has been completely ineffective. The standing joke as Singh tries to win a Federal bye-election is that the best thing that could happen is if the Liberals and Conservatives withdrew their candidates and let him win. He would do the Liberals and Conservatives the most good as leader of the NDP.

3. The best result from a purely cannabis legalization perspective is for the Liberals to be re-elected. The worst outcome is for the Conservatives to win. A minority government, assuming it would be a Conservative/NDP alliance, would not be favourable because although the NDP has been pro-cannabis, both leaders are relatively inexperienced.

Conclusion: the election outcome is wide open. The Liberals are still in the lead although the trend is not positive and the Prime Minister is in a bind, they are ahead in the polls and nine months is a lifetime in politics. If we want cannabis legalization to move ahead quickly and smoothly, the Liberals are the best bet.

If the Conservatives win, there will be immediate uncertainty and eventual delay. For example, even though going back to the previous state of affairs is not likely to happen, the Conservatives could call for a referendum on the question nine months in the future. They could pretty much stop anything that hasn’t been passed which might include edibles and would include cannabis infused alcoholic beverages.

I keep discussing companies including Khiron (TSXV: KHRN), 1933 Industries (CSE: TGIF), Lexaria (CSE: LXX) and Sunniva (CSE: SNN) as companies with significant interests outside of Canada. These are my favourites. But there are obviously many companies that are operating outside of Canada but financed here. As we did four years ago in advance of the last election, we will watch the polls very closely and changes in trend in voter sentiment will have an ever increasing impact on the cannabis stocks. In the meantime, keep the bulk of portfolios invested in cannabis stocks with major interests outside of Canada.