What happens to cannabis stocks if the Liberals lose the election?
Last week my message was Prime Minister Trudeau and the Liberals were in a bind it looked like it was going to get worse before It got better. On Wednesday of this week, things got worse. Much worse.
We recounted the story of the Canadian international engineering company, SNC-Lavelin, and the fact that some of its executives are facing criminal charges relating to bribes paid to win contracts in foreign lands. The Quebec newspaper ‘La Presse’ reported this week that SNC, for example, paid $30,000 for Muammar Gadhafi’s son, Saadi, for “companion services” on a visit to Canada in 2008. SNC is headquartered in the French speaking Canadian province of Quebec. The Liberals, who have strong support in Quebec, have been trying to get federal corruption charges reduced to a Deferred Prosecution Agreement (DPA) that would result in fines rather than jail terms. When the Minister of Justice and Attorney General of Canada, Ms. Jody Wilson-Raybould, a lawyer herself, would not change her position that the criminal charges should stand, she was removed from the Attorney General position of Minister of Justice and demoted to the Minister of Veterans Affairs in January 2019, a position she resigned in less than a month.
When Wilson-Raybould was called to testify before the Justice committee, there was some confusion about what she could say based on some interpretation of lawyer/client privilege. Under tremendous pressure, Prime Minster Trudeau waived the lawyer/client privileged and even allowed Wilson-Rybould to speak of matters discussed in Cabinet. This might prove to be the most serious mistake our error-prone Prime Minister has made to date.
Wilson-Raybould began with a prepared statement based on “…contemporaneous notes, detailed notes in addition to my clear memory….” Here are some key phrases from her statement: “politically interfere…in an inappropriate effort,” “…involved 11 people…from the Prime Minister’s Office, the Privy Council Office, and the office of the minister of finance,” “…on Jan 7, 2019, I was informed by the prime minister that I was being shuffled out of the role of Minister of Justice and Attorney General of Canada,” “What is not appropriate is pressing the attorney general on matters…such as partisan political considerations, continuing to urge the attorney general…four months after the decision has been made, or suggesting that a collision with the prime minister...should be avoided,” “…if they [SNC-Lavalin] don’t get a DPA, they will leave Montreal and it’s the Quebec election right now, so we can’t have that happen."
The consensus view that is evolving is what the Liberals were trying to do (help an important, regional employer) is done all the time. What went wrong is the Prime Minister attempted to hide the truth and with each attempt he was forced to backtrack and ended up looking inept. It was a serious misjudgement to allow Jody Wilson-Raybould to speak freely. But for a couple of instances that wouldn’t have come out, it is a “he said, she said” type of case except that people now believe what “she said” more than what “he said.” When the inexperienced leader of the opposition Andrew Scheer called for Trudeau to resign, many pundits thought that was crazy. To the opposition, the Prime Minister has been the gift that keeps on giving. Why would you want to force him out?
Can Justin Trudeau recover? The consensus is probably yes but there isn’t a non-partisan pundit anywhere I can find that has said he will. If Trudeau does win, it will likely be by default. The leader of the Opposition is inexperienced and the leader of the New Democratic Party (NDP) currently far behind the other two is really inexperienced. There is another possible outcome. If neither the Liberals nor Conservatives win a majority of the seats, the NDP can make a deal with one of the other two and create what is called a minority government. In this case, it is important to note the NDP is generally pro-cannabis.
In the event the Liberals do not win or form the dominant part of a minority government, here is how my main recommendations appear:
1933 Industries (CSE: TGIF): is about 99% U.S. based with only around 1% of revenue from Canada.
Canopy Growth (NYSE: CGC) (TSX: WEED): although diversified and diversifying, it will probably suffer short term selling pressure in the stock market.
Khiron Life Sciences (TSXV: KHRN) is 100% operating in South and Latin America.
Lexaria (CSE: LXRP) (OTCQX: LXRP) with its research transaction with Altria, the world’s largest tobacco company, LXX is positioned to make the case it is substantially based outside of Canada.
Organigram (TSXV: OGI) is still substantially dependent on Canada for revenue but has been aggressively diversifying internationally.
Sunniva (CSE: SNN) by election day, I expect SNN will be or will be seen to be Americanized.