Market. The Russell 2000 is breaking out to long-term highs. Canada’s Venture is also breaking out after a 3-year consolidation pattern. This is inconsistent with the idea of selling in May and going away. The underlying basis for growth in Canadian securities is from the cannabis industry. The first wave of growth came for domestic medicinal consumption, but now there is a growing international market and there are strong institutional investors.

Comment on the valuation of cannabis stocks. A caller asked whether cannabis stocks are currently overvalued. Marchand responded that there is a large black market for cannabis and the legal cannabis companies will take share away from them. Roch-Decter pointed out that several large-cap cannabis companies, such as Aurora, are using their highly valued shares to buy other companies. The agriculture market trades at 1x revenue. Cannabis companies trade at 4X, which she does not consider sustainable. Over the long run, the cannabis multiples will retreat to more normal levels and the smart companies today are highly acquisitive. She recommends holding a smaller midcap that will be swallowed by one of the larger companies or one of the larger companies that is getting international licenses.

Comment on cannabis supply. There is already substantial supply of cannabis in Canada via the black market. One question is how much of that market will switch over to consumers buying their recreational supplies in the legal market. She does not believe that Canada will, initially, be oversupplied. In addition, the legal cannabis sellers are focusing on the high end market. In Colorado, about 37% of the market is edibles and other ancillary products. She believes that as the government moves to allow these in Canada over the next year, this will also solve oversupply issues. 

Comment on connections between crypto and cannabis. Roch-Decter noted that there are two privately-held companies in BC that use the excess power from their crypto-mining operations to grow cannabis. This is the perfect intersection of both sectors. Both sectors have trouble playing with traditional financial institutions, so they have that in common too. Marchand says that cannabis producers are interested in, or using blockchain technology in their business, but blockchain is a tool for them, not something that changes the industry.

Comment on the crypto market.  Question: Could this be like the 3D printing market, which attracted huge interest a few years ago but now that 3D printing is here, one doesn’t hear much about it? Response: Crypto blew its top with $20,000 on bitcoin and everyone wanted into it. Over the past 6 months, the pattern has been lower highs. There has been a fog over the regulatory space, and some serious hacks, creating a tug-of-war between the bulls and the bears. Last week, the US Securities and Exchange Commission said that Ethereum is not a security; it is a commodity. By clearing this up, the SEC provided some additional certainty in the market, which favors investors. The crypto market is still only $300 billion, which is not much. There is a lot of room to grow.

Beijing trade war with Washington. Surprised there hasn't been more worry in the markets, but Canada has been focused on NAFTA. The two largest economic powers in a trade war is concerning. With Trump, always wonder if it’s just a negotiating tactic or not. In general, investors should be positioned more defensively. For Canadian investors, these tactics pose some risk to NAFTA if the US takes a hard line. Canada needs the trade more than the US does, and the power of US consumer puts US in a strong negotiating position. Bit of a game of chicken now. In Canada, people should think about the view that a slightly worse deal is better than no deal at all.