Scott Willis

Market. TSX had its best quarter since 2013. How long will it last? Will energy improve in the rest of the year? In last 4 years, you’d have outperformed if you’d just traded oil according to OPEC cutting or increasing production. Silly to fight OPEC at this stage of the cycle.

Cohesive story with Enbridge’s Minnesota approval, Keystone XL, and Trans Mountain? Good to look at it as a whole market, because it will impact what Canadian oil prices trade at vs. the US. Incrementally positive. In Canada, pipeline constraints are already here, so we need pipelines built to allow industry to grow. The industry will continue to grow now. We could be at this same point a few years from now.

Will the differential between Western Canada Select vs. WTI continue to be volatile? Volatile as long as pipes are full. There will be big swings if any operational issues come up with the pipeline companies. This will continue until those new pipelines come on.

Millennial interest in marijuana sector? From a demand perspective, millennials are interested in a trend where they can make money.

Which marijuana stocks do you use to take the temperature of the sector? Only 1 or 2 bellwethers. “As Canopy goes, so the industry goes.” Canopy had a tougher quarter, so it took wind out of the sails of the market. Also Aurora to see future of industry. Aphria and the other big ones follow Canopy, because they have that big investor in the spirit space, so they have the respect of the market.

What do you look for in management in the marijuana space? Management team with substantial experience with distribution, as in pharmaceuticals. Because the industry’s going in the direction of health and wellness.

Competitive call structure, lack of growth. Paying down debt instead of reinvesting in the business, which will hit their growth longer term. Prefers CNQ which has more growth and higher yield.

US drillers. Prefers Canadian names, because of valuation. Go for straight-up growth or harvesting some cash flow. Valuations in the US are getting a bit stretched.

This is their year. Has rebounded with oil prices, still room to go. Executing well, wall of cash flow coming, good yield.

Buying like drunken sailors causing dilution? Started with the build, then moved to just the buy at extended multiples. Now using cash, which is tamping down return potential. Storm clouds on horizon. Supply far exceeds demand. They’re not really thinking of shareholders when they’re buying at high multiples.

Oversupply of marijuana similar to .com era? Will black market add to oversupply? Will big players be in financial trouble? That’s one issue, but another point is these stocks imply $6/gram price, but provincial price implies $4.50/gram. That’s a worry.

Contender, go by the wayside, or be acquired? Be careful, takeout premium is built in. If no takeout, there could be a blow up in the stock. Stuck in no man’s land, no R&D on pharmaceutical side, no export agreements. Tough for them to compete in exports and pharmaceuticals when the market price of wholesale marijuana reaches a plateau in a year or two.

Well run, good pure play on refining. But you want to own refiners at beginning of cycle, when prices are low or going up, not now. Now you want to be in the integrated space.

Specialized marijuana companies. Hasn’t looked closely at these companies. But the infused beverage space is an interesting way to play marijuana. Possible takeout opportunity from liquor and big tobacco. As long as they execute well, could be a takeout or grow their own market share.

Part of Baytex, good way to get exposure to Eagleford as well as Canada. Bought Raging River, multiple is in line, and they have decent growth. Hold your shares if they get rolled into Baytex. Market thinks they overpaid, but if you buy good rocks, you’re going to get a good result.