A Comment -- General Comments From an Expert (A Commentary)

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.

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.

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.

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.

Marijuana based in Canada only a big concern? Yes, because of oversupply. If Europe had regulatory change, they could eat up the extra supply. But if don’t sign agreements now, could get shut out by the big guys. Need a route out of Canada if there’s oversupply.

Natural gas futures 18 months out. Take a partial position in Tourmaline or Whitecap? We’re awash in gas in North America, with some liquified natural gas projects coming on in future that could soak up some of this. But now it’s just normal supply/demand. US shale is growing, so you have to contend with more gas in the Permian. Be cautious with gas going into the winter.

Investor overlap in oil and marijuana? Retail investor is the one in the marijuana game, but institutional investors are the ones playing in oil.

For marijuana, buy one company or an ETF like HMMJ? The industry is young and small, so an ETF is not well diversified. If you have the time, pick the individual names because that’s where the real growth is. An ETF lets you be fully invested in the space if you don’t have the time.

Market. We have to differentiate between trade rhetoric and trade actions. Investors need to understand that a lot of this is politically motivated as opposed to economically. It is part of a negotiating strategy. Are these going to be lasting features of the trading relationship? He does not believe it is. We have not seen inflationary pressures through wage inflation yet but these things are typically lagged. We are late in the cycle and you want to be mindful of which sectors are inflation resistive.

Market Outlook. He has a continued concern about equity markets for the last coupe of months. On a global basis the economy is showing more and more signs of trouble ahead. Many holes to the synchronized global growth story. Europe is slowing. Japan is slowing. Emerging markets are very difficult. China effectively in a bear market. Domestically we are in a cycle. Expansion started in 2009. Now we hit capacity levels. US unemployment at 3.4%. All companies are now talking about rising input costs. The greatest tailwind for the equity markets in the last years – the zero-interest rate policy – is being pulled away. The party is almost over. Stocks are not ridiculously overvalued but highly valued. He would question the earnings quality for some companies also.