DON’T HAVE A COW
A look into the dairy dispute, plus whether it’s really worth investing in the cannabis industry,
Going to pot . . . slowly Investing in pot companies is looking like a dicey bet, at least in the mid-term.
Yes, federal legislation legalizing recreation marijuana possession and production is on this year’s parliamentary agenda.
But the July 2018 point at which the legislation is tentatively set to go into effect is not only far off, but merely a target date, by no means assured.
In the meantime, in order to protect its right flank, the Trudeau government is accompanying the world’s first national pot legalization (after Uruguay) with an almost brutal law-and-order regime around pot.
Cannabis cannot be imported or exported, or sold as a mixture with alcohol or coffee (as allowed in stores in some of the eight U.S. states that have legalized pot).
And providing pot to someone under 18 could mean a 14-year jail term on conviction.
That’s the same heavy sentence applied to sexually assaulting a child, human trafficking and certain terrorism crimes.
At least, those are some of provisions expected to be in forthcoming legislation, about which Ottawa has been especially shy in detailing until it is tabled.
So if you want to get in on the ground floor of the pot market, whose dynamics of demand, pricing and profitability are unknowns, by all means have a look at the more prominent publicly traded players, including OrganiGram Holdings Inc., Canopy Growth Corp. and Aurora Cannabis Inc.
But with profitability and thus share performance difficult to forecast, don’t expect to cash in on a bonanza once pot becomes a legitimate business.
Also consider that there are already 43 licensed medical marijuana producers in Canada, a number certain to, er, grow.
Since the market will be entirely internal, count on a shakeout among producers given too many providers chasing too few customers. The great unwinding Central banks in three of the world’s largest economies — the U.S., the European Union (EU) and Japan — have accumulated a staggering $13 trillion (U.S.) in assets from their largely successful efforts to bolster sagging economies with “backdoor stimulus” in purchasing government debt.
A decade after the onset of the Great Recession, that practice, called “quantitative easing (QE),” is about to give way to “quantitative tightening” — the process of selling off that debt.
The imperative is a return to leaner central-bank balance sheets, restoring the banks’ capacity for injecting capital into sluggish economies should the need arise again.
This will have to be a delicate exercise.
When the U.S. Fed first signalled a slowdown in its QE activity in 2013 — it employed the euphemism “tapering” to describe its proposed modest pullback from QE — global financial markets had a “taper tantrum,” correctly assessing that global economies were still too weak to do without QE.
Fact is, the global economy is still weak, or “running below capacity,” as economists say.
Also, the central banks’ portfolios of stimulus-designed investments include assets that won’t be easy to sell, such as the bonds of French yogurt makers held by the Europe- an Central Bank (ECB), and the controlling stake in Japan’s biggest soy-sauce brewer held by the Bank of Japan (BOJ).
Though the Bank of Canada didn’t need to engage in QE, Canadian investors are hardly on the sidelines. The great unwinding threatens to push up global borrowing costs if the process is rushed.
World financial markets, already carrying too much debt, will struggle to absorb the offerings in the Great Central Bank sell-off of the late 2010s.
The U.S. Federal Reserve is itching to unload assets this year, and the BOJ in 2018.
But expect the ECB to hold off until a troubled Euro-economy is fully recovered and the impact of Brexit can be measured — which points to 2019 at the earliest. Crying over spilled milk Donald Trump calls Canada’s supply-management system in dairy products a “disgrace.” He’s talking through his hat. The culprits for distressed American dairy producers are U.S. overproduction and depressed global commodity prices, notably for milk.
It’s also high hypocrisy for the U.S. to accuse anyone of disgraceful agricultural-support programs, given that the U.S. itself spends billions of dollars propping up its own farmers.
As Justin Trudeau told Bloomberg last week: “Let’s not pretend that we’re in a global free market when it comes to agriculture.” True enough. One of the virtues of the Comprehensive Economic and Trade Agreement (CETA) reached last year between Canada and the EU is greater access to each other’s markets for agricultural goods.
In the Trump-aborted Trans Pacific Partnership (TPP), Japan reduced protections for its politically potent rice and other agricultural producers in exchange for greater export access to the 11 other proposed TPP members.
The genuine free trade that Trump has rejected in favour of his DOA “America First” policy is the only means of resolving the “unfair” treatment of farmers that the U.S. complains of.
That said, if Trump’s fatuous name-calling is brushed aside, supply-management practices in both Canada and the U.S. have rightly been condemned by economists for decades.
By cosseting farmers, they discourage investment in more efficient farming.
And they push up prices for milk, eggs and cheese for Canadian consumers, a form of regressive taxation that most injures the financially disadvantaged.
A long-standing practice of raising the cost of living for all Canadians for the sake of the less than 5 per cent of Canadians employed in agriculture is bad public policy.
If Trump’s belligerence kicks off a serious rethink of Canadian and U.S. protectionist agriculture policies, he might be doing us a favour. dolive@thestar.com
The culprits for distressed American dairy producers are U.S. overproduction and depressed global commodity prices