That said, the prize for the industry is not hermetically sealed. As part of Justin Trudeau’s outlined marijuana agenda, the plant will be nationally legalized come June 1, 2018. This has massive implications for all savvy investors with a hat in the cannabis ring.

Lifestyle becomes the name of the game

The overall sector’s growth is fueled by the retail consumer. The medical benefits are not to be ignored, but the lifestyle associated with consuming the product is the industry’s driving force. More than any other Canadian cannabis provider, Canopy Growth Corp. (TSX:WEED) has positioned itself to dominate retail.

Those who argue that the medically focused players can easily shift to retail are perhaps currently enjoying the product itself. The consumer is savvy and protective of their own personal brand. The value from the products’ association with medical benefits will completely change once new legislation passes.

With an open market, the marijuana industry will begin to resemble craft brewing rather than pharmaceuticals. The perception of the product is critical to driving revenue. After all, would you indulge in Johnson & Johnson’s new (and fictional) Jobin Double IPA? Developing a strong connection with the consumer is of the utmost importance and can be quite expensive. Ask any executive at a large beer manufacturer.

Canopy Growth Corp. has begun by spending on sales and marketing; its budget is more than double the combined expense of its two major competitors, Aurora Cannabis Inc. (TSXV:ACB) and Aphria Inc. (TSX:APH). This has already manifested in a larger social media following and tangential revenue from merchandise.

Tweed, it’s principle brand, has invested in cannabis content and periphery services. In addition, its partnership with Snoop Dogg should not be overlooked. His branded line, “Leafs By Snoop,” is a top seller in Colorado, where weed has already been legalized. Further, Snoop’s online media platform, MERRY JANE, boasts more than 100,000 followers. These digital channels are the foundation of a global distribution network, upon legalization.

Canopy Growth Corp.’s management deserves applause for a longer-term mindset in anticipation of a drastic market overhaul. The fundamental risk is a government reversal on national legalization. Although possible, Trudeau’s term is through 2019 and potential successor, Kevin O’Leary, has remained upbeat on the proposal.

For the savvy investor intrigued by the expansive opportunity in the marijuana space, Canopy Growth Corp. is the holding for long-term stock appreciation.

The post Forget Everything You’ve Read About Cannabis: Canopy Growth Corp. Is Your Long-Term Investment appeared first on The Motley Fool Canada.

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The Keystone XL pipeline was officially approved at the White House on Friday. President Trump, alongside TransCanada Corporation’s (TSX:TRP)(NYSE:TRP) CEO Russell Girling, performed the ritual to promote future job growth and success for all.

Certainly, this is exciting news for the pipeline provider and oil and gas construction companies alike. However, should the everyday consumer be as thrilled?

The average North American is led to believe they will profit. TransCanada, the mastermind behind the Keystone XL, outlines the project’s three major benefits, including job creation, tax revenue, and energy security.

One may associate the pipeline with a government-mandated infrastructure project, but with private backing. The tax revenue will benefit depressed counties near construction sites and the U.S. and Canada’s national governments. The job creation, however myopic, will allow North American construction workers to dust off their helmets and re-enter the job force.

The key issue lies with the final point. Energy security “(will help the U.S) secure access to an abundant energy resource produced by a neighbour that shares a commitment to a clean and healthy environment.”

When the savvy consumer fills up the tank after a long day at work, they don’t feel the urge to inspect the origination of the gas. Furthermore, when homes across Canada are heated each winter, consumers don’t consider their “brand loyalty.” Price is the sole factor contributing to the purchase.

So, how will the Keystone XL impact the oil price?

The price of oil is at the mercy of global market supply and demand. Traditional economic theory suggests that an increase in supply will reduce the price. However, as the world (especially Canadian energy companies) learned last year, oil is not your typical commodity market.

The simple conclusion is that the pipeline will likely not have any direct impact. OPEC and Russia very much control the price of oil. Since the Middle East has the easiest access, and thus the cheapest extraction methods, to the black gold, they are at a steep competitive advantage. Energy companies in Canada have already proven that $50/barrel is barely enough to survive.

If global production wanes and prices steadily rise, what is stopping Canadian producers from joining in on the gouging? The fundamentals of the oil market suggest these companies have an economic incentive to follow price hikes, especially given the financial outlay required to increase drilling. After all, should Saudi Arabia decide to flex its power and ramp up production again, Canadian producers would be overly exposed. Perhaps it would be best to “play nice” and follow the cartel’s pricing.

Therefore, the consumer is likely no better or worse off, economically speaking, from the uptick in Canadian production. The adage may ring true in this case, “if you can’t beat them, join them.”

An investment in TransCanada may provide considerable long-term dividend income.

The post TransCanada Corporation’s Keystone XL: How Low Can Oil Go? appeared first on The Motley Fool Canada.

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The dust appears to be settling following a volatile two years in oil prices. Management throughout the industry seem to be breathing a bit easier (although cautiously) based on sentiment in recent management discussion and analysis reports. Selling, general, and administrative costs have shown an uptick among several energy firms—an indication of industry confidence (with perhaps a hint of greed). Yet with the energy sector in the tail end of recovery mode, can savvy investors still find an opportunity?

The most vulnerable during the oil crisis were the oil and gas equipment providers. On the periphery, these services were typically cut as clients struggled to survive. The result, for those fortunate enough to stay in business, was typically a staff reduction and desperate financing measures (high-interest debt or additional public offerings). Myopic as it was, these firms simply could not afford to plan for future growth.

Computer Modelling Group Ltd. (TSX:CMG), a software company focused on oil-reservoir simulation, followed a different path. Although exposed to the same risks, Computer Modelling did not require drastic changes to the balance sheet. Furthermore, while other providers were cutting dividends, Computer Modelling consistently raised its distributions. One can argue that a software company should not be compared to, say, Canyon Services Group Inc. (TSX:FRC), a provider of stimulation and fluid management services. However, when two companies are competing over the same waning budget, I’d suggest the contrary.

The long-term prospects of Computer Modelling appear to be sound. The greatest risk to the business would be customers bringing a similar technology in house. This seems unlikely given the company’s commitment to cutting-edge software, as evidenced by its 20% R&D budget. In fact, while other companies were slashing R&D (including customers), Computer Modelling has grown its department year over year.

With the oil prices always an unknown, Computer Modelling is not impervious to risk. That said, should energy companies begin to open their wallet once again, Computer Modelling could stand to be a top beneficiary. An increase in global revenue from rising oil and gas spending would directly impact the bottom line, unlike other providers who face large interest payments. Should the price of oil lose its lustre, Computer Modelling has longer-term contracts to support much of its capital expenditures.

Valuation must always be the final checkmark. Trading at 33 times trailing 12-month earnings, Computer Modelling is no bargain relative to other software companies. That said, in comparison to other oil and gas equipment stocks, it looks to be a good value. The 4% current dividend yield signals a mature market; this company should not be selected for a growth portfolio. However, for speculators in the energy space, this unique angle could provide a strong upside should oil decide to rally.

For the savvy investor with a longer-term horizon and income in mind, the recent pullback in crude may support a good entry point for this oil and gas tech stock.

The post The Recent Pullback in Oil Is Good News for Computer Modelling Group Ltd. appeared first on The Motley Fool Canada.

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A walk down Yonge Street will certainly feature a Maple Leaf’s jersey, a Herschel backpack, and a gaggle of Canada Goose jackets. Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS), the apparel manufacturer and a recent Toronto Stock Exchange IPO, is the maker of the popular coat—a sure hit for those with a fat wallet and a smart fashion sense. With the stock now trading just above its issue price, should the savvy investor follow the fashion trend or flock south?

If we take another stroll, this time down memory lane, we are reminded of the retail hits that quickly lost their IPO lustre. BRP Inc. (TSX:DOO), the ski-doo provider, skidded off its course six months after its first trading day. Lululemon Athletica Inc. (NASDAQ:LULU) followed a similar fate, losing its qi just weeks into its session on the TSE (timing was not on its side). Certainly, that’s a common path for plenty of IPOs; however, Canada Goose may prove to be an exception to the rule if it can follow its current strategy.

Per the Canada Goose IPO prospectus, management identified a key to success as their ability to convert on the direct to consumer (DTC) channel. In fact, “a jacket sold direct [to consumer}] accounts for two-to-four times greater contribution to their segment operating income per jacket [compared to wholesale].” To date, this has been primarily executed online—a far less expensive alternative to the brick and mortar bear-trap that has caught the leg of Lululemon and Under Armour (among others). The result for Canada Goose is an impressive 26.2% EBITDA margin with 42% year-over-year sales growth. Both figures are well above their industry comps.

These are all encouraging signs, yet one must consider management’s note on risk. The growth strategy clearly states an anticipation of 15-20 more retail locations—enough to ruffle the feathers of any investor. With an estimated 6-8% impact on the bottom line, the notable margin expansion may become vulnerable, especially given the high-priced real estate that comes along with the brand.

Lastly, with an implied price-to-earnings ratio of 45 (given a consistent bottom-line growth rate), the stock may already be priced to perfection. The retail strategy will remain a question mark, but it is too difficult to argue with the explosive growth and operational efficiency. Purchasing an IPO after a large initial rally poses a risk for a correction, but the mid-term prospects for Canada Goose appear promising.  The near-term buyers should be prepared for a little turbulence, but when all is said and done, one can expect to be kept warm with this golden goose.

The post Taking a Bet on the Golden Goose appeared first on The Motley Fool Canada.

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