When a U.S. carrier group arrived off the Korean peninsula earlier this week, the Asian stock market went awash in red. The Nikkei hit a five-month low, and the Shanghai Composite dropped almost a full percent.

The week before, President Trump’s missile strike on Syria prompted a precious metals rally with gold leading the way — a traditional haven in times of uncertainty. Oil also turned bullish on the news with prices reaching a one-month high.

Political uncertainty tends to spook investors and send global markets into unexpected gyrations. And the threat of actual military aggression would have significant negative effects on the global financial market. Where does that leave investors today and over the medium term?

The search for safe havens and currencies

The European Union is in disarray; Brexit led the way, but other countries are eyeing their own exodus from the E.U. Scotland is revisiting independence from the U.K. Russia’s aggressive maneuverings in eastern Europe and the Middle East are ringing alarm bells.

At times like these, foreign investments flow toward safe-haven currencies and precious metals. The U.S. dollar, the Canadian dollar, and the New Zealand dollar should see new investment if the situation overseas escalates.

Additionally, gold, silver, and platinum could reach historically high prices under the clouds of war. This played out on a small scale following Trump’s missile strike. A rally in gold prices could indicate pockets of opportunity for the short and medium term, either in precious metals themselves or related businesses.

Opportunities for growth in energy and transportation infrastructure

Escalating geopolitical tensions across the Atlantic and in the Asia-Pacific region will put pressure on the global energy market. Although Syria itself isn’t a significant oil producer, its position and alliance with some of the major producers in the region add to fears about the global oil supply. The market’s response to the missile strikes bore that out with oil prices gaining 3% in the week following the launch.

Canadian crude and natural gas remain a significant part of the global energy supply; even with recent market fluctuations and turmoil, oil stocks may represent an opportunity for growth over the short and medium term. Midstream service providers, such as TransCanada Corporation (TSX:TRP)(NYSE:TRP), that provide pipeline infrastructure also stand to gain, especially those that supply both domestic and U.S. markets. ShawCor Ltd. (TSX:SCL), which provides technology products and services for the North American petroleum and pipeline industries, is also positioned to capitalize on an energy rally.

Periods of war also tend to escalate demands for goods, which opens windows of opportunity in the transportation sector. Rail, as the most cost-efficient method of bulk transportation, is uniquely positioned to gain from military conflict. Canadian National Railway Company (TSX:CNR)(NYSE:CNI) is one of the largest North American freight providers with a transcontinental rail network that connects the entire North American market.

A second look at financial stocks

Bank stocks are generally considered safe, high-dividend core holdings for investors seeking capital appreciation. In times of global political uncertainty, Canadian financial institutions could benefit from an inflow of foreign investments, again due to the perceived safe haven of Canadian currency and markets. Times of conflict may also drive business borrowing, adding to the appeal of financial stocks.

The Big Five banks had a double-digit year in 2016, but there is still potential upside, especially given the global political climate. Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is heavily exposed to the Canadian market and has yields in excess of 4%.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has the largest international division of the major banks with over 14 million international customers; it’s well positioned to capitalize on foreign inflows. The stock did very well last year and is poised to outperform in the short and medium term.

Final thoughts

Canada’s financial markets are already an attractive option for global investors; funds tracking the MSCI Canada indices pulled in more cash last year than any other non-U.S. country. Energy and precious metals, sectors typically impacted in times of geopolitical instability, make up significant chunks of the Canadian economy (about 20% of the Canadian stock market is in energy, and mining and natural resources account for 17% of GDP). These factors taken together offer significant potential opportunities for investors seeking safety and growth in a “clouds of war” portfolio.

The post Are the Clouds of War Gathering Over Your Portfolio? appeared first on The Motley Fool Canada.

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Last December, a government task force laid out recommendations for legalizing recreational marijuana along with a roadmap to accomplish it by the end of 2018 or early 2019 at the latest. Supporting legislation will come before Parliament this spring.

It’s no surprise that the news boosted stock prices for several of the publicly traded companies licensed to produce medical marijuana. Canopy Growth Corp. (TSX:WEED), owner of core marijuana brands Tweed and Bedrocan, is currently trading around $10 a share; it was trading below $4 as recently as September. Medical marijuana producer Aphria Inc. (TSXV:APH) doubled its share price from $2 to $4 since the task force announcement.

On the face of it, 2017 may be the year to jump into the marijuana market to get a piece of what looks to be promising growth over the next few years.

A closer look at the recreational marijuana market

In 2016, Deloitte partnered with Toronto’s RIWI Corp. to examine Canada’s potential recreational marijuana market. The report showed that 22% of the adult population currently uses recreational marijuana and another 17% may be willing to try it if it was legalized, indicating a substantial potential market of nearly 40% of adults. By comparison, 80% of adults consumed alcohol during the survey period.

The market numbers shake out like this:

• A base market of $5-8.7 billion annually (actual direct sales of marijuana).
• An ancillary market (growers, testing labs, security, other related marijuana products) of between $12.7 billion and $22.6 billion.
• A potential economic upside of $22.6 billion (tourism revenue, licenses, taxes, paraphernalia).

There’s a potential economic impact exceeding $50 billion a year using high-end projections.

The potential upside in the near term

Canopy Growth, one of the most forward-thinking of the licensed producers (it recently acquired Mettrum Health Group, another marijuana production company, in anticipation of a burgeoning marijuana market), is a good test case.

Founded in 2014, the company has a current market cap of about $1.25 billion at $10 a share. It has been pursuing an aggressive growth strategy with carefully timed equity releases and a partnership with the Goldman Group to extend its production capacity and footprint.

The income statement may give investors pause, however, given its oversized market cap. In the quarter ending Sept. 30, Canopy reported revenue of just $8.5 million, although that represented an increase of 22% over the previous quarter and 245% over the same period last year. Stock prices have remained fairly constant in the $3-4 range until the recent year-end spike.

As the canary in the coal mine for the marijuana industry, Canopy is as good a choice as any. The company’s share price has risen 275% over the past 12 months. Its annual revenue growth rate is a robust 435%. Looking out two years, analysts predict annual revenues of $138 million for FY 2018.

The company has ramped up its production significantly quarter over quarter and is poised to capitalize on the recreational market. In November, its most recent financial report showed production of 1,170 kilograms — up 267% over the same period last year. Of note, the Deloitte report puts recreational demand at 600,000 kilograms per year if legalization goes through.

Comparing marijuana to the high-tech industry

It’s difficult to draw an apples-to-apples comparison between recreational marijuana and an established industry, but a look at Canada’s high-tech sector is instructive.

The Brookfield Institute released a report recently indicating that high-tech is the fastest-growing sector of the economy, generating about $117 billion of the country’s $1.65 trillion economy, which is about twice the high-end projected market for marijuana — and there’s unlimited room for growth given the global demand for high-tech goods and services.

Astronomical growth has already been proven within the sector. The Deloitte Fast 50 Program identifies the fastest-growing companies in Canada’s tech sector. The winner this year, UrtheCast (TSXV:UR) saw revenue growth of over 72,000% between 2012 and 2016.

Shopify Inc. (TSX:SHOP)(NYSE:SHOP) could serve as a bellwether for the industry. The company has a market cap of $4.5 billion; analysts predict revenues of $570 million in FY 2017 — up 50% over 2016. Monthly recurring revenue is up nearly 70% to over $16 million.

The stock prices have reflected the company’s growth trajectory, more than doubling to over $51 from $22 a year ago. Shopify recently acquired Boltmade Inc., and a deal is underway to purchase Kit CRM. The stock is already trading above its 12-month price target of $50.

According to the Brookfield Institute, investment in Canada’s high-tech sector was up 24% in 2015 and is on pace to exceed that for 2016. Over 60% of all venture capital deals in 2015 were in the tech industry, and R&D investment exceeded $9.1 billion in 2015.

For a short- to medium-term investor, the high-tech sector offers the potential for significant returns with a much broader basket of established equities from which to choose in order to hedge risk.

A look at the potential downside of marijuana

If you want to get in on the ground floor of legalized marijuana, it’s a mistake to ignore the potential very significant risks. Legalization is not a foregone conclusion — and the challenges of implementing a legalization framework are not insignificant either.

Distribution on such a massive scale will be a challenge. The roadmap offered several different models, each of which has its share of detractors. One model suggests that the government would purchase marijuana from growers directly and then wholesale it to approved vendors — which would require an entire application, approval, and licensing process which has yet to be developed.

Another model uses government-owned liquor stores for distribution — an idea that has public safety officials up in arms over a potential increase in impaired driving. And, of course, Alberta doesn’t use the provincially owned liquor store model, creating a new set of challenges.

Risks and rewards

For investors, marijuana remains an extremely volatile, risky, and uncertain market. Most publicly traded companies are highly speculative and trade OTC. The North American Marijuana Index launched in 2015, which includes about 23 companies with an average market cap of $239 million and a share price at or below $4.

The U.S. Index moved from $114 in January 2015 to $23 in February 2016 and currently rests in the $80 range. A framework for the retail sale of recreational marijuana was implemented in Colorado and Washington in 2014 with six more states and the District of Columbia following suit in 2015 and 2016.

The Canadian Index launched at about $100 in January 2015, fell to the $55 range mid-year 2015, and began a fairly spectacular climb in July 2016, peaking at over $330 in November on news of legalization before falling off to the $280 range currently.

The bottom line

There is potential for huge gains in marijuana, but timing your entry is extremely important. Once the legalization question is determined, it will take a year or two before customers begin queuing up to buy their first legal pot — and in the interim, many speculative companies will rise and fall in equally spectacular fashion.

Companies that support the burgeoning industry may offer a safer haven in the early stages, although returns will reflect the lower risk (think fertilizer companies, security companies, tech companies providing RFID technology for seed-to-sale tracking, that type of thing). If you’re looking for a pure play in marijuana, keep your eye on Canopy, Aphria, and Aurora Cannabis (CVE:ACB) for 2017 and beyond.

The post Why 2017 Is the Year to Invest in Marijuana appeared first on The Motley Fool Canada.

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