Canada legalises cannabis
Canada has become the first developed nation to legalize Cannabis! On Tuesday the Canadian Senate passed Bill C-45, the Cannabis Act, which was already approved by the House of Common and so will become law. Canadians will be able to purchase and use cannabis legally as early as September 2018. While valuation in cannabis companies are elevated, forward earnings make current prices undervalued. In 2015 alone, Canadians spend USD 4.5 billion on recreational Cannabis usage. See Swissquote’s Cannabis Active Certificate (WEEDLQ) for details.
The national scale of the Cannabis Act is significant to the USA, which has fragmented legislation. The USA is likely to follow Canada’s lead, as nine states already legalized marijuana for recreational use and 29 states allow it for medical purposes. Canada’s law, plus its rejection of international drug treaties on cannabis regulation, will shape marijuana policy globally. Unlike the US, Canada’s new law legalizes cannabis possession, homes cultivation and sales to adults. Licensing of producers and criminal sanctions such as selling to minors will continued to be controlled by the federal government. Provincial governments will control sales, distribution and taxation.
The legislation was part of the government’s platform. “We will legalize, regulate, and restrict access to marijuana,” the Liberal Party stated on its campaign website. “Canada’s current system of marijuana prohibition does not work. It does not prevent young people from using marijuana and too many Canadians end up with criminal records for possessing small amounts of the drug.” Canada expects that legalization will eliminate the black market for cannabis, provide regulated outlets for adults and generate tax revenues.
The People’s Bank of China wants to be reassuring
As commercial tensions between US and China continue to strengthen due to additional USD 200 billion tariffs (total stated: USD 450 billion), worries from investors in Asian equities have led the Asian market into turmoil.
Indeed, the Shanghai Composite Index fell by -3.78%, the Hong Kong Hang Seng by -2.78% and the Nikkei 225 by -1.77% while EU Euro Stoxx 50 and US S&P500 indexes decreased to a lesser extent by -0.90% and -0.40% respectively.
In a more reassuring tone in order to relieve investor’s fears, the People’s Bank of China (PBOC) Governor, Yi Gang, confirmed in a statement that investor’s sentiment remains largely sentiment-oriented and should remain “calm and rational”. The central banker confirmed that the PBOC monitors market movements and that the room for maneuver remains largely under control, adding also that it is planning to use monetary policy tools, in order to ensure stable liquidity and, to a larger extent, durable economic growth.
As the situation is calming down, we expect current downfall to stop and a recovery phase to start. The USD/CNY upward trend amid market selloff and trade war tensions temporarily stops. The pair is currently trading at 6.4746, heading along the 6.4570 range in the short-term.
