Friday News Finds – June 8, 2018

By Tegan Valentine

Hello and welcome back to Top Five Friday Finds – the weekly series in which we share five of the business news stories that dominated the papers (and our conversations) this week.

What do maple syrup, yogurt and steel have in common? Well, if they flow from the United States into Canada, these products (and more) may be subject to duties and tariffs starting as early as July 2018. On Thursday Prime Minister Justin Trudeau and federal foreign affairs minister Chrystia Freeland announced a series of retaliatory tariffs and duties that could be levied against the United States in response to the country’s recently implemented steel and aluminum tariffs.The countermeasures taken by the Canadian government are slated to total $16.6 billion and, while a significant percentage of that amount is tied to industrial product tariffs, most commentators have been eyeing the various food products being slapped with the new tax. They have good reason – the food and beverage products picked by the Canadian government were strategically selected to minimize impact on the Canadian market, while sending a strong political message to the United States. Take maple syrup and yogurt. Both can be easily produced in Canada, and both come from the home-states of prominent U.S. Senators (Democratic Senator Bernie Sanders and House Speaker Paul Ryan respectively).

Back in March 2014 the Ontario Securities Commission put in place legislation that allows the Commission to reach “no-contest settlement agreements” with alleged wrongdoers. The decision to adopt a no-contest framework was controversial at the time, and while some remain unconvinced that no-contest settlements are in the best interest of investors, the OSC has made use of the strategy on numerous occasions. Since 2014 eleven agreements have been reached, with $368 million in compensation being paid to investors. On Thursday the OSC announced that it had approved a no-contest settlement agreement with IPC Securities Corporation and IPC Investment Corporation.IPC had been accused of implementing improper control systems, which resulted in clients paying excess fees to the firm. Under the terms of the agreement IPC will pay almost $11 million in compensation to investors, almost $500 thousand to the OSC.

The financial results for the first quarter of 2018 are rolling out, and while some Canadian companies posted solid results (check out Dollaramaand Bell Canada), others are struggling. An example? Hudson’s Bay Co., who posted a larger than expected loss in Q1/2018 ($314 million vs 2017’s $214 million loss) thanks largely in part to declining sales performance in its European and off-price divisions. This is not the first time we’ve commented on HBC. The company has featured prominently in Canadian headlines as it has struggled to keep up with changes in consumer preferences. Increasingly consumers are turning away from conventional department stores, seeking out online retailers and independent boutiques to satisfy their needs. In a press conference this week, CEO Helena Foulkes expressed her disappointment in the company’s results, emphasizing that the company would be reevaluating its portfolio in the days ahead. The first business unit on the chopping block? Gilt.com– an online retail platform the company purchased for US$250 million in 2017. The retailer has yet to disclose a sales price for Gilt, but insiders have suggested the company received a mere $100 million for the business unit.

The march toward recreational marijuana legalization continues on, and on Thursday the Senate voted to approve Canada’s Cannabis ActBill C-45 has been sent onward to the House of Commons, where the members of Parliament will have to consider the 40+ amendments Canada’s Senators made to the act. The Act sets out a legal framework for adult consumption of cannabis in Canada, and was a key element of Prime Minister Justin Trudeau’s 2015 federal campaign. Marijuana has dominated Canadian business news since that time, as investors and companies alike jumped at the chance to invest in what is slated to become a multi-billion dollar industry. Initial estimates predicted that the sale and consumption of recreational marijuana would be permitted by Summer 2018, and while legalization is on the immediate horizon, in the wake of the Senate’s numerous amendments experts predict that sales will likely begin in September or October. While the majority of the Senate’s reforms to the Actare minor, a few key changes – namely the decision to give provinces the right to ban marijuana growth at home, the inclusion of a clause that will require cannabis companies to reveal the identity of investors who own more than 5% of a company, and a ban on companies handing out branded items on non-cannabis related objects (ex. t-shirts and hats) – could be more problematic.

And finally, while the majority of conversations surrounding Canadian oil are still focused on the controversial Trans Mountain Expansion Pipeline, another source of concern is floating ominously on the horizon. In 2016 the International Maritime Organization set out a series of reforms (dubbed ‘IMO 2020’) designed to reduce marine fuel sulphurcontent. Under the new rules, all ships will need to use marine fuels with a sulphur content of no more than 0.5% by 2020 – a significant drop from current levels which permit the use of fuels with sulphur content of up to 3.5%. What makes the rule so problematic for Canada? The oil produced by Canada’s oil sands is classified as heavy sour crude, meaning it full of sulphur. This has analysts concerned, as the discount impacting Canada’s already struggling oil industry could double or triple by 2020. Not all of Canada’s oilsands producers will feel the impact of IMO 2020 (many make use of costly ‘upgraders’, which effectively turn heavy oil into a lighter synthetic crude), but for a segment of the economy that has been plagued by low costs and bottlenecks in recent years, IMO 2020 poses another significant hurdle. With the implementation deadline rapidly approaching, stakeholders have been meeting over the past few weeks to discuss how best to handle the transition to new industry standards.