MONDAY,NOVEMBER25,2019 | THEGLOBEANDMAIL O B9
GLOBEINVESTOR
REPORTONBUSINESS|D
avid Rosenberg, Bay
Street’s most famous pes-
simist, sounds positively
upbeat as he describes his new
business venture.
What he wants to do, he sug-
gests, is to offer investors a
McDonald’s-sized menu – but for
economic research, not burgers.
The high-profile economist,
who has worked at the money
manager Gluskin Sheff + Associ-
ates for the past decade, is head-
ing out on his own in the new
year. He is looking to build on the
success of his Breakfast with
Dave newsletter, a $1,000-a-year
subscription product that deliv-
ers Mr. Rosenberg’s opinionated
brand of market analysis to read-
ers every weekday morning.
Breakfast with Dave has
roughly 2,200 subscribers in 40
countries, Mr. Rosenberg says. He
believes it can be a starting point
for a much bigger enterprise.
“To put it in restaurant terms,
Breakfast with Dave is really the
Big Mac. But if you go to McDo-
nald’s, you can order a lot more
than a Big Mac. So I have staffed
up with an A-1 macro team and
we will be doing Breakfast with
Dave and a lot more.”
He expects Rosenberg Re-
search and Associates Inc. to
have an initial staff of six – him-
self, four other economists and a
business manager. In addition to
a daily newsletter, the Toronto-
based team will produce pod-
casts, build economic models,
write in-depth reports, play host
to conference calls and offer one-
on-one meetings. “It’s going to be
very bespoke, very tailor-made
for the needs of the subscriber
base,” he said.
He’s targeting both big and
small investors. At the moment,
he says, about half his customers
for Breakfast with Dave are insti-
tutions – banks, pension funds
and the like – while the other
half are individual investors,ranging from retirees to financial
advisers. Individual investors will
be able to continue getting a dai-
ly newsletter at a price “not far
off” the current level, while in-
stitutional clients will be able to
negotiate prices for custom pro-
jects.
“Our primary objective is to be
the go-to research shop for inves-
tors of all kinds,” Mr. Rosenberg
said.
One feature that has set him
apart from many economists in
the past is his willingness to be
bluntly bearish. Whether that
will be a help or a hindrance in
attracting clients remains to be
seen.
Mr. Rosenberg rose to promi-
nence before the financial crisis,
when as chief North American
economist at Merrill Lynch, he
warned of the dangers building
in the overheated U.S. housing
market.
The spectacular success of
that call set his tone for the next
few years. Even after the Great
Recession ended, he stayed bear-
ish, warning of a double-dip re-
cession that never came.
Mr. Rosenberg changed his
mind around 2012 and sounded amore optimistic note. Over the
past couple of years, however, his
message, at least for equity inves-
tors, has once again turned
downbeat.
“Stock markets are really just
breathing fumes,” he said, tick-
ing off a list of worrisome indica-
tors, from lacklustre leading in-
dicators around the world to a
contraction in per-capita eco-
nomic growth rates in Canada.
Even if both Canada and the U.S.
avoid recession and muddle
through the next year with noth-
ing worse than a patch of disap-
pointing but still positive growth,
he argues that stock prices are
likely to come under pressure.
His gloomy outlook raises the
question of why he is starting up
a business when he believes so
many dark clouds are gathering.
Mr. Rosenberg brushes off sug-
gestions that his decision
stemmed from the takeover this
summer of Gluskin Sheff by the
private-equity giant Onex Corp.
He says he has been thinking of
launching his own venture for
close to a decade and actually
started doing some legwork on
the venture three years ago, be-
fore eventually deciding to stayon at Gluskin.
Now, with his 60th birthday
on the horizon, he says he has
decided it’s time to finally act on
his entrepreneurial itch. But he
will continue to produce Break-
fast with Dave for Gluskin until
his new firm officially launches
in January.
Mr. Rosenberg points to the
success of the newsletter as proof
of the value of his approach. He
is no “radical perma-bear,” he in-
sists. Instead, he is driven by
whatever the data tell him. Many
of his subscribers, he says, are
looking for a window on his
thought process. They want him
to point out factors they may not
have considered themselves.
The problem with most econ-
omists, he says, is that they’re so
scared of being wrong, they find
it difficult to be right. They will
debate fractions of a percentage
point in the next quarter’s
growth forecast, while missing
key turning points.
“If you want to help people
make money, you have to be will-
ing to make the big call,” Mr. Ro-
senberg said. “I will make a big
call ... and I will definitely give
you something to think about.”Rosenbergseekstoservebiggermenuofmarketinsight
Economistbehind
BreakfastwithDave
newsletteraimstomake
hisnewventurethe
‘go-toresearchshop’
forinvestorsofallsorts
IANMcGUGAN
T
he crash in cannabis stocks has
pushed Justin Caron into the
role of grief counsellor for bereft
investors facing disastrous fi-
nancial losses.
Many of them were first-time traders,
who dove into the cannabis-stock frenzy
without grasping the risks involved.
Now that the bubble has popped, their
trading accounts are decimated and
they don’t have a plan to stop the bleed-
ing.
“They’re ashamed,” said Mr. Caron,
who runs Blaze Capital, a cannabis in-
vesting group based in Vancouver. “A lot
of them would rather disappear into the
shadows and never talk about their loss-
es because it’s too embarrassing and
painful.”
The average cannabis stock is now
down by about 60 per cent over the past
eight months, wiping out nearly $60-bil-
lion in market capitalization from a
group of 90 Canadian and U.S. stocks.
There were ample warning signs the
cannabis space was wildly overheated.
But the rare opportunity to get in early
on the establishment of a brand new le-
gal industry proved irresistible for many
mom-and-pop investors.
Every asset bubble starts with a com-
pelling story. With the legalization of
cannabis in Canada, the creation of a
multibillion-dollar consumer sector
captured the imagination of the masses,
said Mark Kamstra, a York University fi-
nance professor who studies asset bub-
bles.
“You get people telling stories to each
other and there’s a fear of getting left be-
hind,” he said.
Quick money made in the early stages
of a bubble reinforces the exuberance.
From most of the stretch between 2016
and 2018, it was difficult to not make
money in cannabis stocks.
“All you had to do was throw a dart,”
Mr. Caron said. Invest in almost any can-
nabis name, and in six months, your in-
vestment at least doubled.
In that kind of environment, the fun-
damentals of valuation go by the way-
side. At its peak in April, Canopy Growth
Corp. hit a market value of $24-billion,
making it roughly the same size at Lo-
blaw Cos. Ltd., which brings in more
than $48-billion in revenue a year. Cano-
py’s top line is less than 1 per cent of that.
Rookie investors lured in by runaway
gains got fooled into thinking investing
is easy. “They were not buying with 5 or
10 per cent of their portfolio, they were
going all in,” said Mr. Caron, who runs a
subscription-based Slack forum for re-
tail cannabis investors.
The financial industry, meanwhile,
did its part to stoke enthusiasm.
Equity analysts at Canadian brokerag-
es got more bullish as the market went
up. At the time the sector peaked in
March, roughly 87 per cent of all analyst
ratings on Canadian cannabis stocks
were “buy” recommendations. Just 4 per
cent were “sells,” while the remainder
were “holds.”
The cannabis companies themselves,
meanwhile, aggressively promoted their
stock to the retail investing community.
And a handful of Canadian hedge funds
used a financial manoeuvre that made it
appear as if equity financings had insti-
tutional investor support. In many cases,
these funds shorted the same stock prior
to the deal. That way, they could, in ef-
fect, earn a discount by covering their
positions when the deal launched.
In reality, the cannabis stock mania
was largely fuelled by retail money.
“The money made out of the bubble is
used to further inflate the bubble,” said
Michael Decter, president of Toronto-
based boutique investment firm LDIC
Inc. “And then investors start asking why
they don’t have Canopy in their ac-
counts.”
That exuberance backfired badly after
marijuana was officially legalized na-
tionally a little more than a year ago.
The retail rollout was riddled with
problems, including supply shortages
and product quality. The industry,
meanwhile, has relentlessly added pro-
duction capacity, setting up a supply glut
while facing a limited retail network. In
Ontario, there are just 24 retail stores in
operation.
At the company level, meanwhile, a
string of regulatory and compliance is-
sues has cast a pall over the business. Af-
ter CannTrust Holdings Inc. was caught
growing cannabis in unlicensed green-
house rooms, Health Canada suspended
the company’s licences.
On the operational side, the rampant
growth that sustained investor opti-
mism has vanished. The country’s two
largest producers, Canopy and Aurora
Cannabis Inc., reported quarterly sales
declines of 15 per cent and 24 per cent,
respectively, a little more than a week
ago.
“This business just wasn’t ready forprime-time,” said Elliott Fishman, direc-
tor of U.S. and international equity trad-
ing at Scotia Wealth.
Very little investor money is now go-
ing into cannabis names through Sco-
tia’s retail platform, Mr. Fishman said.
Suddenly starved for capital, companies
that need money have had to resort to
debt financing with hefty interest rates.
Amid that brutal reckoning, many
cannabis shareholders have ridden their
holdings all the way down. “It’s pretty
common for the retail investor just to
hold on until the bitter end,” Prof. Kam-
stra said.
Inexperienced investors not only dra-
matically overexposed themselves to a
speculative sector, they also did not have
a plan in place in case of a sell-off, Mr.
Caron at Blaze said. Facing losses of 50
per cent or more, they consider their on-
ly option at this point to be holding out
for a recovery, he added. “A lot of people
are saying they don’t even want to log in-
to their accounts.”
Last week provided a glimmer of hope
after a vote in the U.S. House of Repre-
sentatives took one step toward a federal
decriminalization of cannabis.
Over three trading days, the Horizons
Marijuana Life Sciences Index ETF,
which holds more than 50 cannabis
names, rose by 20 per cent, leading to
some optimism that the bottom was in
the past. On Friday, however, the sector-
wide sell-off resumed. “I think there’s ze-
ro chance of a rally back above their pre-
vious highs,” Mr. Decter said. “This is a
permanent hit.”
Once a generator for lucrative short-
term gains, cannabis investing is shifting
toward a more fundamental model. In-
vestors will need to separate the proba-
ble winners from the losers, pay atten-
tion to valuations, and focus on the path
to profitability, Scotia’s Mr. Fishman
said.
“It’s a different sport from here.”First-timeinvestorsgetburnedascannabisbubblebursts
StafftendtocannabisplantsataCanopyGrowthfacilityinSmithsFalls,Ont.,in2018.
Onaverage,cannabisstockshaveslumpedaround60percentoverthepasteight
months,erasingnearly$60-billioninmarketcapitalizationfromagroupof90U.S.
andCanadianstocks.SEANKILPATRICK/THECANADIANPRESSTIMSHUFELT MONDAY
Canada reports wholesale trade for
September. BMO estimates a 0.3-per-
cent rise.
U.S. Federal Reserve chair Jerome
Powell to deliver speech, titled Building
On The Gains From The Long Expan-
sion.
Earnings include:Calian Technologies
Ltd.; Green Growth Brands Inc.; Leu-
crotta Exploration Inc.; OrganiGram
Holdings Inc.; Orla Mining Ltd.; Planet
13 Holdings Inc.TUESDAYU.S. goods trade deficit for October.
Consensus is US$71-billion, similar to
September.
U.S. reports S&P Case-Shiller Home
Price Index for September. Consensus
is for a 1.8-per-cent year-over-year rise.
U.S. reports FHFA House Price
Index for September. A rise of 4.7 per
cent against last year is forecast.
U.S. reports new home sales. Con-
sensus is for a gain of 0.8 per cent to
707,000 on an annualized basis.
U.S. reports Conference Board
Consumer Confidence Index. Consen-
sus is for a reading of 126.0.
Earnings include:Alimentation
Couche-Tard Inc.; Bank of Nova Scotia;
Flower One Holdings Inc.; Flowr Corp.;
HP Inc.; MedMen Enterprises Inc.;
NanoXplore Inc.; VMware Inc.WEDNESDAYU.S. reports initial jobless claims.
U.S. reports preliminary GDP for
the third quarter. Consensus is for an
expansion of 1.9 per cent on an annual-
ized basis.
U.S. reports durable goods orders
for October. Consensus is for a decline
of 0.6 per cent, or a gain of 0.3 per cent
when excluding transportation.
U.S. reports personal spending and
personal income for October. Both are
expected to rise 0.3 per cent.
U.S. releases Beige Book.
Earnings include:BRP Inc.THURSDAYCanada reports current account
deficit for the third quarter. BMO esti-
mates a deficit of $42.4-billion (when
annualized).
Canada releases Survey of Employ-
ment, Payrolls, and House for Septem-
ber.
U.S. markets closed for Thanks-
giving.FRIDAYCanada reports GDP for the third
quarter. BMO estimates a 1.4-per-cent
expansion on an annualized basis.
Canada reports industrial product
price index and raw materials price
index.
Canada reports budget balance for
September.WHATYOUNEEDTOKNOW
FORTHEWEEKAHEADMEETINGDATES
DATASUPPLIEDBYISSUINGCOMPANIESTHROUGHTHESERVICEOFCDSCLEARINGANDDEPOSITORYSERVICESINC.
*=CHANGEINPREVIOUSLYREPORTEDINFORMATION%=CANCELLEDMEETING;@=ADJOURNEDMEETING;A=ANNUAL;S=SPECIAL;G=GENERAL;X=EXTRA;E=EXTRAORDINARY
Alchemist Mining Incorporated Nov 20 Dec 24 AG
Aumento Capital VII Corporatio Nov 18 Dec 20 A
Berkley Renewables Inc. Nov 22 Dec 27 AG
Bold Ventures Inc. Dec 09 Jan 29 AGS
Canada Carbon Inc. Dec 13 Jan 20 AGS
CanadaBis Capital Inc. Dec 09 Jan 15 AS
CubicFarm Systems Corp Dec 13 Jan 22 AG
CGI Inc. Dec 09 Jan 29 AG
CVR Medical Corp. Dec 10 Jan 15 A
Eastcoal Inc Nov 22 Dec 30 AG
Endocan Solutions Inc. *Dec 04 Jan 08 AS
Eros Resources Corp. Dec 16 Jan 21 AG
FirstShot Fund Inc. *Nov 19 Dec 20 AG
Global Cannabis App Corp. %Nov 12 Dec 20 AG
Jemtec Inc. Dec 11 Jan 20 AG
Mas Gold Corp Dec 11 Jan 21 AG
Millennial Lithium Corp. Dec 09 Jan 21 AG
NameSilo Technologies Corp. *Oct 17 Dec 16 AGNevada Zinc Corporation Dec 13 Jan 17 AGS
New Carolin Gold Corp. Nov 18 Dec 18 AGS
New Era Minerals Inc. Nov 14 Dec 20 AG
Newmac Resources Inc Nov 25 Dec 31 AG
Nymox Pharmaceutical Corp. Dec 03 Dec 17 AG
NV Gold Corporation Dec 09 Jan 22 AG
Orsu Metals Corporation Nov 15 Dec 20 E
Pine Trail Real Estate Investm Dec 09 Jan 17 AG
Pure Global Cannabis Inc. *Nov 15 Dec 20 AGSQuartz Mountain Resources Ltd *Dec 09 Jan 16 AGS
Rapid Dose Therapeutics Inc. *Oct 30 Dec 06 AGS
Regent Pacific Properties Inc. Dec 10 Jan 14 AS
Rogers Sugar Inc. Dec 13 Feb 11 AG
Romios Gold Resources Inc %Nov 22 Jan 08 AS
RYU Apparel Inc. *Nov 01 Dec 17 AGS
Score Media and Gaming Inc. Dec 10 Jan 23 AGS
Secova Metals Corp. Dec 13 Jan 23 AG
Softrock Minerals Ltd. Dec 11 Jan 15 ASSpeakeasy Cannabis Club Ltd Dec 18 Jan 29 AG
Stelmine Canada Ltd Dec 13 Jan 22 AG
Titan Logix Corp. Dec 12 Jan 23 AG
Xander Resources Inc. Nov 19 Dec 24 AGS
Zonetail Inc. *Nov 12 Dec 27 AGSRECORD MEETING TYPE
DATE DATERECORD MEETING TYPE
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DATE DATERECORD MEETING TYPE
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