Canada’s stock market has been gaining momentum recently after its main stock index, Toronto Stock Exchange (TSX), rose by 0.5 points to 15,808.63 last week, making the biggest quarterly gain in over four years.  With increasing oil prices and legalization of marijuana in Canada, Cannabis and energy stocks are considered the biggest contributors to TSX’s recent gains.

Canada’s main stock index, Toronto Stock Exchange (TSX), rose by 0.5 points to 15,808.63 last week, making the biggest quarterly gain in over four years

Growing Oil Prices

Rising oil prices and legalization of marijuana has given a boost to energy and cannabis stocks in Canada.  The energy sector, which makes up one fifth of Toronto Stock Exchange, Canada’s major stock index, has increased by 16 per cent in the second quarter, giving a major boost to the country’s stock market. Other smaller sectors like healthcare and technology also contributed to the index’s performance, with the former getting a major boost from cannabis stocks.

Manulife Asset Management’s senior portfolio manager Steve Belisle predicts that future prospects of Canada selling its oil in international market paired with rising oil prices are bound to bump up the energy stocks even higher. Belisle’s holdings have made investments in a number of energy companies like Suncor Energy Inc. and Canadian Natural Resources Ltd.

Last Thursday, crude oil prices rose to highest levels in the past four years, triggered by an increasing pressure from the United States President Donald Trump on OPEC to reduce prices despite a trade flow disruption from Middle Eastern countries and Iran, which are the biggest suppliers of the commodity. ING said after Trump’s call for reduced prices that OPEC is doing everything it can to keep the market under control but with uncertainty from oil suppliers like Iran and Canada’s Syncrude outage it’s difficult to predict which direction the oil prices will go in the near future.

Rising Cannabis Stocks

The high crude oil prices in the U.S. at $74 a barrel have increased Toronto Stock Exchange’s value in both TSX and S&P by 5.9 per cent in this year’s second quarter. This is the first major boost for Canada’s biggest index since 2013’s last quarter. The rising energy stocks have also boosted S&P 500 index which advanced by 2.9 percent in its second quarter.

Canada became the first G7 country to legalize recreational marijuana across the nation

Apart from the high oil prices, the healthcare sector has also benefited from pot stocks which have grown in value ever since Canada became the first G7 nation to legalize recreational marijuana across the country.

Although sales of cannabis won’t be permitted at least 3 to 4 months after the legislation has been passed, companies manufacturing the drug have already started gaining grounds in the stock market, boosting the healthcare sector’s performance by 16 per cent. Technology sector, another major performer in the market, also rose by 10 per cent in value.

Marijuana Rules in Canada

Experts have predicted a major impact of marijuana sales on Canada’s economy. According to Deloitte, a financial services company, the legal marijuana business is worth $6 billion, with only $1.7 billion coming from medical use whereas the remaining $4.3 billion from recreational purposes.

Even though cannabis has been legalized in Canada, the industry will still be subjected to tough guidelines and heavy regulations. Canada’s public health agency says that the drug will only be sold in plain packaging with little to no branding.

Like cigarettes, cannabis will carry ample health warnings including a red stop sign indicating that the product contains marijuana, and other information on its THC content. The current legislation allows adults to carry no more than 30 grams of cannabis in public spaces as well as in vehicles. Exceeding the limit could result in 5 years in prison.

Individuals who drive under the influence of cannabis will also be subjected to heavy penalties with a minimum of $1000 in fine and 30 days in prison for second offense and a minimum of 120 days for third and higher offenses. The legalization of marijuana will come in effect starting October and analysts are predicting several joint ventures entering the market in the future.

Do you think rising oil prices are affecting the energy sector gains in Canada’s stock market?

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