Ninepoint Cannabis & Alternative Health Fund

The month of March was focussed on potential tariff concerns that reintroduced volatility back into the capital markets, which continued into early April (at time of writing). On April 2nd, President Trump announced his reciprocal tariff plan that sent waves of uncertainty through equity markets. His aim, while confusing at times, is to restructure American trade and industrial policy in a way that favors labor over capital - a shift that is likely to bring some further near-term choppiness before settling back down. Recent estimates are that his tariffs would bring in $806B in revenue. While the math is debatable, the intent is loud and clear. The plan is to set a 10% baseline tariff across all imports into the US, with specific countries and regions receiving higher tariffs based on current treatment of US goods, including 34% on China, 20% on the European Union, and 32% on Taiwan. Even though Canada did not receive any direct tariff increases in the announcement, the country is still reacting to the previously announced 25% tariff on autos, aluminum and steel sectors that took effect April 2nd.

Although the news has been swiftly rebuked by impacted stakeholders and the equity markets, it must be remembered that the US is among the countries that had previously imposed the least tariffs on other countries. The approach is to achieve some rebalancing, which makes sense, especially for manufactured goods that are imported. However, change is not easy and the adjustment period necessary to complete this goal may lead to a period of economic weakness. Semi-conductor and microchip manufacturing, pharmaceutical labs in addition to factories and assembly plants, cannot be built in a few months, while higher prices from tariffs dampen near-term consumer sentiment. Capital markets can adjust to good news and bad news, but have no easy way to price in uncertainty. Further, contradictory statements by White House officials regarding the status of tariffs and the extent of negotiable terms have led to increased confusion. More certainty will be needed for markets to stabilize.

While concerns about tariffs, spending cuts, interest rates and macro data persist, it’s important to take a step back and view the bigger picture. While sentiment has turned negative and downside risks have increased, the U.S. economy remains robust. And while rates may stay higher for longer in the near term, their overall trajectory, at least for shorter-term rates, is, at the moment, downward. Simultaneously, fiscal policies in both the U.S. and China are loosening, increasing global liquidity. Canada is likely to be impacted a bit more from tariffs, given that Canada is an export-led economy, so we must risk manage this scenario, and a global recession would significantly impact Canadian GDP. We will continue to manage the portfolio, looking for mispricing opportunities in order to achieve the Fund’s growth objectives. The reality is that risk is always present, even if you can’t always see it. There have been 30 corrections since the March 2009 low of more than 5%. Of these, 10 were larger than 10%, 4 exceeded 20%, and 1 was more than 30%. And each time, the outlook appeared bleak. Declines and the fear-inducing narratives associated with them are the price of admission for long-term investors.

Currently, the Fund is less exposed to pharmaceuticals and more exposed to consumer health. We also continue to expand our exposure to health tech as these companies are seen to be disruptors within the overall health sector, unlocking inefficiencies in research, practice management in addition to providing a new avenue for patient interaction with physicians. The fund holds cash and is prepared to take advantage of opportunities that come out of this market volatility.