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SNC-Lavalin shares drop amid Ottawa's row with Saudi Arabia

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Shares in SNC-Lavalin Group Inc. are sinking as investors fret that Canada’s biggest engineering firm will get caught in the crossfire of the Trudeau government’s political row with Saudi Arabia.

The stock has fallen in two of the past three trading sessions since the dispute blew up on Sunday, shedding another 1.7 per cent Thursday to close at $53.80. Ottawa shows no sign of backing down while Saudi Foreign Minister Adel al-Jubeir has said his country is prepared to take further measures to punish Canada.

Of all Canada’s companies, SNC-Lavalin might have the most to lose if the fight escalates. The Montreal-based firm, which has been working in the Middle East kingdom for five decades, generated nearly $1-billion in revenue from Saudi Arabia last year, representing about 11 per cent of total sales. That’s more revenue than from the rest of the Middle East and Latin America combined.

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“The fallout from protracted political instability could be material” for SNC-Lavalin, said Maxim Sytchev, an analyst with National Bank of Canada, estimating an $81-million decline in fiscal 2019 earnings before interest and taxes in a worst-case scenario.

In a statement late Wednesday, SNC-Lavalin said it was not able to fully assess the effects of the situation on its current and future business opportunities in Saudi Arabia. But it warned that if the kingdom puts in place a widespread commercial embargo on Canadian commercial interests on a prolonged basis, that would hurt SNC’s future financial performance. SNC officials did not respond to a request for additional comment Thursday.

The dispute broke out a week ago after Foreign Affairs Minister Chrystia Freeland and her department sent out several tweets calling on the Saudis to release immediately arrested women’s rights activists, while decrying Riyadh’s recent crackdown on dissidents. The Saudi government then called the comments “blatant interference” in its affairs by the Trudeau government.

The Saudis have retaliated by halting new investments in Canada and selling off assets, among other measures. So far however, those moves have sent only a mild ripple through Canada’s markets and business community. That’s because Saudi assets in this country are modest in scope, while Canada’s businesses and the economy in general have little exposure to the Middle East kingdom.

With so little at stake in the bilateral relationship, each side might be more prone to stand its ground. But that won’t be without consequences.

Riyadh also announced it would immediately suspend education scholarships and require all Saudi students to withdraw from Canadian universities. That will affect up to 15,000 students and their family members and is “credit negative for the Canadian university sector because it will decrease university operating revenues,” Moody’s Investors Service said in a note published Wednesday.

Germany offers a lesson in what could happen if Saudi Arabia shuts the door to Canadian businesses. When the political relationship between the European country and Saudi Arabia soured earlier this year, Riyadh initiated a de facto boycott of big German multinationals such as Siemens, Daimler and Bayer. Since then, contracts for German businesses in the kingdom have dried up and meetings to discuss new deals are being canceled, according to the Spiegel newspaper.

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But if that were to happen to Canadian firms, it wouldn’t necessarily be the end of the world. SNC-Lavalin is a multinational anchored in North America that scouts the world for opportunities. As Laurentian Bank Securities analyst Mona Nazir notes, the company’s diversified model has stood up to sudden reductions in geographic revenues in recent quarters. Bombardier Inc., which has two projects currently in Saudi Arabia, has many more lucrative ones elsewhere in its US$8.5-billion-a-year train business.

An escalation of the conflict could unwind relationships that have taken decades to build. And that is never positive.

SNC-Lavalin’s ties to Saudi Aramco, the oil and gas giant, run particularly deep. After winning Saudi Aramco’s Qassim pipeline project in 1996, SNC subsequently picked up a steady stream of control system mandates from the company. It eventually parlayed that success into more work from Aramco, shifting staff and industry expertise from Calgary to an office in Al-Khobar in the process. A key milestone cementing its reputation in the country came in 2005, when it won major contracts to do front-end engineering on the massive Khurais water injection and Shaybah gas plant projects.

Today SNC continues to cultivate the relationship with Saudi Aramco, signing another five-year deal last month to provide general engineering services to Al Khafji Joint Operations, a partnership between Aramco Gulf Operations Co. Ltd. and Kuwait Gulf Oil Co. The Canadian firm said it will help engineer new offshore platforms, onshore crude and gas handling facilities, and gas pipeline networks, among other work.

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Ontario allows retailers to operate up to 75 cannabis stores each amid lack of clarity over rules

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Part of cannabis laws and regulations

Cannabis retailers in Ontario will be allowed to operate as many as 75 stores each, the province said in an update on its rules governing how marijuana will be sold in bricks-and-mortar outlets this spring.

But the industry is still waiting for clarity on whether companies owned in part by licensed growers can open more than one.

Ontario’s Ministry of the Attorney-General published a news release on Wednesday evening that spells out rules for how long stores can be open, where they can be built and when retailers can begin applying for licences.

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However, the province did not clarify exactly how it will limit the reach of cannabis growers. Ontario’s cannabis law, which came into effect on Oct. 17, said producers and their affiliates “may not between them hold more than one retail store authorization,” but did not explain what is meant by “affiliate.” It is still unclear whether a grower could take a minority stake in a retailer as a way to have more than one store.

The government’s news release said the official regulations would be published online. It is possible the text will address the affiliate issue. At the time of publication, the rules had not been posted, and spokespeople for the government did not immediately respond to requests for comment.

James Burns, chief executive of Alcanna Inc., which operates five NOVA Cannabis stores in Alberta, said he is still waiting for clarity on whether his company can enter the Ontario market, because Alcanna is 25-per-cent owned by licensed producer Aurora Cannabis Inc.

“For us, what’s important is the definition of an affiliate,” he said. “We certainly intend to be full participants in the industry. … I don’t think I’ll be signing any leases tonight, because we still don’t know the rules.”

Growers are the most cash-flush players in the industry: They can afford to get into bidding wars and overpay for coveted space. Many of Canada’s largest legal producers of cannabis want to get into retail in what could be the country’s most-lucrative market to push their products and gain consumer insights.

Despite a lack of clarity from Ontario, would-be retailers have already been snapping up prime real estate despite not knowing whether they will qualify to open a cannabis store. Another wrinkle is that Ontario municipalities have until Jan. 22 to opt out of allowing cannabis shops, potentially putting in jeopardy store leases already signed in those markets.

Other regulations were spelled out more clearly on Wednesday. The province said it will start accepting retail applications on Dec. 17. Shops can be open daily from 9 a.m. to 11 p.m. once the new cannabis retailing regime is launched on April 1. Outlets across the province have to be at least 150 metres away from a school.

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Until April, Ontarians can only buy legal recreational cannabis online. Physical stores have opened in other provinces, such as in Alberta and Quebec.

The launch of Ontario’s government-run digital store has been chaotic, with customers waiting weeks for their orders and the store blaming everything from the Canada Post strike to mislabelled packages. The shop – called the Ontario Cannabis Store – said Monday it has cleared its order backlog, processing 220,000 sales since legalization.

The regulations come nearly a month after the start of legal sales and three months since the Progressive Conservatives announced their plans to scrap the retail model planned by the Liberals. The previous government gave the Liquor Control Board of Ontario a monopoly on the sale of recreational cannabis, planning to open 40 shops in the first year. Instead, the province is turning to the private sector for in-store sales by April and plans to continue to run the online shop.

With a report from Marcy Nicholson in Calgary

Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

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Toronto police investigate alleged assault involving St. Michael's students

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Police are investigating an alleged assault involving students at a prestigious Toronto private school that is believed to have been videotaped.

The Toronto police force’s 13 Division and Child and Youth Advocacy Centre – a specialized unit in the police’s sex-crimes department that looks into issues of child abuse – released a statement late on Wednesday saying they believed a video of the alleged assault was being circulated and should be considered child pornography. They advised anyone in possession of the suspected video to delete it without sharing it.

The warning came after St. Michael’s College School said it expelled multiple students.

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“This week, to our shock and dismay, we learned of two incidents that were in clear violation of our Student Code of Conduct,” the midtown all-boys school wrote in a posting on its website on Wednesday afternoon.

Toronto Police Service spokeswoman Katrina Arrogante said the force learned about the alleged assault from “numerous inquiries” from media outlets on Wednesday. Those inquiries were prompted by social-media posts about the incident in question.

St. Michael’s declined to answer questions from The Globe and Mail about why it hadn’t involved police, and how it had spoken to students about what was going on. A spokesperson did, however, confirm that the junior football season at St. Michael’s had been cancelled.

St. Michael’s conducted an internal investigation, the school’s statement said, and met individually with the students involved and their parents. “As a result, swift and decisive disciplinary action has taken place, including expulsions. We are deeply sorry that these incidents occurred.”

The statement noted the school wouldn’t be making any further comment on the case, citing police involvement and privacy issues.

“Because of the fact that there’s young people involved, we can’t release much more information than what we’ve already given,” Ms. Arrogante said, stressing that all events are allegations at this point.

St. Michael’s College has a long history in Toronto, opening in the fall of 1852 to provide a combination of what would now be considered high school and university education. The school moved into its current location at Bathurst Street and St. Clair Avenue West in the 1950s. Now, St. Michael’s students range from Grade 7 to 12, and the school describes its program as “an enriched, Catholic, Liberal Arts education” that aims to filter its students into university.

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Regulations take effect for licensing, operation of private pot stores, attorney general announces

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The Ontario government passed new regulations aimed at protecting children and youth, keeping communities and roads safe, and combating the illegal cannabis market, the attorney general's office announced Wednesday evening.

The province said this is the latest phase of its planned response to the federal government's legalization of cannabis.

Recreational cannabis became legal on Oct. 17.

The new regulations establish a minimum distance of 150 metres between cannabis retail stores and schools, including private and federally-funded First Nation schools off-reserve.

A news release from the attorney general's office said this distance buffer will help protect students and keep communities safe, while other regulations will combat the influence and participation of organized crime in the legal licensed framework.

"The purpose of these regulations is to keep kids safe and to ensure all people operating in this tightly-regulated retail system behave with integrity, honesty, and in the public interest," Attorney General Caroline Mulroney said in the news release.

"The application process for private cannabis retail store licences will begin on Dec. 17, 2018, and we will be ready with laws and regulations to protect Ontario's youth and to combat the criminal market in response to the federal government's legalization of cannabis."

Attorney General Caroline Mulroney said in the new release that the application process for private cannabis retail store licences will begin on Dec. 17, 2018. (CBC)

Other regulations established by the province include:

  • Retailers will not be permitted to allow anyone under the age of 19 to enter their stores.
  • Specific instances in which applicants will be denied a licence, including cannabis-related criminal offences.
  • A prohibition of the issuance of a licence to any individual or organization who has an association with organized crime.
  • A requirement that individuals or entities applying for an operator licence demonstrate their tax compliance status to show that they are in good standing with the government.
  • A requirement for all private recreational cannabis retail storefronts to be stand-alone stores only.

Additionally, under the new regulations, individuals with a store authorization, cannabis retail managers and all employees will be required to complete the approved training to ensure that any individual who works in the cannabis retail market is trained in the responsible sale of cannabis.

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