Canada’s Emerging Premium Cannabis Market

The premium cannabis market in Canada is expected to become as normalized as the craft beer market.

The emerging premium cannabis market in Canada is on the verge of a major expansion as full-scale legalization begins.

The cannabis retail landscape is just now taking shape and many industry insiders and market watchers feel we are witnessing the dawn of a new era in cannabis culture. And that changing landscape will also bring about a shift in the overall culture in Canada, one that will see the recreational consumption of marijuana “become normalized and mainstream, eliciting about as much reaction as having a pint of craft beer,” according to Deloitte in its 2018 cannabis report, “A society in transition, an industry ready to bloom”.

Canada’s craft beer market has been a sizeable source of revenue growth for the beer industry at large, according to a report by IBIS World, with beer consumers willing to pay a premium for craft brews over more traditional beer brands even if it means drinking less. In any market, plenty of consumers are willing to shell out a few more bucks for higher quality boutique products that offer unique tastes and experiences over run-of-the-mill products, be they beer or bud.

The Canadian cannabis market is destined to see the same preference for premium cannabis products. Deloitte says it expects the Canadian cannabis retail sector to quickly “mirror the evolution we’ve seen in other retail sectors, splitting into discount and premium segments to meet the needs of very different consumer groups.”

To add some more flavor to this story, with a legion of licensed producers at the ready, analysts are already forecasting that a deluge of supply will saturate the Canadian cannabis market in the early years of full legalization. This means that cannabis producers — whether of flower, extracts or infused consumer goods — will need to differentiate themselves to stay ahead of the herd.

Premium niche markets key to survival

In a crowded cannabis market, one way of standing out from the crowd is to make sure your product is a cut above the rest, even if it means a higher price point. There will always be a segment of the market that is willing to pay more if the product is seen as premium or high end.

And the legalization of the marijuana market has a way of opening up a wide offering of silver platter selections. This is why we’re beginning to see terms such as “craft,” “boutique,” “organic,” “premium” and “luxury” joined with cannabis to denote companies who are focused on delivering higher quality products that are bound to fetch top dollar and offer investors the opportunity for higher profit margins. High end cannabis consumers are as serious about the cultivation, aroma, flavor and presentation of their flower as any high end wine consumer.

Canada’s fully-legal cannabis market may still be emerging, but we can look to the maturing markets in the States for a peak at what the future may hold. “The range of broad retail identities — budget, mainstream, premium and luxury — finds sound footing in legal cannabis markets,” says BDS Analytics in a recent report on trends in the legal US cannabis markets. “And the rise of the upscale cannabis consumer is fully flowering.”

And who are these luxury cannabis connoisseurs and craft bud enthusiasts willing to pay a premium for uniquely top shelf products? “They enjoy high incomes and advanced educations; live in the suburbs; enjoy the outdoors and fine arts; are physically active,” says BDS Analytics, “personal care is extremely important for them; shop for organic and gourmet foods; pair cannabis with other products; are fluent in the language of strains and products; value dispensary relationships; and are comfortable with all of the avenues for consumption — inhalables, edibles and topicals.”

How is the premium cannabis market in Canada defined?

So what are these high end attributes that attract consumers to the premium cannabis market in Canada? High quality, organically grown and lab tested products hand-crafted to cater to a specific application such as sleep or energy or managing anxiety. These consumers are looking for appealing terpene profiles with health and wellness benefits and, of course, enjoyable effects. Like with craft beer and fine wine, premium cannabis consumers want an enhanced experience that fits their lifestyle from products that are considered the best of the best.

Drilling down further, we can see that the preferences of consumers in this price segment are varied depending on generation, consumption frequency and gender. In a recent survey the cannabis market research firm Brightfield Group found that millennials place importance on organic while lab-tested is key for baby boomers (55 plus). Nearly 40 percent of the younger cohort said they would spend more for organic products and 37 percent of the age group are looking for healthier delivery routes. For the more mature crowd, consistency and safety are critical with 40 percent responding they’d open their wallet wider for lab-tested products. For women, premium-fetching products are on the healthier side with organic, lab-tested and gourmet products ranking highly. For men, it’s all about that strain.

In terms of consumption frequency, 50 percent of the committed cannabis users (at least five times per week) were willing to fork over more green for their green compared to 27 percent of occasional users (only one to three times per month). Frequent consumers were also more likely to spend more (upwards of 60 percent or higher!) for organic cannabis, while the once-in-a-while dabbler would pay more for healthier delivery methods. For those who don’t like to be in your face with their love of weed, a third of edible eaters said they would pay more for discreet methods of delivery.

Recognizing the opportunities in the craft cannabis space, industry heavy Canopy Growth (TSX:WEED,NYSE:CGC) “is actively scoping out the space through its investment arm, Canopy Rivers,” reports the Globe and Mail. “The company is holding a pitch competition offering $1-million in investment to craft producers, touting it as a chance to remain independent while getting support from Canopy’s network.”

Quality, diversity and vertical integration

How can licensed craft cannabis producers differentiate themselves from the competition in the coming Canadian legal cannabis market? Purposeful selection of strain genetics while cultivating distinct terpene profiles, growing in quality-controlled environments with lab-testing and careful attention to harvesting practices such as hand-trimmed bud are key.

“Producing premium quality cannabis starts with growing superior strains in purpose-built indoor facilities. The growing medium, nutrients and light also play a key role in creating superior quality products,” Norton Singhavon, Founder and CEO of GreenTec Holdings (TSXV:GTEC) told INN. “It is also important to cure, trim, grade and package the cannabis in a manner that is conducive to creating a higher quality product. Craft cannabis companies hang dry the whole plant and then meticulously slow cure and hand trim the flower.”

It’s this focus on high quality, lab-tested product that is also essential if legal cannabis is to capture customers from the black market — one of the government’s main objectives for legalization. Canada’s total cannabis market (medical, illegal, and legal recreational products) is expected to generate up to $7.17 billion in sales in 2019, with $4.34 billion coming from the legal recreational market. “Delivering a superior customer experience will be of vital importance,” says Deloitte.

Given the Canadian government’s strict rules requiring very limited advertising and plain packaging similar to tobacco, companies will need to lean more on high quality, unique product offerings to distinguish themselves in this competitive market. “For example, a premium quality cannabis product would typically have more whole flower, superior aroma (via terpenes) and greater visible trichome crystals,” said Singhavon, who has served as an advisor to numerous companies in Canada’s ACMPR sector including as an early-stage advisor to Invictus (TSXV:GENE,OTCMKTS:IVITF). “It is also more likely to be sold in a glass container (vs. plastic) and typically attracts higher price points.”

As with any other consumer product market, diversity of product offerings is also essential.

Product diversification can enhance competitiveness, profitability and brand recognition. Sixty percent of current consumers and 49 percent of probable consumers responding to Deloitte’s survey “consider the range of available products (e.g., edibles, pre-rolls, oils) to be an important purchasing criterion.” One-third of current consumers said they’re open to trying new and different products. Once edible products become legal in 2019, 58 percent of probable consumers said they plan to purchase and use edibles.

Vertical integration is another strategy that allows for a leg up on the competition. From cultivation and extraction to distribution and retail, controlling the supply chain from seed to sale helps companies have more control over the market. “By vertical integrating, a producer of premium cannabis can help provide retail exposure for its products, and ensure those products are marketed and sold in the best possible manner,” said Singhavon. GTEC has built a portfolio of assets involved in every stage of from cultivation to the point of sale. The company has applied for nearly 100 retail partnerships with companies in Western Canada. Involvement at the retail level allows companies to leverage consumer feedback and market demand on certain products to assist in product development. GTEC plans to do just that through its extract and formulation Dealer’s License, Spectre Labs.

Looking forward

As the market for legal cannabis becomes more sophisticated, we’re beginning to see the emergence of a premium cannabis market in Canada focused on craft and luxury brand products that offer cannabis consumers a uniquely high end high. With the right strategies for navigating this new space, cannabis companies can gain a strong foothold in a market that is expected to face a supply glut and increased competition in its nascent years.

This INNspired article is sponsored by GreenTec Holdings (TSXV:GTEC). This article was written according to INN editorial standards to educate investors.

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Royalty Financing and Investing In Rapidly Emerging Commodities Outside of Gold and Silver

Investing in royalty financing and emerging commodities outside of gold and silver is increasingly attractive due to lower risk and the ability to provide commodity price leverage and exposure to in-demand commodities and their price movements.

In recent years, royalty and streaming companies have quickly emerged as a popular choice among a broad spectrum of investors. They provide the capital to finance many of the most highly prospective mining projects around the world to provide investors with a perfect storm of minimized risks and economic upside.

With unparalleled exploration, diversification, and project acquisition opportunities, this particular type of alternative financing could be set for significant expansion over the next decade.

What is royalty streaming?

Marin Katusa, chairman of Katusa Research, told Kitco News in an interview, “I would start at the royalty side of things … that’s the easiest place to start because these are teams that are de-risking themselves.”

Royalty agreements and streams have similar structures at face value but key differences set them apart.

  • Royalty agreements: Also known as net smelter returns, these agreements provide royalty holders with a percentage of a specific mine’s revenue generated from production, typically hovering around one to three percent. Another common type of royalty agreement includes net profits interests, where the royalty holder receives a percentage of the profits rather than the revenue.
  • Streams: These contractual agreements provide the right to purchase a certain percent of metal production directly from the mine, typically ranging from five to twenty percent. Streams often will have a predetermined purchasing price for the metal, which is usually either a fixed dollar amount or a fixed percentage of the spot price.

An important distinction between royalty and streaming companies is that these entities are not mine operators. Instead, they seek to find untapped value through financing and working with miners to curate agreements that provide their shareholders with steady exposure to various mineral and metal markets. These agreements enable recipient mining companies to further develop or expand projects, providing greater returns for vested interests and the companies with royalties and stream agreements on the projects.

For junior mining companies, having the financing and support from more established royalty and streaming players can be especially beneficial as it may significantly boost development and exploration efforts and improve balance sheets across highly prospective project portfolios.

Risks and rewards to royalty streaming

In the case of royalty streaming, outlining major pros and cons can paint a clearer picture as to what potential downfalls these agreements have and what makes them one of the most popular financial strategies in 2021.

One of the main downfalls of royalty streaming relates to the structure of the business. Royalties and streaming companies have traditionally had intense competition competing within the precious metals space and needed a large amount of capital to invest in mines, which are raised through stocks or debt. Either companies accumulated debt on their balance sheet or issue stocks, which can involve some unfavorable stock dilution. However, there are very few royalty groups focused on clean energy metals and the costs of deals has been much lower thus far.

Another risk involves actual spot prices and mine production. If spot prices fall, so can revenue generation for royalty companies and metal selling prices for streaming. Additionally, in the case of mine delays, both types of companies may be impacted by a delay of commodity flow. Luckily, there are no costs to holding a royalty so there are no operating costs associated with shutdowns and the G&A required for running royalty companies is very low. .

By avoiding many of the operational costs, royalty and streaming companies cut out significant risks commonly associated with mining investments. While mining companies’ operational costs may rise, royalty and stream holders simply reap the potential benefits of high margins during peak pricing periods for their metals, having acquired them at lower fixed prices according to their agreement.

Another key advantage royalty and streaming companies have is advantageous portfolio diversification and the ability to be selective with their agreements. With the right management and strategic acquisition team, companies can minimize concentrated jurisdictional or asset risk and make agreements with mines already at near-term production staging. Since costs per ounce are contractually defined, this also protects streamers from cost overruns across the life of a mine.

Electric Royalties (TSXV:ELEC) is a royalty company focused on building a premium portfolio that takes advantage of the demand for a wide range of commodities and critical metals like lithium, vanadium, manganese, tin, graphite, cobalt, nickel and copper. Its focus on vital battery and base metal elements leverages the growing demand and global drive toward electrification across virtually all sectors, including transportation, rechargeable batteries, large-scale energy storage, renewable energy generation and more.

The company has a robust commodity portfolio, which helps to diversify investment and mitigate risk for investors and shareholders while leveraging exploration upside, revenue-driven business modelling and more. It currently has a portfolio of 12 royalties with exceptional exploration potential and four additional royalties currently under acquisition.

Electrification: Growing market for royalty streaming companies

The mining royalty and streaming sector have grown steadily from US$2.1 billion in 2010 to more than US$15 billion in 2019. While gold and silver take up a large portion of the streaming market, up-and-coming metals like copper and cobalt continue to show exceptional growth potential as the world shifts to greener alternatives to energy, power and more. Market researchers expect bright futures for both commodities despite disruptions in production in 2020.

Year-to-date:

  • Lithium prices are up 313 percent
  • Copper prices are up 25 percent
  • Zinc prices are up 22 percent
  • Nickel prices are up 18 percent
  • Tin prices are up 82 percent
  • Cobalt prices are up 75 percent

These raw materials expose prospective investors and many royalty streaming companies to multiple sectors, including new economy drivers like electric vehicles, batteries, energy storage, personal electronics and renewable energy platforms including wind and solar. .

Nova Royalty (TSXV:NOVR) is a royalty company focused on copper and nickel discovery as the foundational building blocks in clean energy decarbonization. With a rich portfolio of base metal royalty assets operating out of mining-friendly and highly prospective mining jurisdictions, Nova could become a leading royalty company in the transition to the future of sustainable energy.

With the battery revolution and growing demand for copper and nickel, the company has also strategically positioned itself as a potential frontrunner in the transition to an electric-powered world. As a royalty company, it has a decreased risk across a global portfolio.

Royalty financing: Economic upside potential for investors

For investors, royalty and streaming companies continue to be increasingly attractive due to their lower risk and ability to provide commodity-price leverage and exposure in-demand commodities and their price movements. In addition, investors in streaming companies advantageously leverage the ability to contract metal prices and delivery and tailor metals exposure more than royalty companies can.

Innovative companies are leveraging the momentum behind the transition for decarbonization into green power and investing in these companies outside of precious metal markets like gold and silver. With unprecedented demand and growth in prices for these raw commodities, market researchers predict more money investment opportunities coming into the sector for royalty and streaming companies exposed to these commodities.

Takeaway

Royalty and streaming companies present unparalleled investment opportunities with benefits of low risk, stable metal and mineral market diversified exposure and support for highly prospective mining projects across the globe. With no exposure to issues such as operating cost pressures or capital cost overruns due to predetermined metal pricing and revenue generation agreements, it comes as no surprise that royalty financing has become a significant strategy utilized by new and experienced investors.

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ESG investing best fits socially conscious investors looking for ESG companies focused on environmentally friendly practices to benefit from carbon credits.

Investing in companies based solely on in-depth financial analysis isn’t the only way to evaluate a company these days. Environmental, social and governance (ESG) investing is a trending investment strategy in which an investor assesses a company’s social presence as it relates to profitability and future returns before making an investment decision.

In 2020, the total worldwide. According to Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025 –– showing no sign of slowing down any time soon. Some of the top ESG stocks, according to RBC Capital Markets, include large companies like Salesforce (NYSE:CRM), Microsoft (NASDAQ:MSFT), NVIDIA (NASDAQ:NVDA) and Gilead Sciences (NASDAQ:GILD) — to name a few.

It is clear that ESG investing has a role to play for the more socially-conscious investors out there. Read on to learn more about the basics of ESG investing and why this trend continues to grow in popularity.

What is ESG investing?

ESG stands for environmental, social and governance. ESG includes a variety of actions and responsibilities that a company takes towards building a more sustainable future. ESG initiatives typically come in the form of company policies, dedication to best practices or responsible operations.

Environmental impact includes all investments that support preservation and conservation of the natural world including climate change, carbon emissions, air and water pollution, biodiversity protection, deforestation, energy efficiency, waste management and water supply.

Social impact includes all investments that support the people and communities affected by a company’s operations including customer satisfaction, data protection and privacy, gender and diversity, employee engagement, community relations, human rights and labor standards.

Lastly, governance issues include investments in standards in which the company operates by, including board composition, board diversity, board independence, audit committee structure, risk and governance committee structure, compensation committee structure, health & safety committee structure, anti-bribery and anti-corruption bodies, lobbying, political contributions and whistleblower schemes.

ESG funds and stocks reduce portfolio risk and increase returns

Portfolios that include ESG investments have proven to have greater long-term success than those that do not. Part of this is because ESG funds have had progressively higher returns on investment due to resilience in the face of conventional market disruptions. For example, companies with strong ESG track records had less stock price volatility than non-ESG companies during the COVID-19 pandemic.

Research has also found that ESG stocks produce similar if not better financial results than non-ESG stocks. According to Arabesque, the top quintile S&P 500 companies with ESG initiatives performed more than 25 percent better than the bottom quintile companies from 2014 to 2018.

This reduction in portfolio risk is believed to partly stem from the fact that ESG companies are less likely to be involved in controversies –– whether it be environmental, social or governance due to proactive management.

Environmental is the leading ESG factor

According to recent survey data, among all ESG factors, pollution and waste management ranked top in importance and support from ESG investors. Investor prioritization of pollution and waste management is likely linked to growing concerns around climate change. Both large and smaller companies have responded to this growing concern by either launching or shifting to green models.

Steelcase (NYSE:SCS) is a company that produces furniture and architectural elements. Steelcase minimizes waste through smart product designs that easily allow for product disassembly for use in refurbishing and recycling. Steelcase produces very little waste in addition to reducing pollution through the use of renewable energy and water efficiency.

Hewlett Packard (NYSE:HPE) has also established a recycling program that spans 73 countries and has collected and recycled 90 million kilograms of plastic. The initiative has substantially cut back on landfill waste and reduced heavy metal pollution. Hewlett Packard has also reduced its greenhouse gas emission and water consumption through the use of 100 percent renewable energy in its manufacturing process.

Northstar Clean Technologies (TSXV:ROOF,TSXV:ROOF.WT) is an emerging clean technology company focused on the recovery and repurposing of single-use asphalt shingles. The company has developed a proprietary design process at its Empower Facility in Delta, BC for taking discarded asphalt shingles, otherwise destined for already over-crowded landfills, and extracting the liquid asphalt, aggregate sands and fiber. Northstar’s mission is to become the leading shingle material recovery provider in North America, extracting 99% of the recovered components from single-use asphalt shingles that would otherwise be sent to a landfill.

Carbon credits for ESG investments

The Canadian government recently announced an upcoming Canadian Federal Greenhouse Gas Offset System that will provide carbon credits to a variety of industries. Companies with ESG investments will be well primed for successful carbon credit trading given the expected rising costs of carbon under the Trudeau government.

For companies with ESG-focused models, a federalized carbon credit system will not only provide additional working capital but can improve profitability, growth and ROI potential.

Takeaway

ESG is considered to be crucial to business success. Industries that have not adopted ESG initiatives have received criticism and pressure from various stakeholders. As ESG takes off with billions of dollars in investment, investors may find ESG companies to be of more interest, specifically ESG companies with a focus on environmentally-friendly practices that are well-suited to benefit from carbon credits.

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The industrial applications of silver make it an ideal material for driving the green revolution.

Silver is one of the oldest precious metals known to humanity, rivaled only by gold. And like gold, silver demand comes from a variety of different markets that go far beyond traditional jewelry and currencies. This precious metal is heavily used in high-technology, electrical, thermal and many industrial spaces. With such usage versatility, especially in our increasingly electrified world, investors can expect silver demand to grow exponentially.

There are many technology use cases for silver today. Analysts project silver will play a pivotal role in the “green revolution,” playing a fundamental role in green technologies, as well as in the fintech space with its applications in crypto mining and the broader cryptocurrency market.

Before we dive into why silver is a worthwhile investment, it’s important to understand how silver is used in technology today, from its industrial applications to more modern technology products.

Silver’s unique properties in technology

Silver has the highest thermal and electrical conductivity of all metals which makes it highly used in electronics and technological applications today.

Electronics demand silver of the highest purity at 99.99 percent silver. During processing, the precious metal can either be smelted and refined from ore into bars or grains or dissolved in nitric acid to produce silver nitrate, which can be formed into powder or flakes. This material can then be fabricated into contacts or silver pastes, like conductive paste made with a silver-palladium alloy.

How is silver used in today’s technology products?

The number one use of silver in the technology industry is in electronics, making up 35 percent of total silver usage in the United States. The precious metal’s unsurpassed thermal and electrical conductivity among metals means it is a superior metal to less expensive alternatives.

Silver’s role as a superconductor makes its uses varied tremendously across the electronic and technology space. Small quantities of silver are used in electronic applications such as contacts in electrical switches and wires, nanosilver conductive inks in printed electronics, automotive innovation, silver oxide high-weight and high-capacity batteries and many everyday consumer devices.

Silver’s versatility also extends to the booming cryptocurrency industry. Unsurprisingly, the metal plays a vital role in the function of circuit boards inside computers and their accompanying keyboards. A computer’s cooling system needs silver’s superconductive thermal properties to keep the system from overheating while expanding the massive amount of energy computers need to compute. Crypto mining rigs run massive clusters of graphic processing units across a network of computers day and night so the necessity for silver conductivity cannot be understated.

Industrial Applications of Silver

According to market research, industrial buyers drive more than 50 percent of silver demand. In 2020 alone, industrial fabrication reached over 486.8 million ounces in demand. With rapid global efforts to decarbonize and electrify the world, three specific areas present highly prospective and high-level silver consumption.

These industries include the automotive sector and electric vehicles, including the associated infrastructure, the solar energy industry and the fifth-generation (5G) broadband cellular networks. By 2025, silver demand in 5G technology could more than double to 16 million ounces and, by 2030, triple to 23 million ounces, according to estimates by Precious Metals Commodity Management.

Additionally, the metal’s high tensile strength and ductility make it an ideal option for brazing and soldering or flattening into sheets for employment across different industries, including chemical production, medicine, photography and more. With so many applications, the highly valuable metal presents exceptional market demand and outlook as a commodity of the future.

Silver in today’s technology markets

At multiple levels of production, silver presents stellar economic growth and investor upside potential. Despite a global pandemic, silver proved its status as a safe-haven asset for investment portfolios, rising to 47.89 percent in 2020. However, before silver becomes a viable resource in the latest technology and industrial applications, markets need silver exploration and development companies to produce the valuable commodity.

Lakewood Exploration (CSE:LWD) is a silver exploration company focused on becoming a multi-mine silver producer. Its growing asset portfolio includes the recently acquired past-producing Silver Strand and Burnt Cabin mines located in the renowned Silver Valley mining district in Idaho, USA–a district that has produced over 1.2 billion ounces of silver and hosts some of the world’s largest silver mines; the Eliza project located adjacent to the historic Hamilton silver district, in Nevada, which produced 40M oz silver in the 1800s; the past-producing Silverton Silver mine also located in Nevada within the same trend as numerous multi-100M oz silver deposits;and the early-stage Lacy gold-silver project in British Columbia.

In August 2021, the company reported high-grade surface samples including 11.79g/t gold and 255g/t silver to further extend the mineralized trend at Silver Strand. “We are very excited with these results which confirm widespread alteration and gold-silver mineralization throughout the property and along the 5.5 km strike,” commented Lakewood Resources President Morgan Lekstrom.

Hecla Mining (NYSE:HL) is a mineral exploration and development company operating silver mines in Alaska, Idaho and Mexico. The company has a variety of exploration properties and pre-development projects in six silver- and gold-mining districts in North America. Hecla leverages North America’s politically stable and mining-friendly jurisdictions to meet the demands of current silver markets.

Santacruz Silver Mining (TSXV:SCZ,OTC Pink:SZSMF) is poised to become Mexico’s next mid-tier silver producer. It currently operates its Rosario project and Zimapan project in top mining districts in Mexico. Both properties benefit significantly from exceptional infrastructure, with road accessibility, utility networks, skilled labor, and significant exploration upside and discovery potential in one of the world’s richest silver-producing countries.

Takeaway

Today, silver presents exceptional versatility in usage across some of the world’s most dominant sectors. As a superconductor, the precious metal boasts the highest thermal and electrical conductivity of all metals, which makes it an ideal material for driving the “green revolution” and meeting the demands of increasingly electrified industries and popular crypto mining technologies. Investors could see tremendous economic upside gaining exposure to this safe-haven asset and the exploration companies that supply it to the world.

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MARKETS

Markets
TSX20659.99-489.01
TSXV939.44-14.82
DOW34483.72-652.22
S&P 5004567.00-88.27
NASD15537.69-245.14
ASX7239.80-39.50

COMMODITIES

Commodities
Gold1776.28+2.90
Silver22.86+0.06
Copper4.31+0.03
Palladium1752.50+7.00
Platinum945.00+6.50
Oil66.64+0.46
Heating Oil2.08+0.02
Natural Gas4.62+0.05