After a couple of lackluster years for Canadian microcaps, we now face a new challenge: the threat of broad U.S. tariffs.

As of mid-February, the blanket U.S. tariffs for Canada and Mexico have been delayed, but the 25% aluminum and steel tariffs are expected to come into effect on March 4, 2025. It’s still uncertain whether the broader tariffs will come into effect and to what extent.

In the meantime, investors and management teams are left scrambling to manage the impacts of tariffs and their communication around them.

Though we're not trade experts, we can learn to improve our investor relations efforts during such crises.

I believe it’s important for management teams to demonstrate leadership during challenging times like these. This includes communicating with investors to help them understand your situation, feel supported, and guide them along as the partner they are in your business.

How you respond has a lasting impact and can make all the difference in your profile as a Canadian microcap.

As the adage goes, never waste a crisis.

Firstly, Canadian microcaps are very small companies. They typically don’t have analyst coverage and rely on small individual investors to put in the work to fully understand the business and its risks.

However, many private investors have day jobs and don’t have extensive free time to conduct in-depth research or report on company developments. This results in a less “efficient” market for microcaps.

When a crisis hits, you quickly get feedback to see what narrative investors are developing around your company.

You’ll see if it’s true or not.

Humans are inherently emotional and when fear dominates, it’s easy for people to speculate about the worst-case scenarios for you. These scenarios may not even be remotely applicable. 

Which leads them to…

The "shoot first" mentality refers to the tendency of investors to sell during adverse events. This is fed by fear and emotional reactions rather than a thorough evaluation of the situation.

This is a challenge for an illiquid microcap as it can have a significant impact on short-term volatility. It can also feed into a “herding mentality” where selling begets more selling. 

In the case of U.S. tariffs, investors will have questions like:

If your shareholders can't answer these questions, you haven't done enough to inform them about your strategy, operations, and risks.

Investors might speculate to fill in gaps, leading to a different version of the truth.

At the end of the day, there is only so much you can control. However, the one thing you control is how you respond.

Depending on how fundamentally impactful the crisis is, or how people perceive the impact to be, there are benefits to showing up and overcommunicating.

In my experience, companies establish trust with the market by being present and supporting investors. This helps to mitigate concerns, even those that may not have been warranted.

Unfortunately, the most common response I’ve seen for small companies is to do nothing and leave everyone guessing.

We can learn from some of those who communicated, through official press releases, on the U.S. tariffs or their exposure and strategy.

Of course, every company will have a varying level of impact, uncertainties, and may be limited to the extent of what they can say. In addition, official press releases are only one medium you have access to and depending on the circumstances you can use others or a combination of them all. 

Investors appreciate knowing that you are doing the best you can to mitigate risks, and when they do materialize, you’ll aim to address them the best you can. And for some companies, these events may even present new opportunities!

I believe we should utilize crises as an opportunity to learn, reflect, and refine our processes.

For investor relations, these processes may include monitoring investor sentiment, developing communication strategies regarding developments, and ensuring alignment with your overarching narrative.

Canadian microcap companies are dealing with new U.S. tariffs on aluminum and steel and the potential for more broader ones.

It's vital for you to communicate clearly with investors about your strategies and risks to build trust and ease concerns. Providing transparency and leadership are key to navigating these challenges successfully.

By addressing issues head-on and showing strong leadership, you can turn these crises into growth opportunities, ultimately helping you become a stronger, more resilient microcap.

Brought to you by the Toronto Stock Exchange and TSX Venture Exchange.

Every month the TSX releases insights into the share price performance by sector and market cap.

Since it was the year-end, the TSX provided full-year summaries on performance, segmented by marketcap bracket. They categorized microcap as under $25 million and smallcap as between $25 million and $100 million. 

As an aside, this is not how I would separate them as anything under $25 million should be classified as “nanocap”.

Overall, 2024 saw a gain (+40%) in the smallcap segment but was negative (-5%) for the microcap segment.

Note there is some noise in the data. We note the smallcaps performed significantly stronger than microcaps, posting a double-digit positive return, with technology and financial services sectors showing overall dominance across both.

Furthermore, we experienced a two-year decline of 41% in the TSX Venture from the start of calendar 2022 to the end of 2023, providing backdrop for stronger performance in 2024 and onward.

There are many potential reasons for the stronger performance in 2024 which may include cyclicality, improvements in liquidity, and a rotation into smaller asset classes.

Below are the latest announcements of investor relations and promotion agreements by Canadian listed companies (TSX-V, CSE, and NEO).

Although each contract varies, I have highlighted the cash component of the disclosed agreements and provided the monthly equivalent if the agreement covers a longer specified period. It also does not include any stock-based compensation such as options.

⁽¹⁾Amounts have been converted to Canadian Dollars, and if applicable, do not include stock-based compensation.

Legal Disclosure 

This newsletter is provided solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy any securities. The information contained herein should not be construed as legal, tax, investment, or financial advice. It is imperative to understand that some of the companies mentioned may be retained investor relations clients of Panolia Investor Relations Inc. Readers are strongly encouraged to perform their own due diligence and consult a registered advisor or broker-dealer before making any investment decisions.