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On this episode of On The Tape Guy and Danny are joined by Danny’s “Big Short” colleagues Vincent Daniel and Porter Collins to discuss the Fed pivot (1:58), their big takeaway from earnings season (4:40), concerns in the credit market (5:46), big tech earnings (19:12), the HKD IPO phenomenon (23:01), banks performing poorly (29:55). Later, Danny sits down with cannabis advocate and operator Brady Cobb and Emily Paxhia of Poseidon Investment Management and talk about the shift happening around the cannabis space (43:20), updates in the Safe Banking Act (54:28), and marijuana’s potential impact on alcohol sales (1:05:48).
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Show Transcript:
Guy Adami: [00:00:28] CME Ad. iConnections Ad. [00:00:28][0.0]
Danny Moses: [00:01:21] All right, guys, it’s 330 on a Thursday afternoon. We’re 30 minutes into the close. Guy is stuck in traffic. Dan is in Italy. I’m running solo, but I couldn’t be happier to be with my boys here. So let’s pretend we were sitting on our trading desks together. Right. I know you’re kind of positioning right now what you’re thinking and how perverse this market in this world is when you’re rooting for Porter you just said, for people to be unemployed. So we have a job print in the morning and we know how people are obsessing on every economic data point. So. Porter Vinny, talk to me right now. What are you doing into the bell or what will you be saying into the bell here? [00:01:57][36.1]
Porter Collins: [00:01:57] Well, just to be clear, I’m not rooting for people to lose their jobs, but the market and people that are long technology stocks specifically, aren’t hoping for people to lose their jobs tomorrow. And that’s just how perverse things are. And it makes me so angry in our shorts have been squeezing on us for a better part of a month. Actually, the bottom of the market was our last call. [00:02:16][19.1]
Danny Moses: [00:02:17] So all the people that want to own the technology companies, the technology companies are the ones that are announcing the layoffs. The virtuous cycle in their mind is keep announcing layoffs. Let’s get some bad economic data points to juice your stock higher, even though you’re telling us that things are slowing because as a result, you’re firing people. Just to be clear. [00:02:33][15.6]
Vincent Daniel: [00:02:33] What’s so wrong with that, Danny? [00:02:34][1.1]
Danny Moses: [00:02:35] You know, it’s a world we’re living in, Vin. [00:02:36][1.3]
Vincent Daniel: [00:02:36] I remember when we were last on. And I remember a story. Maybe I didn’t tell, but I’ll tell it now. Way back when, when Porter and I were in the working at a hedge fund that shall be nameless. It was October of 2018, and we were having for what in that crazy contract was a good year. And we go into our boss’s office and they go, Hey, guys, how’s it going? And we all give each other fake high fives. They’re like, What are you doing? What do you guys want to do? We want to give you more capital. Like like we want to give you more resources. And we’re like, you know what we want to do? We want to take the portfolio completely down. Crawl up in a ball, go home and watch the price is right. Because the next three months, I have no idea what’s going to happen. And I’m going to call it a day and go home. And you can imagine what their answer was, Danny, when when we told them what we wanted to do. [00:03:32][56.0]
Danny Moses: [00:03:33] Lift and lever. [00:03:33][0.4]
Vincent Daniel: [00:03:33] lift and lever. That’s exactly what they wanted us to do. And it’s kind of the way I feel pretty much right now. You’ve had this massive squeeze in names, and I just still think the next two or three months are going to be very difficult to call to direction long or short. Like, can the squeeze continue? Yeah, we could have a bad employment print and people will take it as if it means something more than it should. We could start the march down because technically we’re at difficult resistance levels. So, very difficult. [00:04:07][33.8]
Porter Collins: [00:04:08] And I will say this is I completely agree with Rosie is that we’re sort of the end of the tightening cycle, anyway. Listen I was wrong. I said that the Fed will never get the 2% and they haven’t started QT yet and they’re towards the end of where they’re going to hike to anyway. And I just don’t think the economy can handle that much higher rates. And so I’m in this weird situation where I think the Fed’s sort of done and listen the market already assumes that the Fed’s done pivot or not pivot or whatever you want to call it. The market basically said they pivoted and I think we’re 50 bps and done anyway. And so I think the next step is the earnings are going down. Right. And Vinny and I had this back and forth with your buddy Chanos about how long these stocks are down but the multiple hasn’t moved. Right, because the earnings have started to get killed. I think they continue to get killed. [00:04:57][49.0]
Danny Moses: [00:04:57] So let’s talk about some of those earnings that you guys have seen Kind of a recap, takeaways, you know, let’s say because we’re about more than halfway through, obviously, the earnings at this point. We had a bunch in the last few days that have come out. What are your guys, number one takeaways in general other than earnings going down in some cases, whats your takeaway? [00:05:12][14.8]
Vincent Daniel: [00:05:13] For the most part, the best earnings, not surprisingly, have been in the energy sector. No one’s surprised that that is the case and the stocks are acting as if no one was surprised. They’re thinking more forward. It seems like the big tech names were surprisingly slightly better than expected, and as a result, the combination of slightly better than expected and a drop in the ten year Treasury and increasing the duration trade has helped that trade out massively. On the bank side, pretty much in line with expectations. There’s good loan growth. There was good net interest margin expansion, but you’re starting to see a bit of a provision build nothing. Nothing terrible, but a bit of a provision bill. [00:05:57][44.2]
Porter Collins: [00:05:57] No, I just think it’s more the latter. I think it’s like, oh, great, the ten year drop, therefore Amazon got it down but it’s the sales are okay and they completely dismissed your favorite stock Walmart and you’re seeing a lot of I think bad earnings all over the place. Yes, expectations were lowered in places. But I think you’re aside from these energy stocks, the overall trend of the earnings is lower. And so I don’t think they’re great. I don’t want to buy a lot of the stuff that’s going up right now. Vinny I are not good at. We are fundamental momentum people. Right. And so we follow fundamental trends. And so I don’t like buying a stock because, oh, it’s not getting any worse anymore. So it doesn’t make any sense to me. [00:06:42][44.8]
Danny Moses: [00:06:43] It just feels like to me you can have earnings good companies. Yeah, they guided to a level, then they beat it or made it made the number. That’s fine. But on the granular basis, if you want a real look into the economy, you’re going to find it in things like Walmart. You’re going to find it in things like the banks that are reserving now for what they believe is going to be credit losses that are coming. Credit Acceptance Corp, which I do not have, have a position. I do not know if you guys have a position. They took a pretty large provision for the first time in a long time there for those people out there. They finance used cars mostly and mostly those people you will find in kind of the subprime scale of things from a fico perspective. And credit has been great for them for a very long time. But now with rates moving higher and funding costs going up at the same time that we’ve seen a kind of a peak in the consumer start to look at companies like that, they’re going to tell you really what’s happening. So that name to me is a microcosm of kind of what’s out there. And I’ll add this to it. Want to hear your thoughts. So, Liz Ann Saunders tweeted out the other day what the savings rate is, and I had no idea we’re back to the savings rate of August 2009 for people, and that tells me how fragile things truly are. Right. So you’re going to you’re going to drop to that level? Well, we were on our way to recovery in August 2009. We had so many government programs in place to kind of get things going again and put money in people’s pockets, let them borrow very cheaply. Now rates are going back up. The very least, funding costs are going up. You can tell me what the ten year is going to do, but cost of doing business it up. Costs for the consumers going up. And even if oil drops another ten bucks, it’s not enough to offset where I think rates are. So want to kind of get your thoughts on the consumer in general because it has a huge impact. That’s this economy is all about the consumer. [00:08:21][98.3]
Porter Collins: [00:08:22] So I was looking at the Stock Cheesecake Factory, pretty good barometer of middle America, restaurant trends. People were expecting them to make $0.80 about four days before the quarter. The IR calls around Wall Street and the estimates go to like $0.50. And of course, they missed the estimate. And because the ten years down, you know, stocks 20% higher a couple of days later. So it’s one of these things where does it matter, even matter what they printed? That’s the sort of the oddity of the stock market. And you forget that that macro drives so much more than micro sometimes. But the overall case in terms of micro is that the consumer is stretched. And I think you see it everywhere and you know, you definitely see it. What Wayfair, I believe, reported this morning, terrible quarter. You see a lot of these companies where sales are down or sales are going down and it’s just not the right trend right now. And listen, I’ll do my $0.02 of weighing into recession. We’re two quarters in and you probably see a third quarter this quarter. So we’re in sort of what I would call a recession and it’s not picking up anytime soon. Things are worsening, not getting better. [00:09:28][66.0]
Vincent Daniel: [00:09:28] The only thing I would add to it, Danny, is that I would use the word bifurcation and dispersion. Let me give you two financial companies. Both had very different earnings prints. One was American Express. So let’s take the high end. Right. They were actually raising revenue projections. The build business was better, mainly because Richie Rich is spending and travel, which is what they are better at than most, was really heavy. So that was American Express and the stock acted really well After the break. Then we have another name called one Main Financial, which is very small name. Most people won’t know it, but just think of it as indicative of the subprime consumer and then you’ll love this one. In the press release, they used to disclose the delinquencies by the buckets 30 to 60, 60 to 90, 90 plus. This quarter they failed to disclose the early stage buckets. Now, we used to have a thing when we were at Seawolf. If you’re going to be admitting any disclosures, you know, it’s probably a short and it’s probably a bad thing. Lo and behold, the numbers came out in the 10-Q and the early stage delinquencies roofed, and that is so indicative of to the subprime consumer. So using those two and making somewhat of drawing some form of a conclusion, the lower end consumer is really hurting, but the high end consumer for now is fine. [00:10:51][83.2]
Danny Moses: [00:10:52] The take away from that, though, the Porter’s point before a Cheesecake Factory, it’ll trade a certain way for a couple of days. And if you’re long that thing and you know you’re on borrowed time, just sell it. You don’t have to go short the stock. But, you know, it has very little upside, right? I don’t think cheesecake is taking off, but guess who just walked in? Speaking of cheesecake. [00:11:07][15.5]
Guy Adami: [00:11:09] I am here, I apologize, fellas. First of all, first and foremost, for the last month and a half to wall season, but specifically the last couple of months, your Mets are on fire. And I’ve said this and I’ll say it here on this podcast. I am terrified as a lifelong Yankee fan of playing the Mets in a World Series. The thought of that makes me break out in hives, and that is the highest compliment I can give the New York Mets. Fellas. [00:11:33][24.6]
Danny Moses: [00:11:34] So a week ago, you said you quote, All the matters is October. So good luck. So in a week, you’re that impressed. I think it’s more the Yankees losing a series at home to Seattle, that type of thing. [00:11:43][9.0]
Guy Adami: [00:11:43] Yeah, well, look, the Yankees have been struggling. They’ve been floundering now for the last month and a half. No, but there’s something about this Met team. They’re very methodical in the way they do things. Obviously, deGrom is back. Scherzer seems to be on a mission, and Diaz is the best closer in the league right now. And that all scares me. They added a bat, although not the bat they probably wanted. Nimmo is having a great year that nobody talks about and Alonso’s just doing it all. So good for the Mets right now. And I’m saying this sincerely I’m terrified. The thought of playing him in the World Series terrifies me. [00:12:16][32.8]
Porter Collins: [00:12:16] The thought of the Padres scares the crap out of me. I mean, this is ridiculous how good they are right now. [00:12:20][4.1]
Guy Adami: [00:12:21] Well, the team they’ve just put together, I mean, they’re clearly going for it and good for them. And I think their fans deserve it without question. But listen, the Padres are not in first place, as you guys know. They still got to get through a wild card game and anything’s possible there. The Dodgers, obviously, I think, are the team the Mets probably are most concerned with, although this five game series with the Braves is going to be interesting, but people are not here to hear us talk about Major League Baseball. They want to hear what you guys have to say. And I’m sorry I walked in late, but talking about subprime and what I’ve said for a while, and despite the fact that the S&P 500 has rallied some almost 600 points off that June 16th low, credit is still a concern out there, and it’s manifesting itself in a lot of different ways. Now, the market’s not taking it into consideration, Vinny, but my thoughts are, should it start to look at it? The AIG has bounced from 73, closing in on 80. That’s obviously the one thing that I look at. But I’m hearing anecdotal stories from insurance companies, from different things where people are starting to be delinquent in their payments. And that’s sort of the next shoe for me, Vinny. [00:13:24][63.2]
Porter Collins: [00:13:24] It is. And what we’re seeing is all of the leading indicators that are out there are trending down. And as a result of that, it’s only natural to expect that the next thing that’s going to happen is that earnings are going to go south. We started to see it this quarter, right. I think it’s going to be more magnified in the third quarter. The question we should all ask ourselves is at what point does the Fed recognize this and accelerate their dovishness? And my answer to that, at least at this point in time, is they can’t. So I think right now we’re kind of still remain a little bit trapped in terms of what we can do, which is very makes markets very difficult. [00:14:02][38.0]
Guy Adami: [00:14:03] There are a couple of things going on here. I think the market’s rallying for a few different reasons. I think the first reason is they interpreted that Fed meeting as dovish. I didn’t, but that doesn’t matter. The second part is we’re not going to hear from these people again until the end of September. Obviously, Jackson Hole notwithstanding number two and number three, people say, wait a second, the data is coming in, weak commodities are getting crushed. This Fed can pivot the markets doing its job for them. And I think that’s what the S&P 500 is taking its cues from. I’ll say this, I think if the if the market thinks this Fed is going to pivot, I think they’re sorely mistaken. And if the Fed does pivot, my goodness gracious, yeah, you might get an equity rally, but the commodity rally you see on the back end of that is going to be three fold of what we see in equities. [00:14:49][45.3]
Porter Collins: [00:14:50] We always use The Simon and Garfunkel phrase, man, here’s what you want to hear and disregards the rest. And I think they know that the end is near in terms of how high the Fed can go. They just can’t go to 5%. The economy will shut down. So, you know, good for them for putting two 75s back to back. And we’re now here at two and a half. I just don’t think they can go much more. And so I’ll give the bulls that in the fact that the Fed’s probably closer to being done. I’d like to see them try some QT, but that’s obviously not happening. But I think the people who are giddy about stocks here, they see a cut and QE in the future. I just don’t see that that’s the difference. I just think it’s going to be a more prolonged thing and I don’t see them fixing what I think the problem is, as we talked about in our first half letter, is that the supply side of energy and a lot of the supply problems out there, they’re just not fixing they’re crushing demand, but they’re not fixing supply. And so that’s my biggest problem with what’s going on right now. Nothing’s at the core of it’s being fixed besides a shittier economy, which is not great. Right. So people hoping for job losses tomorrow, that’s not a great way to run our economy. [00:16:01][70.4]
Danny Moses: [00:16:01] I would love nothing more than to be bullish. It’s such a horrible way to go through life to try to be cynical. Okay. Very bullish. So if I were to go away for two or three weeks and come back and see the market down 500 points on the S&P, let’s say, from where it let’s let’s call it 33, 3400, forget this last 200 point rally or something. I said, well, that makes sense because the economy is obviously slowing. The Fed’s still going. Whatever. I can’t think of what would make this market move higher from here. It could have go another hundred points on the S&P. Sure, it can go another 200, but it’s not sustainable. The reason is not sustainable. As we just went through this, we are in the early stages of a credit cycle. The Fed raising rates have a lag effect on what’s going on. Wells Fargo just put out a kind of a credit card overview of what they are seeing on. They are telling you what consumers are doing, where they’re pulling back, where they’re spending money, what’s happening. So to me, I don’t need to know anything more than that. People can trade expectations on a quarter here and there. They can watch the ten year. But by the end of day cards speak, the end of day fundamentals will matter. And Vinny just brought up a point on one main where you got to go read the 10-Q to see so someone walks in, stocks been up 5% a day, 5% a day. All of a sudden it’s up 20% over four days. Earnings had already been reported. 10-Q comes out, which is poor people don’t know. It’s filed quarterly, much deeper dove and the stock’s down 35% from where I’m just making I don’t know where that is. My point is that that’s a lot of damage that can occur to people that aren’t paying attention is kind of going with the flow. So this is a market you want to be cynical in. You want to question everything is kind of out there. So it goes back to kind of stock pickers market. And you got to be careful obviously on these squeezes and right when you think you’ve got them by the jugular, they’ll squeeze you right out of the. So that’s a behavioral finance aspect. So how are you guys managing right now? We talked about short squeezes a little while ago. How are you managing through the right now are using options I know Vinny hates those. Are you taking down positions waiting to add what are you doing? [00:17:50][108.9]
Vincent Daniel: [00:17:51] One thing I would like to add about one of the reasons why the market’s going up that we sort of touched upon. But it’s really probably more powerful than we would all like to admit. And all of us are sadly older than we would like to be. So we’ve seen this before many a times and many cycles, which is something else that Jets fans know all too well, which is being offsides right. [00:18:12][21.2]
Danny Moses: [00:18:13] Wait for the flag you mean when you score a touchdown, just wait for the flag. [00:18:15][2.4]
Vincent Daniel: [00:18:16] Oh, yeah. So, Guy, you probably don’t feel this as much as a Giants fan, but whenever the Jets get, like a 70 yard run, a true Jets fan will never jump up and down for joy. They will look to the lower left part of the screen and look to see the red flag coming out because it’s usually a holding or an offsides of some sort. So the entire hedge fund industry, and arguably rightfully so from a fundamental perspective, was offsides for whatever you want to call it, a Fed pivot, a Fed downshift and the like. And they found themselves short all the same names at a time when the Fed did something that was different than what was happening two weeks ago. And so as a result, the last part of July and early August, all you’re doing is having risk managers at large, hedge funds, tap the analysts and PMS on the shoulders and degrowth and cover and dig gross and cover all of our conversations over the last week. The word we use is pain. There’s pain all over the place. So I’m always wary to say when this will end. But we’re probably a lot closer to the end than we weren’t to the beginning, just based upon technicals and resistance levels that are coming up. But that is the big, big driver of what’s happening right now. [00:19:32][75.9]
Guy Adami: [00:19:32] No question about it. And I agree with that. And listen, my sense is as oversold or as over negative as people were in the middle of June, which they were, which we addressed, by the way. And that’s why I think to a large extent you’ve seen this move. I think that’s where people find themselves on the flip side of that coin now and and again, I don’t like being negative. I don’t what I will say I say all the time I grew up in a Wall Street where I was taught what can go wrong, will go wrong and hope for the best, but prepare for the worst. So I’m predisposed to think this way, but even with that, I look across the landscape, I see what’s going on and I say, This can’t end particularly well and quickly not to play stock market here. But the Microsoft quarter, when that stock when that company reported the stock was trading 254 or thereabouts on the close, they reported a quarter slowdown in cloud 40%. The street was of 45%. The knee jerk reaction again, knee jerk reaction was to take that stock down to 242. What got the stock back on its horse was the fact that in the conference call they said they were not seeing a slowdown in demand, which may be true. I don’t know if that’s good or bad because that is coming to a theatre near you. So these quarters weren’t great, they were good enough. And I think that’s what we’re seeing in terms of momentum to the upside. But by no stretch of the imagination were these quarters where stocks should be up 25, 30%. Apple, for example, Danny, you saw 2% year over year revenue growth in Apple, which we haven’t seen maybe ever, but in quite some time. [00:21:08][95.8]
Danny Moses: [00:21:08] I was going to say and this is a name that Porter and Vinny can opine on for sure. So PayPal to me is the microcosm. Here’s why. Good company never was going out of business, was no threat of it ever. You know I’m not one of these meme stocks whatever got down under 70 bucks a share got to a market cap over, you know, around 70 billion or somewhere in that area. Right. What happened? Earnings were fine. And you had an activist come in to a little bit of tech. It’s a little bit of consumer. You know what it is also that we talked about at the top of the show is that people can own quality and they can hide in quality. Right. So you’ll pay a premium for certainty right now. So people like I was going to buy PayPal, I knew what I was doing. I was I didn’t do it. I didn’t do waiting for a pullback. When Porter is talking about when you talk about max pain in the market, it’s those type things to me that as a fundamental analyst like you get caught up too much in the macro and this would be me, this would be what I would do if the three of us were sitting on a desk Still, don’t buy PayPal. Yeah, let’s wait because the macro is going to be bad. This is what we’re talking about, guys. So use PayPal kind of as an example because to me it’s the perfect example of exactly what’s going on in this market. [00:22:10][61.2]
Vincent Daniel: [00:22:10] This is an ode to Dan Nathan because I know he would want us to talk something optimistic and bullish on PayPal was a missed on our part, to be honest. And Danny, you nailed it. Exactly. The emotions that probably we were feeling and we saw the downside in the name. And if you have actually looked at the valuations, it was palatable. But clearly Eliot saw something in it and that’s the part I want to get to. Eliot saw something in this and Eliot saw something in pins. And so if someone like Eliot is seeing opportunities and it took large stakes in both names that happened to come out when they both reported. And if Eliot seen something like that, you know what, there are opportunities in the market. There aren’t tremendous frequent opportunities, but there are some opportunities in the market. And you’re right, Danny, on something like that, we have to have our eyes out to make sure that we don’t get too greedy or valuation becomes too big of an issue for us for opportunities where we should start sprinkling in and buying something. [00:23:08][57.6]
Guy Adami: [00:23:08] Danny always mentioned when there is still insanity in the market, it’s hard to say. We’ve reached bottom and something’s happened over the last couple of weeks this HKD, which IPO’d, I believe at $7.80 a couple weeks ago, if I’m mistaken, please don’t @ me on Twitter. I think the opening price had a 14 handle or thereabouts. The stock traded, I believe, 1900 dollars at its zenith. Dan is giving me the thumbs up. [00:23:37][28.2]
Danny Moses: [00:23:37] Higher, Bob. Higher. We talked about prices right earlier, so that’s perfect. Higher 2500. [00:23:40][3.4]
Guy Adami: [00:23:41] 2500. So my sense is at 2500, that was probably a $400 billion company, which would have made it which made it at the time one of the largest companies on the planet. It’s madness. What’s going on now, obviously, it’s pulled back. It’s still at ridiculous $156 billion. My point is not to trade that stock, but the insanity around it is what I want to point out. So when things like that can still go on, I think the mechanism, Danny, of the market is still broken. [00:24:10][29.3]
Danny Moses: [00:24:11] Yeah, for sure. I like I thought we were close. We were getting there. We were getting there in June, starting to feel that way. Let’s get the wash outs coming. Here it is. Here it is. Pivot. Is it a pivot? Whatever. We’ll see tomorrow. But and then you’re back to this again and who’s going to get hurt the most? You think institutions are buying these stocks? No, it’s the meme crowd. It’s the retail. And they’re going to get hurt. And that honestly upsets me as much as being wrong about where this market has gone. And I do think we’re in for a dicey August border. [00:24:38][26.7]
Vincent Daniel: [00:24:39] Listen, you can still see how much money is sloshing around the system. People need to put money to work. Elliot’s perfect example that they need to put money to work. And let’s talk a bit about Tiger Global and Co two. Those guys publicly took their long positioning way, way down, short a ton of stocks and the short interest on a lot of these tech names looked around. It was 20, 30% of the floats. It’s just sometimes there’s so much money sloshing around and there’s not that many stocks. It goes to a lot of weird places. And so some of these short squeezes is just a further example of so much money sloshing around the system. And so I just think this is going to keep taking a long time to shake out, as evidenced by the speculation going on. [00:25:24][45.2]
Guy Adami: [00:25:24] No, I agree. And listen, one of the things that I’ve noticed on my end is let’s play it out here a little bit and I don’t want to get bogged down in Bitcoin. That’s not what I’m here to do. But it’s not coincidental. We’ve mentioned it here that Bitcoin topped out around 68,000 or thereabouts at precisely the same time the Federal Reserve correctly pivoted in November. I don’t think that’s coincidental, but what I think is interesting, obviously Bitcoin has bounced a little bit. I think they’re taking their cues from potentially a Federal Reserve that’s going to pivot or pause whatever word you want to use. But I got to tell you something. There’s something. And again, I know I’m a gold bug. I totally get it. I grew up on it. But over the last week, week and a half, Danny, something is happening in gold. And my sense is the following. Either the Fed’s going to lose control of the situation, which is bullish for gold, or they will do a pivot or pause, whatever, which is bullish for gold. I think the cards have aligned where gold might actually be really interesting here Danny Moses. [00:26:20][56.1]
Danny Moses: [00:26:20] Yeah, and dance away. Maybe that’s why gold went up so much and he gave me a lot of heat like a month ago, and I was getting destroyed on Twitter. Oh, good call. Gold. Yeah, whatever. My point was, I’m just gonna own it. I don’t care. At some point, it’s going to make its move. And hopefully this is the move potentially. Look at these miners. I mean, look at some of these things. And when oil goes down, by the way, and gold goes up, the miners win win. Because correct me if I’m wrong, boys, but, you know, one of the biggest input for these miners is energy. In order to get that gold out of the ground, I believe, if I’m not mistaken. So that’s kind of a win win there. So what are you guys thoughts on gold? You know how I feel here. [00:26:51][30.5]
Porter Collins: [00:26:51] We mentioned on the on the tape episode last time we here is one of the few things we’re buying. It’s obviously done pretty well since then but underperformed the broad market. But let’s take the turn in bitcoin. We were just talking about micro strategies and Bitcoin bounced off the bottom from 19000 to 22000. MicroStrategy doubled on that. And that’s just because, you know, the short interest was 30% in the stock and it was the shorts that took it up. The value of their bitcoin and the balance sheet is $66 a share. The stock’s 300. So I just think there’s speculation all over the place. And I think as far as gold, I think it continues to go higher. And it’s sniffing out, finally sniffing out the Fed’s pivot. And like I said earlier, the Fed’s pretty close to being done anyway. Call what you want. The feds already pivoting and the stock market and the gold market has figured that out. [00:27:44][53.0]
Danny Moses: [00:27:45] So, Porter, on this MicroStrategy, tell me if I’m wrong, but this is exactly what happens in a hedge fund. An analyst comes to the portfolio managers. I figured out the code. I’m going to go long Bitcoin and short MicroStrategy because I figured out that Bitcoin has to get back to 30,000 before MicroStrategy can afford to get to 300. So we’re going to put this tree down. I’ve done the modeling. I’ve looked at it out. I’ve extrapolated it out. Next day, Bitcoin goes up 1000 and microstrategy’s goes up 30%. The portfolio manager says, By the way, I took off that trade and you’re fired. This is exactly the kind of shit that is going on where people try to overanalyze and figure out actually do fundamental work in this in this market. Right. [00:28:23][38.3]
Vincent Daniel: [00:28:24] That was very Eric Cartman from South Park. And Danny, to be honest, let’s play this out at Seawolf, because this is exactly what would happen. So I would come with my spreadsheet all squeaky clean right to you guys and show you the spreadsheet and probably tell you to do exactly what you just did in that Cartman voice. You would want to tear it up and use it as toilet paper, right? And say, Vinny, that’s great. You’re right. You’re right. Why don’t we just short microstrategy’s and Porter would turn around and say that’s exactly what we should do. So at the end of the day, all we would do is be short MicroStrategy and forget about that whole convoluted trade. That’s what we’re the Seawolf way of doing things. [00:29:04][40.1]
Danny Moses: [00:29:04] Exactly. All right. I just wanted to round that out, boys. Thank you. [00:29:08][3.2]
Vincent Daniel: [00:29:08] No problem. [00:29:08][0.2]
Guy Adami: [00:29:09] Vinny, should I put my tinfoil away, or is it about time to put that hat. [00:29:12][3.3]
Vincent Daniel: [00:29:12] On in terms of what Guy. [00:29:14][1.5]
Guy Adami: [00:29:15] Called in terms of gold man? I know all these cats out there with a tin foil, and I want to hear from you because you can synthesize this shit better than I can. [00:29:23][8.3]
Vincent Daniel: [00:29:23] I think I’ve said this before. I think gold and I guess to a lesser extent Bitcoin. But Bitcoin I think is dealing with a bunch of leverage issues associated with crypto world. But I think gold is the report card for central banks. I’ve said that before, I’ll say it again. And right now central banks were getting an A for what they were doing. And I think we all know at the end of the day they’re going to fail. They kind of have to fail at the end of the day. So I’m with you. And by the way, central banks have been buying gold. So it’s been one of the few things that we’ve actually increased our exposures to on the long side, it was painful doing it, but as it kept going down. But we were kind of adamant that it’s hard for us to see the Federal Reserve saying in a tightening bias over the next six months. [00:30:09][45.8]
Porter Collins: [00:30:10] Central banks bought 60 tons of gold last month as the price of gold was collapsing. [00:30:14][4.4]
Danny Moses: [00:30:15] Let me just say, speaking of gold, Goldman Sachs, I want to bring this up for a reason. So I know there’s some prop trading and stuff that’s been going on various places. And you saw in the quarter that Goldman reported how much how well they did kind of in their trading. Well, I noticed near and dear to our hearts that there was two traders that were let go because they were threatening to leave. I looked at where they worked. They were in this index trading group, brilliant guys. I’m sure that wrote code. And Goldman was accusing them because they were going to leave and go to a hedge fund that they were taking code again, this reminds me and we all know when Michael Lewis found the coder ended up writing Flash Boys was a starting point for how he kind of got to it. I think that that group made $700 million. I mean, so the stuff is still going on. But it made me think when I saw it on article this morning. And listen, I’m a capitalist. I’m obviously a pro Wall Street guy. You guys know how we feel about certain prop trading groups in Wall Street and certain people that get free rides on bank depositors and stuff like that. So I have mixed emotions, but I’m a capitalist, I’m a fan. But here we are. I saw an article crying about bonuses are going to be down. I started to think to myself, I’m like, This has been a Fed induced Wall Street rally for years. If anyone’s bitching and moaning right now about going to be down ten, 20, 30% or whatever, they should thank their lucky stars that they have this seat. And so when I saw that article, it made me think about all the stuff that’s still going on behind the scenes. And when you talk about trading gold or trading anything, you know, I think these banks are still some of them are very active. We’ve seen some things happen, obviously, Nickel, you know, Jp morgan a while back. But I think they’re much more involved now than I would have thought. [00:31:44][88.9]
Guy Adami: [00:31:44] Guy When people have to decide whether or not and this is coming to a theater near you as well, people in Europe are going to have to decide whether they’re going to feed their family or heat their homes, number one. And to a certain extent, we’re seeing some similar things here when those are the decisions you have to make. And on the flip side of that coin, you have people pissing and moaning because they’re not going to get the bonuses they think they deserve. That’s the problem. That’s the chasm. And that, my friends, in my opinion, was created by these reckless policies of the Federal Reserve. So when you ask me why I get so exercised about this shit, that’s why. Because the wealthy have never been wealthier and the poor, quite frankly, have never been more poor. And for 35 million people in this country for almost 10% of our fellow citizens. This is 19, late 1920s, early 1930 shit, and it ain’t getting better for them. [00:32:35][50.5]
Danny Moses: [00:32:35] People finally have the ability to put money in the bank and earn a return in savings or at the lowest they’ve been in 13 years. That pretty much sums it up, boys. Right. So tell us give us your thoughts there. [00:32:44][9.4]
Vincent Daniel: [00:32:45] I’ll start. Is one of the things I’ve been really going bonkers on it. It’s a bit wonky, but I’ll try to make it simple is that if you look at bank world, it’s controlled by the regulators and they put risk weights on every single type of asset. So whatever asset is on a bank, they have to hold a certain amount of capital. You wouldn’t be surprised that the risk weights for everything. Capital markets and treasuries have the lowest risk weights and all things loans have the highest risk weights. So everything that you just said to me, Danny, doesn’t surprise me at all. Wall Street and the banks are being pushed by their regulators to be in securities and capital markets versus making loans out to the communities. So all of it, it’s like, well, what do you expect? And the people who run Wall Street banks tend to come from the securities side of the business. And Porter can speak to this because because he’s near and dear to his heart versus the banking side of the business. So everything that is happening, when you think about it from that perspective, what the fuck do you expect? Of course that’s going to be the case. [00:33:49][64.1]
Guy Adami: [00:33:50] And real quick, Porter, I don’t think it’s coincidence that as we sit here, having seen a significant rally over the last month and a half or so, names like Jp morgan are not trading well. I think the 52 week low in Jp morgan was 106, if I’m not mistaken, that stock now trading either side of 115. This, by the way, on a tape where Goldman Sachs and the same tape has gone from 275 to 330 340 or so. So something’s going on with the banks that nobody is choosing to acknowledge or bring up right now. And I think that’s going to be problematic. [00:34:25][34.6]
Porter Collins: [00:34:26] That sort of makes complete sense to me because first of all, the banks need rate hikes. And if you’re talking about Wall Street bonuses, they’re going to be down, rightfully so, because activity is way down and IPOs and high yield issuance and all this stuff is as at 2008 levels. And it’s just there’s not much activity going on and going back to vinz risk weights and making loans, back to my whole point earlier that I was making is that we’re not doing the right type of investment. If the world wants to grow, it needs to invest and it needs to invest in energy. We’re not doing enough of that. That’s the frustrating part to me is that Wall Street banks are still vilifying the energy complex ESG. You know, we were talking with an energy company, the other day as it is equal, the banks won’t lend to us. And so that still goes on. And that’s the reason we’re in all these issues. We’re not fixing the root problem here. And so that’s just frustrating to me. [00:35:20][54.8]
Guy Adami: [00:35:21] I love having you guys on because you’re clear thinkers, you’re able to synthesize you’re able to present and you look past the bullshit and you’re not just sort of grin, everything’s okay. And before we get out of here, I want to say one thing. On Twitter a lot of times people say, Oh, you’re always negative, you’re un-American, you always bring it up to negative. You are. I think being patriotic is pointing out things that are problematic and trying to show people some of the things that go wrong. It’s easy to go on TV every night and just be happy and grin. Everything’s okay by the dip, all that bullshit. I’m selling calls on the way up and I’m buying on the dip because there’s no repercussions for that type of nonsense. In reality, I think the people that do the best service to the audience are the ones who point out things that nobody’s thinking about. And Vinny and Porter, that’s both of you guys. Danny, that’s you as well. [00:36:12][51.4]
Danny Moses: [00:36:13] Yeah, well, listen, here’s to rooting. If you’re bullish for a horrible economy so you can make a little bit more money and get the S&P to 4300 and we’ll see what happens. And, you know, I could see both sides of it if it’s a better job story like see, there’s no slowdown in the Fed’s already raised all these rates. So people will take away from tomorrow’s number whatever they want it to be. But we’ll see. And guys, we will have you guys back on obviously very soon. I think we’re going to be talking about what happened after the last time you came on, which is today. So thank you guys for coming on the tape. [00:36:40][26.9]
Porter Collins: [00:36:40] No problem. And listen, I’ll apologize. The audience numbers if we’re not as geeked up as we used to be. But we’ve spent the better part of this past month getting squeezed in a lot of our shorts and so. [00:36:48][8.4]
Danny Moses: [00:36:49] Vinny got squeezed with COVID, too, at the same time. So I appreciate you guys even doing it. [00:36:54][4.9]
Porter Collins: [00:36:54] So, by the way, if this makes it to the audience, breaking news. One of my favorite things when being in Seawolf was about 4:00 and earnings would come out Danny would have on his Bloomberg machine and I earnings are actually a thing Danny would do and I warnings and it was just entertainment beyond entertainment for 45 minutes as everything hit the tape and in terms of even names who were in not and it was just it was just pure insanity of things just hitting the tape and it just happened right now as I’m looking at it and I’m just a stock that we’ve been involved in Beyond Me just missed and I’m just bringing back of where would Danny be running around the office on a miss like this? It would be fantastic to watch. [00:37:42][48.5]
Danny Moses: [00:37:43] Name of the podcast on the tape, don’t you think it came from maybe I’ll change it to NIWarn. Thanks so much for coming on. When we come back, well, Emily Paxhia from beside investment management and Brady Cobb, who is in the weeds, so to speak, in the cannabis industry. [00:37:55][12.7]
Guy Adami: [00:37:56] Like what you did there. [00:37:56][0.6]
Danny Moses: [00:37:57] Thank you. [00:37:57][0.3]
Guy Adami: [00:38:23] CME Ad. iConnectoins Ad. Masterworks Ad. [00:39:12][49.2]
Danny Moses: [00:40:09] Welcome back to On the tape. We are very lucky to have two of the most influential people and most experienced people in the cannabis sector, Emily Paxhia here from Poseidon Investment Management, which she founded in 2013 with her brother Morgan. They’re currently involved in several different things. They have three private funds, seven different syndicates. They have an ETF, PSTN. Emily has been involved in not just business causes, but many social causes as well, which we will get into. Brady Cobb, who has been a guest on this podcast a few times, needs no introduction, obviously, to the people that have listened to before. But his background, obviously, as a lawyer and a lobbyist, really activist, turned into an operator side of the business within cannabis, still very active in both. Talk about what he’s already accomplished and what may be ahead for him in his career here. So I want to welcome you both on the tape. [00:40:56][46.6]
Brady Cobb: [00:40:56] Thank you for having me. Emily, it’s great to see you. [00:40:58][2.0]
Emily Paxhia: [00:40:59] Thanks so much for having us. It’s fun to be with this group. [00:41:01][2.3]
Danny Moses: [00:41:02] So first things first, which I kind of discovered. I knew more about Brady’s background and his father and kind of when he became really passionate about the flower and its uses. Emily I was unaware both your parents sounds like had gone through various bouts of sickness and have used cannabis, and you saw it firsthand kind of relief that it can bring them. And if I’m not mistaken, maybe I’ll start with you. That was kind of when you first realized that this plant had medical benefits to it and you took off from there. Is that accurate? [00:41:30][27.7]
Emily Paxhia: [00:41:30] Yeah, it was kind of an early seed that was planted, so to speak, that then evolved into getting into the industry multiple years later because yeah, with our dad being sick it was introduced as a idea. I mean, he had been a long and happy consumer of cannabis. You know, he’s in the Woodstock movie, he’s all around. But when it came to him being very, very terminally ill, came up as a palliative care kind of end of life suggestion from a hospice nurse and being raised in the Nancy Reagan War on Drugs DARE programs. This was something that stood out very clearly in my mind and my family. And we’ve all discussed this as we’ve gone forward. And so when we put together our firm, it was very much a conviction based investment thesis that we felt like capital as a change agent. If we invested in this industry, it could expand and grow and then more people could benefit from it. [00:42:23][52.5]
Danny Moses: [00:42:23] Amazing. And around that same time you started your firm, I believe, Brady, you started your own law firm down in Florida, obviously. And you were also inspired, unfortunately, by your father as well. Maybe just tell that story again to the listeners that haven’t heard it. [00:42:36][12.4]
Brady Cobb: [00:42:37] Yeah o for me it was very similar to Emily. I call us early prospectors in the cannabis industry. We are also, I would say, glutton for punishment. But I have been a fan of the plant for far too long. Obviously big believer in it, user of it, but also for me it meant something more than just something to roll up and smoke. My father was a 1977 or 1983 was one of the biggest importers of cannabis, as I like to say, illegal imports ultimately went to prison and I finally get to reconnect with him in right around 2007, 2008 in a real way. And then he terminal bone cancer in the latter part of 2009. So he passed away in 2010. I had just made partner at a big law firm, youngest guy to ever make partner there, excited, euphoric. And then that happens. And it’s like I get busy living or get busy dying. And it was again, a conviction based move for me. I think it’s a great way of saying it Emily and it was time to jump into the space. It was time to jump in headlong both in the regulatory and legislative side, but ultimately began working in the early Canadian days, began working in the Western states, and then ultimately worked really hard to make sure that we got a constitutional amendment passed here in Florida in 2016. So that was kind of what made me jump headfirst into the space and kind of have tentacles both into the reform efforts, as well as trying to be one of the few voices in the space that doesn’t treat this as a true commodity, but also caring about the authenticity of the plant and the authenticity of the purpose that you operate. It’s not just about biomass and volume and earnings reports, so I pride myself on being a little bit different in that regard. [00:44:11][94.8]
Danny Moses: [00:44:12] Right. So perfect segue way. You just quoted Shawshank Redemption, get busy living, get busy die. And this whole sector has to do with prison, right? It has to do with getting people out that shouldn’t be there. And I feel like as an investor, you’ve been in prison for some time. So, Emily, I’m going to ship back to you. We’ll get back to Brady on the operating side in a minute. But just on the investment management stuff that you’ve seen over the last call it nine years, now that you’ve been doing this, you’ve seen a lot of iterations, fits and starts, you’ve had successes. I’m sure there’s been some things that haven’t worked out. When you deal in a sector like this, you learn from them, talk about kind of where we are right now, what you see happening and what you learned along the way that got you here. [00:44:47][34.9]
Emily Paxhia: [00:44:48] The way the world has shifted around cannabis since when we first dollars into the legal industry with external capital was January 2014 when Colorado opened their adult use market. So the way we think about cannabis is it is an emerging market and you see these kind of condensed pipe cycles that occur and some of the first cycles included Canada legalized on a federal medical level. And you saw some of the big operators up there. And we were investors early in private rounds before those companies went public. And now they’re some of the names that are listed on the exchanges. But then we saw that arcing up and felt like there was a disconnect of the metric that was being used there, which was funded capacity versus the actual demand or capability for the population to consume the amount of cannabis being produced there. And we cycled capital at that point into the U.S. and we were really fortunate to have spent a lot of time building up our network and we were able to participate then in private rounds and what are known as the multistate operators or MSOs. So we’ve gone through that. And then there was this really interesting arc that occurred again after Jeff Sessions came out and rescinded our call memo, which was basically a memo outlining how this industry may be able to create infrastructure, KYC, AML around banking. And it felt like things were shifting. And so then all of a sudden, a lot of companies went public in Canada via the RTO process or even potentially an IPO process up there. And things we saw are up again. We went through that cycle. We just really have stayed focused on investing in teams, in fundamentals and in thinking about where this market is going. And for that, we have avoided a lot of the high up. The high ups would be great if you could actually get out in the high moment, but we know that’s not always the case. So we’ve been able to avoid some of those roller coaster rides and just really invest into what we think are the strong teams in the industry who are going about execution in a way that’s really for the long term. But what’s really interesting is I feel like at this particular moment in cannabis, we’ve seen a drawdown in the capital, in the public markets around the cannabis names while these businesses are building since February 2021. It really started at that moment. And then there was some externalities, like the Archegos event caused some of the custody to leave the space and some of the risk off sentiment to shift out of the space. And so we’ve seen capital just continue to kind of retreat from cannabis because it’s a difficult industry to invest in. And yet I couldn’t have stronger conviction in the companies and in what I see setting up to be a very interesting kind of political situation. So the way Morgan, my business partner and my brother and I talk about it is it’s the great reset. And we feel like you have greater visibility into what this market could look like. You have greater understanding and visibility on the quality of the teams. The teams have done great work to set themselves up for uplifting opportunities when the exchanges open up to the U.S. operators. And I’m just really excited. I’ve just invested further into our own vehicles because I think this is a great reset and I don’t know how many times you get to enter in at these levels. [00:47:56][188.8]
Danny Moses: [00:47:58] So Emily just gave us a look, kind of what it looks like to be an investor looking inside. Brady Your story, among other stories, is well known that you were able to build one plant blooma over a very short period of time and turn around and sell this over a year ago for over $200 million to Cresco Labs. But being an operator, what Emily just described firsthand, literally sharpening pencils, selling pencils, whatever you had to do to make ends meet, maybe just tell that story for people that don’t understand. I’m going to get in also now, too, after you talk about this, why it’s so hard technically to do business in this space and how incredible it is that companies even now are able to pull off what they can with all the laws and rules that are out there for them. [00:48:37][39.1]
Brady Cobb: [00:48:37] Yeah, from an operating standpoint, it’s truly a life on the frontier. It’s like the Oregon Trail. It’s really hard. You’re clipping along in your wagon and all the sudden the Indians attack you and you’re like, Oh, whatever, we’ll get past that. And we lost one or two people, and then you hit the Rocky Mountains and you’re like, Okay, how are we getting around this? And then it starts snowing and then your wheel breaks. So it’s basically a game of resilience. I’m not complaining because there’s a lot of black market operators that have been doing this for a long time in the shadows that I think would kill for the opportunity to do it in a legal market where they could actually be profitable. So I’m not complaining, but it’s a hard business. This is not for the faint of heart. And I think you’ve seen a lot of operators come over from CPG or alcohol or tobacco and be like, Oh, this isn’t going to be so bad. How hard can it be? And then you look at what Constellation is experiencing with Canopy right now, and I’m thinking they’re reevaluating some of those decisions, though I believe that investment was solely based on a beverage development in Canada, but that’s a whole nother discussion. So it’s a very capital intensive business because of the Schedule one designation, capital is hard to come by and it’s very expensive as compared to our peers. If I was selling beer, my cost of capital would be drastically different in a better way than if I’m selling pre-rolls. So it’s an incredibly hard business and execution is incredibly hard. There’s a very specific reason that I haven’t joined some of my peers like Ben Kobler, Bort and Charlie and others, and chasing down multiple state operations or operations through myriad of states. It’s because of the schedule one designiation. You have to have individually siloed manufacturing, retail and operations in each individual state because the product cannot cross state lines. This is not making bourbon on the bourbon trail in Kentucky and shipping it to warehouses around the country. You want to be in ten states. You have to have operations in ten states. CapEx in ten states. OpEx in ten states. So as we chose to come into Florida, because we believe Florida is one of the most important markets of the country, if you look at it from a total sales in the aggregate, it’s always one of the top five and has been for a period of time. But giant like Trulieve, kudos to Kim Rivers. 80% of their business is from Florida and they’re a market leader. It’s a huge state opportunity and we chose to go deep, not wide into one state when we built Blooma. And so we’re doing it again in our next jump into the marketplace because of the ability to focus on one state dial things in, build a brand and then take it out. Once we have the opportunity to potentially not have to have that schedule, one problem of not being able to cross state lines. That’s ultimately in the longer term vision. But it’s a tough business. I mean, we built our Blooma one plant. We had a CapEx budget, we had commitments from investors. And then about 60% of it came in because the cannabis markets had one of its. We’re going to sell off this month moments and everybody lost everything and got to be pretty crafty that through payroll is not fun getting through health insurance when it’s 30 to 40% more expensive access to banking. So again, I’m not complaining. It’s part of the job, but it’s a really hard industry. And when I see. Congrats to Berner for making the cover of Forbes, but it’s not sitting on the cover of Forbes smoking a joint. This is a hard business. If you go across the California landscape right now, there’s a lot of people that have jumped into the legal industry that are going upside down really fast. And it’s not just in California, it’s you can lose a lot of money. I mean, Danny, we see this in Florida and even spend more time down here. Beau Wrigley, 800 million into Satara vaporized. They’re in full blown litigation. This is a tough industry. You have to be a really good steward of capital. But I think the most important thing and where I’m incredibly humbled is you got to have a really good operations and management team that understands that you have a finite amount of capital. You have to know who you want to be, which most companies are in a race. I don’t think they’ve done the work of knowing what they want to be. And one of the things that our best pieces of advice I’ve ever got from someone was It’s not what you say yes to, it’s what you say no to. That will define whether you succeed in this industry and chasing shiny objects is bad. So for us we have a very defined purpose. We skated through on the bloom of sometimes clearing payroll by under $1,000, which when you’re talking about a $300,000 payroll run, that’s quite the moment. But we made it and we’re excited to go do it again because like I said earlier, I think I’m a glutton for punishment, but I truly believe in the industry. I believe it’s going to be transformative. The alcohol lobby and the alcohol companies are all showing up in mass to jump in when they can. And it’s just about surviving until that moment happens. [00:52:56][259.2]
Danny Moses: [00:52:57] So you just brought up a lot of people out there that don’t know there’s two A.D. You can’t deduct certain expenses as a cannabis company. You can’t get normal insurance, you can’t run payroll because you can’t use a bank. You can’t. It’s a very cash heavy business. There’s just not a lot of economies of scale. And Emily, I know you have some private investments that address some of those issues that are trying to build that. Regardless of what the laws say, they’re actually coming up with these types of solutions. Can you talk about maybe some of those give an example of who actually is taking advantage of these dumb archaic rules? [00:53:26][28.8]
Emily Paxhia: [00:53:27] Yeah. I mean, we do have different platforms that help with QMS systems or our compliance tracking like we just did a new investment that’s a compliance software to help each operator get scaled up in each of these patchwork frameworks that Brady was talking about. But we also have data analytics that we invest into, and that to me is actually one of the most useful platforms when you’re trying to look at the total story of the United States and trying to see the different trends and the different markets, and that does really guide our investment. It’s an interesting experience when you can invest into something that also helps to inform your investment decisions. And I do like those tech flat platforms that reach across the different markets and create a whole ecosystem for the operators. So there is technology that is improving and trying to support these operations and improve efficiency, visibility and transparency into the business. And also the state regulators really do appreciate that because then they have a better picture of the business. Like today. I was just running around New Jersey checking out some of these new dispensaries. And this is the kind of thing you have to do if you’re an investor in cannabis, is get out there into the new markets and see how excited people are to be able to stand in line and order legal cannabis that comes in really cool packaging that has all of this information about what it is that they’re actually consuming and that they can take home and share and and have a great experience. And we invested into this platform called Dispense, which is really interesting because the founder was one of the founders of Table List, which is a nightlife booking platform. They also created this platform as an adjacency into cannabis is something where you’re trying to really corral people, move them through doors quickly. High volume transactions and just being able to use that platform, hearing people in the stores, seeing how excited people were, it’s great to see how that digital relationship to the retail experience is really elevating the whole thing. [00:55:20][113.1]
Danny Moses: [00:55:21] So one of the elephants or the elephants and the donkeys, I would say in the room is the Safe Banking Act. And what’s amazing this is has been fits and starts now for two years at least. Right. I can remember back maybe three years at this point. Brady And I know you guys are both involved in various public policies having to do with the sector, but the safe banking checks, many boxes. And I totally understand how Democrats want there to be expungements everyone does. And there needs to be some social causes that are connected to it. I agree and it seems like we’re getting very close. So in the game of boy crying wolf now for the first time is real is it’s ever been and seems nobody’s paying attention, maybe because there’s so much scar tissue. BRADY But couple of minutes maybe on just safe banking where we are and what you see because there’s been some big pivots. [00:56:03][42.4]
Brady Cobb: [00:56:04] Yeah. I mean, if you look back and I’ve been a commentator on safe banking, I was in the room when it was teed up to be drafted. I’ve worked alongside Representative Perlmutter, worked alongside. It feels like a lifetime of working alongside this legislative process in DC, being in the room all the way back to help draft the States Reform Act with Cory Gardner. No one appears to recognize and there’s a lot of very impatient people. And today’s instant gratification world is that moving legislation and comprehensive reform legislation in our federal government is not turning a speedboat. It’s turning an aircraft carrier. It’s slow and it takes time and it’s frustrating. But if you look across the last, we had a really good opportunity to get safe banking passed last December and the issue that I started lobbying on cannabis reform is I didn’t go to the House Democrats or even the Senate Democrats when we started in 2015, I hired Haley Barbour, Republican who chair of the Republican Governors Association and whose firm is probably one of the top Republican backed firms. And they’re bipartisan. But at the time it was we started this process in late 15, early 16, I went in and started working the Republican Senate because that’s where we needed the votes. I didn’t think back then. I needed House votes. I needed Republican votes. So we began the process and it was a cold winter. Nobody wanted to talk to us and thrown out of McConnell’s office twice for talking about cannabis. When we went in there and set a meeting for hemp, immediately pivoted to medical cannabis and we were shown the door, the badge of honor, by the way. So the Democrats last December, much to my chagrin, spiked safe banking out of the NDAA. Not only did they spike it like I called, they would have to. They did it publicly and owned it. And I think that was a decision that they gravely regretted over the next 3 to 4 months because they took a lot more backlash than they thought. The voters have spoken. You look at the national polling, 90 something percent favor full adult use legalization federally and in their respective states. People between the ages of 21 and 40, 67% prefer cannabis to alcohol. Alcohol sales tax are being eclipsed by cannabis sales taxes in states where it’s at recreational, legal, the signs are all around us. And it wasn’t until recently and I was laughing that my team at BGR going, If you would have told me when we started this process in 2015 that the Safe Banking Act would be killed by Democrat Senate majority leaders, not the Republican Senate majority leaders. I would have told you you’re smoking really bad weed and that’s what happened. But I think it was honestly, it’s something that needed to happen, as painful as it was, because they felt the backlash to everyone’s credit out there and to the constituencies credit to all the advocacy groups, National Cannabis Roundtable, a myriad of them, everyone spoke up and Little John and everyone lost their minds. And somebody that’s near and dear to my heart, Weldon Angeles, who’s been a freedom fighter for us, and I’m proud to sit on his board and help get his message out. All of those moments needed to happen. If you look at this year, we’ve had over seven or eight cannabis related bills introduced in the legislature, in the federal legislature just this year. It feels like in the last 45 days it has been an absolute flurry of activity as we sled towards the midterms and the messaging starts. The proudest thing for me is cannabis is no longer a tertiary West Coast legislative issue. It is a front and center, tier one top of the envelope issue. It’s being talked about by leadership. It’s even been talked about Republicans. We have over the ten votes we need for Safe Banking Act. And just recently, Cory Gardner, who was a blocker, just signaled in at least a flurry of interviews, I feel like over the last five days that he’s looking to make a deal with Safe Banking Act. And I admire him for holding Resolute on getting some level of social reform and social justice before banking passes. But I think the message that they received is one that I actually talked about on this podcast. Danny, the first time you ever had me on it in March of 2021 with you and Guy was empowering small business owners and minority business owners in this space to have access to banking and financial services is a social justice win because they can’t enter the space. Otherwise, the big five MSOs, they have bank accounts. They’re all good. They have the complex structures necessary to access capital and to do it. The small dispensary owner, if you look at like the state of New York, I thought it was an amazing moment that they said the first hundred dispensary licenses in the Adult Use Program are going to go to minorities that have been convicted of a cannabis related offense. That’s amazing. The second bullet point that didn’t make the news is you had to have two years of audited tax returns to show you could run a business successfully. I don’t know, a single trapper on the street operating out of their trunk that has a tax return. So it’s not having access to those types of financial services. And banking is going to make it incredibly hard. And Emily probably knows this better than anybody. If you look at some of the social equity licensing that happened out in California, it was the best of intentions, but terrible results. Oakland. Most of them have no access to capital. Los Angeles. When they did theirs, most of them have no access to capital. So we’ve seen a real defined, I call it a pivot on Twitter where Dem leadership is now recognizing. And make no mistake about it. President Biden or Merrick Garland could stroke with a stroke of their pen. An executive order could address a huge chunk of the social justice reforms. And I think that’s what you’re going to see happen in this absolutely tragic verdict that came down today with Brittney Griner as just serendipitous. I hate to say anything about someone getting sentenced to nine years in prison is, but that is going to be remembered, I think, in the cannabis movement is something that triggered some real legislative and executive action for someone who is basically now being treated as a war prisoner because they were an American playing basketball and they had something in their bag. Now they’re nine years in prison. It’s elevated the issue to where some major folks in the world are tweeting about it on a regular basis. So. And the president is committed to getting her out. Well, I appreciate the president doing that. Let’s deal with the people here in America, because there’s a lot of people in America here with Scarlet Letter. So you’re seeing all this come together. I look at signs and signals I truly believe. Boy who cried wolf. Disclaimer We see safe banking either before the midterms in the NDAA or in the omnibus approach, which has been echoed by Earl Perlmutter, Cory Booker and from what I’m told, even Democratic Majority Leader Chuck Schumer are all seeing what they can get included in the bill. [01:02:15][371.0]
Danny Moses: [01:02:16] Well, I’m a Brady Cup 2024 guy at this point. So either of you actually Emily fan or Brady fan, Emily. So I know you probably agree with all that. I would assume you’re also involved in the Marijuana Policy Project, I believe, and talk about what you do there and then maybe add on thoughts because before we got on air today, we were talking about Brittney Griner and how tragic it is and what that means. [01:02:36][19.7]
Emily Paxhia: [01:02:36] Oh, God. Yeah. I that one of I was on the board of the Marijuana Policy Project for a few years, and it was during a really pivotal time when I think we had seven of the eight states legalize adult use programs on that election. That was the year the President Trump was elected. And it was a really interesting time because you could see that was a really massive landmark shift around the United States around how we were going to roll out these programs and what was important during the time of the Marijuana Policy Project is and I chose to participate in that is that yeah, we are participants and industry organizations that support the business case of cannabis marijuana policy project was really about decriminalizing cannabis and making sure that people were no longer going to prison for nonviolent cannabis offenses and they were taking a state to state approach as well as a federal approach. So I learned a lot in my time at the Marijuana Policy Project. I mean, as anyone can hear, Brady is like a fish to water with politics. I had to come to learn to embrace that as an aspect of being a cannabis investor. And I do feel like it has given us an edge to be so heavily involved politically, and it’s something we’ve really leaned in on. It does become very fascinating. And one of the things to Brady’s exact point about where we are right now with the safe plus potentially is I saw the CAOA, I listened to the hearing or the witness statements and to the responses from the senators around it. I was baffled by a lot of the outdated and frankly incorrect stigma associated with legalizing cannabis, and I was glad that there were factual points made to counteract that, because I just always worry when these old Reefer Madness tropes get back out there again and if they get any oxygen. But one of the things I had learned during my time on the board of the Marijuana Policy Project is you’re trying to swing the pendulum further and further and just hope it doesn’t swing as far back behind you. And that’s what it feels like they’re doing. That feels like it was a Hail Mary pushing the door wide open and hoping to slide in through the the crack on maybe a more moderate piece of legislation. But I couldn’t agree more about the banking and absolutely with the funding of small businesses. You know, I’ve often said I associate this with cannabis, reminds me a little bit of coffee, just like a could of wine and spirits or beer. I’m hoping this industry doesn’t become just Folgers and Maxwell House, and we just have two cannabis brands because then we had to work all the way back and now we have all these amazing craft coffee brands that have been very successful businesses, and I’m just hoping we can maintain more differentiation across the entire spectrum of what’s offered in the cannabis industry just because it would be frankly more interesting and I think it’s more interesting from a financial perspective to have that level of diversity, but it’s also the right thing to do and without any banking reform, to Brady’s point that MSOs are all fine banks, they have access to decent lending capacity in terms of their cost of capital. But where it really comes in is there’s no, like, microlending programs for smaller businesses, which would be a perfect pairing with these social equity programs, is to have microloans that are associated with I know New York is trying to establish a fund around it, but I just think there could be so much more done if safe banking passes. So I was a 0% chance person on 2022, but now I’m working towards positive. [01:05:51][194.9]
Danny Moses: [01:05:52] You just brought up brands and I know that’s a thing near and dear to both of your hearts. And even with all the stuff happening, that makes it very difficult for a lot of these companies to operate. There are brands being built right now, and I think for people out there that don’t know, you can’t advertise across any FCC regulated channel about cannabis. So this is all organic type stuff that’s happening and brands are starting to matter and will matter. I think you both believe that. Brady, first to you. We don’t have to go into what brand I know that you’re starting to build now that you see happening, but we are at the point now and I’ll fast forward and come back to you here where you guys both believe that it’s CPG companies are the barbarians at the gate. Alcohol is going to come in, tobacco is going to come. They’re just waiting for any law to change because they’re seeing exactly what’s happening to the consumer in their sector, market share leaving. So talk about how brands play a role in that trading. I’m going to ask Emily. I want the same question to you. [01:06:40][48.3]
Brady Cobb: [01:06:41] Emily. You mentioned coffee. And as we’ve been building, we built our last brand. And as we’re building our next brand, one of the companies we studied intensely was Starbucks, because when Starbucks entered the marketplace, there was only one way to get coffee. You either bought Folgers crystals and it was crappy out of your home coffee maker, or you bought gas station coffee or McDonald’s coffee for $0.99. And Starbucks came in with an artisanal idea and made it all about the consumer experience in the store with the barista, they made it introduce an entirely new lexicon that no one had heard before Green Day Americanos. And they guess what they did for the first 20 something years of their business. They sold in artisanal coffee for 3 to 4 bucks and blew everybody else out of the water. Like you that’s exactly what we’re trying to do on the premium side of cannabis. And I think one of the things I think from a branding standpoint that’s so integral that I think so many companies are getting wrong from my personal opinion is cannabis has been an established industry in the shadows, albeit but an established industry for the better part of the last 65 to 70 years, it has been making concerts better. It has been making your in-laws tolerable around the holidays. It has been making a long day at work better. It has its own music, it has its own holidays, it has its own vocabulary, it has its own movies. And it’s something that people have identified with. I mean, if you think Woodstock, you think people rolling, joints running around, I mean, they’re doing other stuff, too. Let’s not kid ourselves. I wish I was there, but at the end of the day, that’s what it is. And so many cannabis companies today are running away from that culture and away from that authenticity, and they’re trying to make it into a pharmaceutical wellness play. Cannabis has amazing wellness capabilities. Emily saw it with her father. I saw it with my father when he was dying. It was one of the things that pushed me over the edge to go chase my dream. But at the end of the day, people are looking to replace alcohol for a relaxing feeling and for the most part, people are looking to and I don’t think you’re ever going to see a physician write a prescription to go smoke something unfiltered. By the way, for the most part, to me, I think it needs to be a more authentic, honest approach. And I think brands will be built around that. And I think what you’re going to see in this sector is there’s going to be the medical play in the form of play that I think is the most saturated part of the market right now, without question. And then I think you’re going to see from a quality standpoint the opportunity for artisanal regional brands, and they get to study where we are as a country. In the CPG world right now, national brands are no longer how things are done. Kroger may own grocery stores, but each individual region there they operate has a different store that’s unique and favored by that region. Across the board. You can take that with restaurants, you can take that with coffee shops. There’s a hyper local and there’s a push towards regionality, and that’s what I think you’re going to start to see emerging cannabis as well, because guess what? They’re not waiting. Alcohol is already making bets. They’re coming into the sector, they’re all distributing the biggest alcohol. Distributors are all distributing CBD in the U.S. and cannabis in Canada are in the market beverage company like Constellation Brands, first one over the wall $4 billion into canopy growth. That wasn’t so they could sell joints out of pharmacies in Canada. That’s because they’re up there developing a beverage. I can tell you on the lobbying side, they are all lining up. So ultimately brands will matter. I think it’s a huge deal. I don’t think any real brand has been created in cannabis yet, not a lasting brand. I think there’s still an opportunity to do it at a regional basis and somebody could scale up. But let’s just talk about this for a second and then I’ll be quiet. I think it’s amazing to note that look. At it from a share of wallet or a share stomach standpoint against alcohol. Let’s just talk purely about alcohol for a second. If a consumer had 20 bucks in their pocket in their going out to on a Friday night to go out and they go buy $10 worth of edibles at a dispensary and they take that out. And because I take that out of all this as a personal case study, by the way, they only have two beers instead of five beers. They now just took a significant amount of money out of the alcohol’s potential purchasing power to be spent in revenue for the alcohol company. That’s a big hit that they can’t ignore. Sure Stomach. If you take that edible or you smoke a joint ahead of time before you go out and you only have two beers instead of five beers. Six beers, and you get up the next day and you feel like a million bucks because you’re not hung over and you had a great night’s sleep. Guess what? That becomes the new normal. And that’s what you’re seeing a lot of the data and I know I’m a big fan of headset, which I know Emily is involved with as well. I and I’m a huge fan of data. We’re data geeks. My whole team are data geeks. We study the data. The trends will show you. The fastest growing category right now is edibles and more importantly, because it’s ease of use. And secondarily, people are figuring out if they take an edible and go out, they’re going to get up feeling really good without a hangover. That’s going to become the new norm on alcohol. Cannot let that happen. I think the barbarians at the gate thing, I think it’s flipped around the cannabis industry. Even though we don’t have access to the same capital and playing field, we are the disruptor. And ultimately those that can make it and survive are going to completely disrupt. I think it’s alcohol and tobacco first. I think farmers further down the road, that’s just me on the branding piece. Brands absolutely will matter. And the only way that, in my opinion, you can have a brand is you got to be really authentic. [01:11:41][300.3]
Danny Moses: [01:11:42] Emily, I heard you talk about wonder. I know you you see it more in the West Coast, obviously, than I would. But that’s a perfect example, right, of what you think is starting to take mindshare and market share from people, right? [01:11:51][9.0]
Emily Paxhia: [01:11:51] Yeah, absolutely. I think the connector is who are now getting into the industry are really curious about this beverage category because it’s a form factor they’re familiar with and it’s something that’s been so well socialized in our society. And frankly, the new wonder and some of it and can and these new beverage products have a much more predictable onset and offset that is more akin to an alcohol like one glass of wine or beer instead of having some of the effects of some of the edible products where if it’s a heavy dose, you can have quite a surprise. So I’m very in favor of these what they’re calling sessions style beverages. In fact, I took the redeye to New York last night, and instead of having alcohol before flying, I had a session wonder drink. And it was a really pleasant experience. And by the way, I wasn’t dehydrated on the flight, slept really well, had a great experience. So I think one of the things that’s so awesome about cannabis as an opportunity from a branding standpoint is cannabis has kind of lived in a silo just because of the regulatory status of it. But cannabis integrates very well into so many aspects of our lives and also augments it purely on a lifestyle side. Like to Brady’s point about music and to movies, everything, anything you can experience can be augmented by cannabis. And I think Carl Sagan was one of the great proponents of this. But where I’m going with that is that brand building where you can tie experience to it is one of the stickiest and most resonant ways to build brands. And by the way, millennials are the experience generation. That’s one of our great spending groups from a cohort in the cannabis industry. But what I’m excited about too is Generation GEN-Z because to me they are going to be the cannabis native generation where their share of wallet as they enter the workforce and grow their personal wealth, they will have a dedicated allocation to cannabis as a part of their spending pattern, not just alcohol, not whatever else they might be doing, but it’s just a part of their universe being substantially more legal than it was for any generation before them. [01:13:51][119.5]
Danny Moses: [01:13:51] I would say that both of you have great brands. People should be paying attention to what you two are saying. Pioneers in the space continue to be advocates, success stories, investors, operators. I think people can learn a lot from playing the long game here as opposed. Brady Your point earlier about immediate gratification and trying to get it. Things are happening behind the scenes regardless of the laws that are getting passed and we are well on our way. And yes, we’re still in the early innings, but we’ve already seen so much success happen. So I want to thank both you for coming on the tape here. And I know we’re going to have you back on again. And it feels like this is going to be over the next 2 to 3 or four quarters. We’re going to see a real sea change, I think politically. And I think we’re starting to see culturally a change where we just talked about where people will start to notice more brands that are out there. So thank you guys so much for coming on. [01:14:36][44.5]
Brady Cobb: [01:14:36] Thanks for having us. [01:14:37][0.6]
Guy Adami: [01:14:38] Thanks once again to CME Group and I connections for sponsoring this episode of On the Tape. If you like what you heard, make sure you hit, follow and leave us a review. It helps people find our show and we love hearing from you can also email us at on the tape at risk reversal. Dot com any time. Follow and connect with us on Twitter at on the tape pod. And we’ll see you next time. On the tape is. A risk reversal media production. This podcast is for. Informational purposes only. All opinions expressed by me and Nathan Guy, Danny, Danny Moses and any other participants are solely. Our opinions and should not be relied upon for specific investment decisions. [01:14:38][0.0]
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