The Price is Wrong w/ Vincent Daniel & Porter Collins + a Conversation w/ Brady Cobb & Emily Paxhia

Bullish Studio

See our full show notes and transcript: https://bit.ly/3Qi5io2  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).

Transcript

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00:01:20 All right, guys, it's 3.30 on a Thursday afternoon.

00:01:24 We're 30 minutes into the close.

00:01:26 Guy is stuck in traffic.

00:01:27 Dan is in Italy.

00:01:29 I'm running solo,

00:01:30 but I couldn't be happier to be with my boys here.

00:01:32 So let's pretend we were sitting

00:01:34 on our trading desk together, right?

00:01:36 I know you're kind of positioning right now

00:01:38 what you're thinking and how perverse this market

00:01:41 and this world is.

00:01:42 When you're rooting, Porter,

00:01:43 you just said for people to be unemployed.

00:01:47 So we have a job print in the morning

00:01:48 and we know how people are obsessing

00:01:50 on every economic data point.

00:01:51 So Porter Vinny, talk to me right now.

00:01:54 What are you doing into the bell

00:01:56 or what would you be saying into the bell here?

00:01:57 - Well, just to be clear, I'm not rooting

00:01:59 for people to lose their jobs,

00:02:00 but the market and people that are long technology stocks

00:02:04 specifically are hoping for people to lose their jobs

00:02:07 tomorrow and that's just how perverse things are.

00:02:09 And it makes me so angry.

00:02:11 And our shorts have been squeezing on us

00:02:13 for a better part of a month.

00:02:14 Actually, the bottom of the market was our last call.

00:02:17 - So all the people that wanna own the technology companies,

00:02:20 the technology companies,

00:02:21 the ones that are announcing the layoffs,

00:02:23 the virtuous cycle in their mind is keep announcing layoffs.

00:02:26 Let's get some bad economic data points

00:02:28 to juice your stock higher,

00:02:28 even though you're telling us that things are slowing

00:02:30 because as a result, you're firing people.

00:02:32 Just to be clear.

00:02:33 - What's so wrong with that, Danny?

00:02:35 - You know, it's a world we're living in, Vin.

00:02:36 - I remember when we were last on

00:02:39 and I remember a story, maybe I didn't tell,

00:02:42 but I'll tell it now.

00:02:44 Way back when Porter and I were in the,

00:02:47 working at a hedge fund that shall be nameless.

00:02:49 It was October of 2018 and we were having for what,

00:02:55 in that crazy construct was a good year.

00:02:58 And we go into our boss's office and they go,

00:03:01 "Hey guys, how's it going?"

00:03:02 And we all give each other fake high fives.

00:03:04 They're like, "What are you doing?

00:03:05 What do you guys wanna do?

00:03:06 We wanna give you more capital.

00:03:08 Like, we wanna give you more resources."

00:03:10 And we're like, "You know what we wanna do?

00:03:12 We wanna take the portfolio completely down,

00:03:15 crawl up in a ball, go home and watch the prices right.

00:03:20 'Cause the next three months,

00:03:22 I have no idea what's going to happen."

00:03:24 And I wanna call it a day and go home.

00:03:28 And you can imagine what their answer was, Danny,

00:03:30 when we told them what we wanted to do.

00:03:33 - Lift and lever?

00:03:34 - Lift and lever.

00:03:35 That's exactly what they wanted us to do.

00:03:38 And it's kind of the way I feel pretty much right now.

00:03:41 You've had this massive squeeze in names

00:03:46 and I just still think the next two, three months

00:03:49 are gonna be very difficult to call the direction,

00:03:52 long or short.

00:03:54 Like, can the squeeze continue?

00:03:56 Yeah, we could have a bad employment print

00:03:58 and people will take it

00:03:59 as if it means something more than it should.

00:04:02 We could start to march down

00:04:03 because technically we're at difficult resistance levels.

00:04:06 So, very difficult.

00:04:08 - And I will say this is I completely agree with Rosie

00:04:10 is that we're sort of the end of the tightening cycle anyway.

00:04:14 Listen, I was wrong.

00:04:15 I said that the Fed will never get to 2%

00:04:17 and they haven't started QT yet.

00:04:18 And they're towards the end

00:04:20 of where they're gonna hike to anyway.

00:04:22 And I just don't think that the economy

00:04:24 can handle that much higher rates.

00:04:26 And so, I'm in this weird situation

00:04:29 where I think the Fed's sort of done.

00:04:31 And listen, the market already assumes that the Fed's done,

00:04:33 pivot or not pivot or whatever you wanna call it.

00:04:35 The market basically said they pivoted.

00:04:38 And I think we're 50 bips and done anyway.

00:04:42 And so, I think the next step

00:04:44 is the earnings are going down, right?

00:04:46 And Vinny and I had this back and forth

00:04:48 with your buddy, Chanos,

00:04:50 about how a lot of these stocks are down,

00:04:52 but the multiple hasn't moved, right?

00:04:54 'Cause the earnings have started to get killed.

00:04:56 I think they continue to get killed.

00:04:57 - So, let's talk about some of those earnings

00:04:59 that you guys have seen kind of a recap,

00:05:01 takeaways, you know, let's say,

00:05:03 'cause we're about more than halfway through,

00:05:04 obviously, the earnings at this point.

00:05:06 We had a bunch in the last few days that have come out.

00:05:08 What are your guys' number one takeaways in general,

00:05:10 other than earnings going down in some cases?

00:05:12 What's your takeaway?

00:05:13 - For the most part, the best earnings,

00:05:15 not surprisingly, have been in the energy sector.

00:05:17 No one's surprised that that is the case.

00:05:20 And the stocks are acting as if no one was surprised

00:05:23 they're thinking more forward.

00:05:25 It seems like the big tech names

00:05:27 were surprisingly slightly better than expected.

00:05:31 And as a result,

00:05:32 a combination of slightly better than expected

00:05:35 and a drop in the 10-year treasury

00:05:38 and increasing the duration trade

00:05:40 has helped that trade out massively.

00:05:43 On the bank side,

00:05:44 pretty much in line with expectations.

00:05:47 There's good loan growth.

00:05:49 There was good net interest margin expansion,

00:05:52 but you're starting to see a bit of a provision built.

00:05:54 Nothing terrible, but a bit of a provision built.

00:05:57 - No, I just think it's more of the latter.

00:05:59 I think it's like, oh, great, the 10-year dropped,

00:06:01 therefore, Amazon guided down,

00:06:03 but the sales are okay-ish.

00:06:06 And they completely dismissed your favorite stock, Walmart.

00:06:10 And you're seeing a lot of, I think,

00:06:12 bad earnings all over the place.

00:06:14 Yes, expectations were lowered in places,

00:06:16 but I think you're, aside from these energy stocks,

00:06:19 the overall trend of the earnings is lower.

00:06:22 And so I don't think they're great.

00:06:24 I don't wanna buy a lot of this stuff

00:06:26 that's going up right now.

00:06:27 Vinny and I are not good at,

00:06:29 we're fundamental momentum people, right?

00:06:31 And so we follow fundamental trends.

00:06:34 And so I don't like buying a stock because,

00:06:39 oh, it's not getting any worse anymore.

00:06:41 So it just doesn't make any sense to me.

00:06:43 It just feels like, to me,

00:06:45 you can have earnings, good companies.

00:06:47 Yeah, they guided to a level,

00:06:48 then they beat it or made it, made the number, that's fine.

00:06:52 But on the granular basis,

00:06:53 if you wanna real look into the economy,

00:06:55 you're gonna find it in things like Walmart.

00:06:58 You're gonna find it in things like the banks

00:07:00 that are reserving now for what they believe

00:07:02 is gonna be credit losses that are coming.

00:07:04 Credit Acceptance Corp, which I do not have a position,

00:07:07 I do not know if you guys have a position,

00:07:09 they took a pretty large provision

00:07:10 for the first time in a long time.

00:07:12 For those people out there, they finance used cars mostly.

00:07:15 And mostly those people you will find

00:07:16 in kind of the subprime scale

00:07:18 of things from a FICO perspective.

00:07:20 And credit has been great for them for a very long time.

00:07:23 But now with rates moving higher

00:07:24 and funding costs going up at the same time

00:07:27 that we've seen a kind of a peak in the consumer,

00:07:30 start to look at companies like that

00:07:31 that are going to tell you really what's happening.

00:07:34 So that name, to me, is a microcosm

00:07:37 of kind of what's out there.

00:07:38 And I'll add this to it and then wanna get your thoughts.

00:07:40 So Lizanne Saunders tweeted out the other day

00:07:42 what the savings rate is.

00:07:44 And I had no idea we're back to the savings rate

00:07:46 of August 2009 for people.

00:07:48 And that tells me how fragile things truly are, right?

00:07:51 So you're gonna drop to that level?

00:07:53 Well, we were on our way to recovery in August 2009.

00:07:56 We had so many government programs in place

00:07:58 to kind of get things going again

00:08:00 and put money in people's pockets,

00:08:01 let them borrow very cheaply rates.

00:08:03 Now rates are going back up.

00:08:04 The very least funding costs are going up.

00:08:06 You can tell me what the tenure is gonna do,

00:08:08 but cost of doing business is up,

00:08:09 cost for the consumer is going up.

00:08:10 And even if oil drops another 10 bucks,

00:08:13 it's not enough to offset where I think rates are.

00:08:15 So I wanna kind of get your thoughts

00:08:17 on the consumer in general, because it has a huge impact.

00:08:20 This economy is all about the consumer, so.

00:08:22 - I was looking at a stock cheesecake factory,

00:08:25 pretty good barometer of middle America restaurant trends.

00:08:29 People were expecting them to make 80 cents

00:08:31 about four days before the quarter,

00:08:33 the IR calls around Wall Street

00:08:36 and the estimates go to like 50 cents.

00:08:38 And of course they miss the estimate.

00:08:40 And because the 10 years down,

00:08:42 stocks 20% higher a couple of days later.

00:08:45 So it's one of these things where,

00:08:47 did it matter, even matter what they printed?

00:08:49 That's the sort of the oddity of the stock market.

00:08:52 And you forget that macro drives

00:08:54 so much more than micro sometimes,

00:08:56 but the overall case in terms of micro

00:08:58 is that the consumer is stretched.

00:09:00 And I think you see it everywhere.

00:09:02 And you definitely see it.

00:09:04 What Wayfair, I believe reported this morning,

00:09:06 it's terrible quarter.

00:09:07 You see a lot of these companies where sales are down

00:09:11 or sales are going down

00:09:12 and it's just not the right trend right now.

00:09:14 And listen, I'll do my two cents of weighing into recession.

00:09:18 We're two quarters in

00:09:19 and you probably see a third quarter this quarter.

00:09:21 So we're in sort of what I would call a recession

00:09:24 and it's not picking up anytime soon.

00:09:27 Things are worsening, not getting better.

00:09:28 - The only thing I would add to it, Danny,

00:09:30 is I would use the word bifurcation and dispersion.

00:09:32 Let me give you two financial companies,

00:09:35 both had very different earnings prints.

00:09:38 One was American Express.

00:09:40 So let's take the high end, right?

00:09:42 They were actually raising revenue projections.

00:09:45 The bill business was better,

00:09:47 mainly because Richie Rich is spending and travel,

00:09:50 which is what they are better at the most, was really heavy.

00:09:55 So that was American Express

00:09:57 and the stock acted really well after the print.

00:10:00 Then we have another name called One Main Financial,

00:10:03 which is very small name.

00:10:05 Most people won't know it,

00:10:06 but just think of it as indicative of the subprime consumer.

00:10:09 And Danny, you'll love this one.

00:10:12 In the press release,

00:10:13 they used to disclose the delinquencies by the buckets,

00:10:17 30 to 60, 60 to 90, 90 plus.

00:10:21 This quarter, they failed to disclose

00:10:24 the early stage buckets.

00:10:25 Now, we used to have a thing when we were at Seawolf.

00:10:27 If you're gonna be omitting any disclosures,

00:10:30 you know it's probably a short

00:10:32 and it's probably a bad thing.

00:10:33 Lo and behold, the numbers came out in the 10Q

00:10:35 and the early stage delinquencies roofed.

00:10:38 And that is so indicative of to the subprime consumer.

00:10:41 So using those two

00:10:44 and making somewhat of drawing some form of a conclusion,

00:10:47 the lower end consumers really hurting,

00:10:50 but the high end consumer for now is fine.

00:10:52 - The takeaway from that though,

00:10:53 to Porter's point before Cheesecake Factory,

00:10:55 it'll trade a certain way for a couple of days.

00:10:57 And if you're long that thing

00:10:58 and you know you're on borrowed time, just sell it.

00:11:01 You don't have to go short to stock,

00:11:02 but you know it has very little upside, right?

00:11:04 I don't think Cheesecake is taking off,

00:11:06 but guess who just walked in speaking of Cheesecake?

00:11:08 - I am here, I apologize, fellas.

00:11:11 First of all, first and foremost,

00:11:13 for the last month and a half to all season,

00:11:16 but specifically the last couple of months,

00:11:17 your Mets are on fire.

00:11:19 And I've said this and I'll say it here on this podcast.

00:11:23 I am terrified as a lifelong Yankee fan

00:11:26 of playing the Mets in the World Series.

00:11:28 The thought of that makes me break out in hives.

00:11:30 And that is the highest compliment I can give

00:11:33 the New York Mets, fellas.

00:11:34 - A week ago, you said, you quote,

00:11:36 "All that matters is October, so good luck."

00:11:38 So in a week, you're that impressed.

00:11:40 I think it's more the Yankees losing a series at home

00:11:42 to Seattle, that type of thing.

00:11:43 - Yeah, well, look, the Yankees have been struggling.

00:11:46 They've been floundering now for the last month and a half.

00:11:48 No, but there's something about this Met team.

00:11:50 They're very methodical in the way they do things.

00:11:52 Obviously, DeGrom is back.

00:11:54 Scherzer seems to be on a mission.

00:11:55 And Diaz is the best closer in the league right now.

00:11:58 And that all scares me.

00:12:00 They added a bat, although not the bat they probably wanted.

00:12:03 Nimmo's having a great year that nobody talks about.

00:12:06 And Alonso's just doing it all.

00:12:09 So good for the Mets right now.

00:12:10 And I'm saying this sincerely, I'm terrified.

00:12:13 The thought of playing them in the World Series terrifies me.

00:12:16 - The thought of the Padres scares the crap out of me.

00:12:18 I mean, it's just ridiculous how good they are right now.

00:12:21 - Well, the team they just put together,

00:12:22 I mean, they're clearly going for it and good for them.

00:12:25 And I think their fans deserve it without question.

00:12:27 But listen, the Padres are not in first place.

00:12:30 As you guys know, they still got to get through a wild card game.

00:12:32 And anything's possible there.

00:12:34 The Dodgers, obviously, I think, are the team the Mets probably

00:12:37 are most concerned with.

00:12:38 Although this five-game series with the Braves

00:12:40 is going to be interesting.

00:12:42 But people are not here to hear us talk about Major League

00:12:45 baseball.

00:12:45 They want to hear what you guys have to say.

00:12:47 And sorry I walked in late, but talking about subprime

00:12:50 and what I've said for a while, and despite the fact

00:12:52 that the S&P 500's rallied some almost 600 points off

00:12:57 that June 16th low, credit is still a concern out there.

00:13:01 And it's manifesting itself in a lot of different ways.

00:13:03 Now, the market's not taking it into consideration, Vinny.

00:13:06 But my thoughts are, should it start to look at it?

00:13:09 The HYG is bounced from 73, closing in on 80.

00:13:13 That's obviously the one thing that I look at.

00:13:15 But I'm hearing anecdotal stories from insurance

00:13:18 companies, from different things, where people are

00:13:21 starting to be delinquent in their payments.

00:13:22 And that's sort of the next shoe for me, Vinny.

00:13:25 - It is.

00:13:25 And what we're seeing is all of the leading indicators

00:13:29 that are out there are trending down.

00:13:31 And as a result of that, it's only natural to expect

00:13:34 that the next thing that's going to happen is that earnings

00:13:37 are going to go south.

00:13:38 We started to see it this quarter, right?

00:13:41 I think it's going to be more magnified in the third quarter.

00:13:44 The question we should all ask ourselves

00:13:45 is, at what point does the Fed recognize this and accelerate

00:13:51 their dovishness?

00:13:51 And my answer to that, at least at this point in time,

00:13:54 is they can't.

00:13:55 So I think right now we're kind of still

00:13:57 remain a little bit trapped in terms of what we can do,

00:14:01 which makes markets very difficult.

00:14:03 - There are a couple of things going on here.

00:14:05 I think the market's rallying for a few different reasons.

00:14:07 I think the first reason is they interpreted that Fed meeting

00:14:11 as dovish.

00:14:12 I didn't, but that doesn't matter.

00:14:13 The second part is we're not going

00:14:15 to hear from these people again until the end of September.

00:14:18 Obviously, Jackson Hole notwithstanding, number two.

00:14:21 And number three, people say, wait a second,

00:14:23 the data's coming in weak.

00:14:25 Commodities are getting crushed.

00:14:27 This Fed can pivot.

00:14:28 The market's doing its job for them.

00:14:30 And I think that's what the S&P 500 is taking its cues from.

00:14:34 I'll say this.

00:14:35 I think if the market thinks this Fed is going to pivot,

00:14:38 I think they're solely mistaken.

00:14:40 And if the Fed does pivot, my goodness gracious, yeah,

00:14:43 you might get an equity rally.

00:14:44 But the commodity rally you see on the back end of that

00:14:47 is going to be threefold of what we see in equities.

00:14:50 - We always use the Simon and Garfunkel phrase,

00:14:52 "Man hears what he wants to hear

00:14:53 "and disregards the rest," right?

00:14:55 And I think they know that the end is near

00:14:59 in terms of how high the Fed can go.

00:15:01 They just can't go to 5%.

00:15:03 The economy will shut down.

00:15:05 So good for them for putting 275s back to back,

00:15:09 and we're now here at 2.5.

00:15:12 I just don't think they can go much more.

00:15:13 And so I'll give the bulls that in the fact

00:15:16 that the Fed's probably closer to being done.

00:15:19 I'd like to see them try some QT,

00:15:21 but that's obviously not happening.

00:15:23 But I think the people who are giddy about stocks here,

00:15:26 they see a cut and QE in the future.

00:15:29 I just don't see that.

00:15:30 That's the difference.

00:15:31 I just think it's gonna be a more prolonged thing.

00:15:34 And I don't see them fixing what I think the problem is,

00:15:37 as we talked about in our first half letter,

00:15:39 is that the supply side of energy

00:15:42 and a lot of the supply problems out there,

00:15:45 they're just not fixing.

00:15:46 They're crushing demand, but they're not fixing supply.

00:15:48 And so that's my biggest problem

00:15:50 with what's going on right now.

00:15:52 Nothing's at the core of it's being fixed

00:15:54 besides a shittier economy, which is not great, right?

00:15:57 So people hoping for job losses tomorrow,

00:16:00 that's not a great way to run our economy.

00:16:02 - I would love nothing more than to be bullish.

00:16:04 It's such a horrible way to go through life

00:16:06 to try to be cynical, okay?

00:16:07 But bullish.

00:16:08 So if I were to go away for two or three weeks

00:16:10 and come back and see the market down 500 points on the S&P,

00:16:14 let's say from where, let's call it 3, 3,400,

00:16:17 forget this last 200 point rally or something.

00:16:19 I'd say, well, that makes sense

00:16:21 because the economy is obviously slowing,

00:16:23 the Fed still going, whatever.

00:16:25 I can't think of what would make this market

00:16:28 move higher from here.

00:16:29 Could it go another 100 points on the S&P?

00:16:31 Sure, it can go another 200, but it's not sustainable.

00:16:33 And the reason it's not sustainable

00:16:35 is we just went through this.

00:16:36 We are in the early stages of a credit cycle.

00:16:39 The Fed raising rates have a lag effect on what's going on.

00:16:43 Wells Fargo just put out a kind of a credit card overview

00:16:46 of what they see and go on.

00:16:47 They are telling you what consumers are doing,

00:16:49 where they're pulling back, where they're spending money,

00:16:51 what's happening.

00:16:52 So to me, I don't need to know anything more than that.

00:16:54 People can trade expectations on a quarter here and there.

00:16:57 They can watch the tenure,

00:16:58 but at the end of the day, cards speak.

00:17:00 The end of the day, fundamentals will matter.

00:17:02 And Vinny just brought up a point on one main

00:17:04 where you got to go read the 10Q to see.

00:17:06 So someone walks in, stock's been up 5% a day, 5% a day.

00:17:09 All of a sudden it's up 20% over four days.

00:17:11 Earnings had already been reported.

00:17:13 10Q comes out, which is for people who don't know,

00:17:15 it's filed quarterly, much deeper dive.

00:17:17 And the stock's down 35% from where I'm just making,

00:17:19 I don't know where that is.

00:17:20 My point is that that's a lot of damage that can occur.

00:17:23 People that aren't paying attention

00:17:24 just kind of going with the flow.

00:17:25 So this is a market you want to be cynical in.

00:17:28 You want to question everything that's kind of out there.

00:17:30 So it goes back to kind of stock pickers market.

00:17:33 And you got to be careful, obviously, on these squeezes.

00:17:35 And right when you think you got them by the jugular,

00:17:37 they'll squeeze you right out of the thing.

00:17:39 So that's a behavioral finance aspect.

00:17:40 So how are you guys managing right now?

00:17:42 We talked about short squeezes a little while ago.

00:17:45 How are you managing through the right now?

00:17:46 Are you using options?

00:17:47 I know Vinny hates those.

00:17:48 Are you taking down positions, waiting to add?

00:17:50 What are you doing?

00:17:51 - One thing I would like to add

00:17:53 about one of the reasons why the market's going up

00:17:55 that we sort of touched upon,

00:17:56 but it's really probably more powerful

00:17:58 than we would all like to admit.

00:18:00 And all of us are sadly older than we would like to be.

00:18:03 So we've seen this before many a times in many cycles,

00:18:06 which is something as the Jets fans know all too well,

00:18:11 which is being off sides, right?

00:18:13 - Wait for the flag you mean?

00:18:14 When you score a touchdown, you just wait for the flag?

00:18:16 - Oh yeah.

00:18:17 So Guy, you probably don't feel this as much

00:18:18 as a Giants fan,

00:18:19 but whenever the Jets get like a 70 yard run,

00:18:24 a true Jets fan will never jump up and down for joy.

00:18:27 They will look to the lower left part of the screen

00:18:30 and look to see the red flag coming out

00:18:32 because it's usually a holding or an off sides of some sort.

00:18:36 So the entire hedge fund industry

00:18:40 and arguably rightfully so from a fundamental perspective

00:18:44 was off sides for whatever you want to call it,

00:18:47 a Fed pivot, a Fed downshift and the like.

00:18:50 And they found themselves short all the same names

00:18:53 at a time when the Fed did something that was different

00:18:56 than what was happening two weeks ago.

00:18:59 And so as a result, the last part of July and early August,

00:19:03 all you're doing is having risk managers

00:19:05 at large hedge funds,

00:19:06 tap the analysts and PMs on the shoulders

00:19:09 and do gross and cover and do gross and cover.

00:19:12 All of our conversations over the last week,

00:19:14 the word we use is pain.

00:19:16 There's pain all over the place.

00:19:18 So I'm always worried to say when this will end,

00:19:22 but we're probably a lot closer to the end

00:19:25 than we were to the beginning,

00:19:26 just based upon technicals and resistance levels

00:19:28 that are coming up.

00:19:29 But that is a big, big driver of what's happening right now.

00:19:32 - No question about it.

00:19:33 And I agree with that.

00:19:34 And listen, my sense is as oversold

00:19:37 or as over negative as people were in the middle of June,

00:19:40 which they were, which we addressed by the way,

00:19:43 and that's why I think to a large extent,

00:19:45 you've seen this move.

00:19:46 I think that's where people find themselves

00:19:48 on the flip side of that coin now.

00:19:49 And again, I don't like being negative.

00:19:52 I don't, what I will say, I say all the time,

00:19:54 I grew up in a Wall Street where I was taught

00:19:56 what can go wrong will go wrong and hope for the best,

00:20:00 but prepare for the worst.

00:20:01 So I'm predisposed to think this way.

00:20:04 But even with that, I look across the landscape,

00:20:06 I see what's going on and I say,

00:20:09 this can't end particularly well.

00:20:10 And quickly, not to play stock market here,

00:20:13 but the Microsoft quarter, when that stock,

00:20:16 when that company reported,

00:20:17 the stock was trading 254 thereabouts on the close.

00:20:21 They reported a quarter, slow down in cloud, 40%,

00:20:25 the street was at 45%.

00:20:27 The knee jerk reaction, again, knee jerk reaction

00:20:30 was to take that stock down to 242.

00:20:34 What got the stock back on its horse

00:20:36 was the fact that in the conference call,

00:20:38 they said they were not seeing a slowdown in demand,

00:20:41 which may be true.

00:20:43 I don't know if that's good or bad

00:20:44 because that is coming to a theater near you.

00:20:47 So these quarters weren't great, they were good enough.

00:20:51 And I think that's what we're seeing

00:20:52 in terms of the momentum to the upside,

00:20:54 but by no stretch of the imagination

00:20:56 were these quarters where stocks should be up 25, 30%.

00:21:00 Apple, for example, Danny,

00:21:01 you saw 2% year over year revenue growth in Apple,

00:21:05 which we haven't seen maybe ever,

00:21:07 but in quite some time.

00:21:08 - I was gonna say, and this is a name

00:21:10 that Porter and Vinny can opine on for sure.

00:21:11 So PayPal to me is the microcosm, here's why.

00:21:15 Good company, never was going out of business,

00:21:17 there was no threat of it ever,

00:21:18 not one of these meme stocks, whatever.

00:21:19 Got down under 70 bucks a share,

00:21:22 got to a market cap around 70 billion

00:21:25 or somewhere in that area, right?

00:21:27 What happened?

00:21:28 Earnings were fine and you had an activist come in.

00:21:31 It's a little bit of tech, it's a little bit of consumer.

00:21:33 You know what it is also that we talked about

00:21:35 at the top of the show is that people can own quality

00:21:37 and they can hide in quality.

00:21:39 Right, so you'll pay a premium for certainty right now.

00:21:41 So people like, I was gonna buy PayPal.

00:21:44 I knew it, I was, you know, I didn't do it,

00:21:46 I didn't do it, waiting for it to pull back.

00:21:48 When Porter is talking about,

00:21:49 when he's talking about max pain in the market,

00:21:51 it's those type things to me that as a fundamental analyst,

00:21:53 you're like, you get caught up too much in the macro

00:21:56 and this would be me, this would be what I would do

00:21:57 if the three of us were sitting on a desk still.

00:21:59 Don't buy PayPal yet, let's wait.

00:22:01 'Cause the macro is gonna be bad.

00:22:03 This is what we're talking about, guys.

00:22:04 So use PayPal kind of as an example

00:22:06 'cause to me, it's the perfect example

00:22:08 of exactly what's going on in this market.

00:22:10 - This is an ode to Dan Nathan

00:22:12 because I know he would want us to talk

00:22:14 something optimistic and bullish.

00:22:16 PayPal was a miss on our part, to be honest.

00:22:18 And Danny, you nailed it exactly the emotions

00:22:20 that probably we were feeling

00:22:22 and we saw the downside in the name.

00:22:24 And if you actually looked at the valuations,

00:22:27 it was palatable.

00:22:29 But clearly, Elliot saw something in it.

00:22:31 And that's the part I wanna get to.

00:22:32 Elliot saw something in this

00:22:34 and Elliot saw something in PINS.

00:22:37 And so if someone like Elliot is seeing opportunities

00:22:40 and it took large stakes in both names

00:22:44 that happens to come out when they both reported.

00:22:46 And if Elliot's seeing something like that,

00:22:48 you know what, there are opportunities in the market.

00:22:51 There aren't tremendous frequent opportunities

00:22:53 but there are some opportunities in the market.

00:22:55 And you're right, Danny, on something like that,

00:22:57 we have to have our eyes out to make sure

00:22:59 that we don't get too greedy

00:23:01 or valuation becomes too big of an issue for us

00:23:05 for opportunities where we should start sprinkling in

00:23:08 and buying something.

00:23:09 - Danny always mentioned

00:23:10 when there's still insanity in the market,

00:23:12 it's hard to say we've reached bottom.

00:23:15 And something's happened over the last couple of weeks,

00:23:17 this HKD, which IPO'd, I believe,

00:23:21 at $7.80 a couple of weeks ago.

00:23:24 If I'm mistaken, please don't @ me on Twitter.

00:23:26 I think the opening price had a 14 handle or thereabouts.

00:23:30 The stock traded, I believe, $1,900 at its zenith.

00:23:35 Danny's giving me the thumbs up higher than that.

00:23:37 - Higher, Bob, higher.

00:23:38 We talked about prices right earlier, so that's perfect.

00:23:40 Higher, 2,500, I think.

00:23:41 - 2,500.

00:23:42 So my sense is at $2,500,

00:23:45 that was probably a $400 billion company

00:23:49 which would have made it, which made it at the time,

00:23:51 one of the largest companies on the planet.

00:23:54 It's madness what's going on.

00:23:56 Now, obviously it's pulled back.

00:23:57 It's still at ridiculous levels.

00:23:58 - $156 billion.

00:24:00 - My point is not to trade that stock,

00:24:02 but the insanity around it is what I want to point out.

00:24:06 So when things like that can still go on,

00:24:08 I think the mechanism, Danny, of the market is still broken.

00:24:11 - Yeah, for sure.

00:24:12 I thought we were close.

00:24:14 We were getting there.

00:24:15 We were getting there in June.

00:24:17 We're starting to feel that way.

00:24:18 Let's get the washouts coming.

00:24:19 Here it is, here it is.

00:24:21 Pivot, is it a pivot?

00:24:23 Whatever, we'll see tomorrow.

00:24:24 And then you're back to this again.

00:24:26 And who's gonna get hurt the most?

00:24:27 You think institutions are buying these stocks?

00:24:29 No, it's the meme crowd.

00:24:31 It's the retail, and they're gonna get hurt.

00:24:32 And that, honestly, upsets me as much as being wrong

00:24:36 about where this market has gone.

00:24:37 And I do think we're in for a dicey August border.

00:24:39 - Listen, you can still see how much money

00:24:41 is sloshed around the system.

00:24:42 And people need to put money to work.

00:24:43 Elliot's a perfect example of that.

00:24:45 They need to put money to work.

00:24:47 And let's talk a bit about Tiger Global and Co2.

00:24:50 Those guys publicly took their long positioning

00:24:53 way, way down, short a ton of stocks.

00:24:56 And the short interest on a lot of these tech names

00:25:00 looked around, it was 20, 30% of the floats.

00:25:03 It's just sometimes there's so much money sloshing around,

00:25:06 and there's not that many stocks,

00:25:08 it goes to a lot of weird places.

00:25:09 And so some of these short squeezes,

00:25:12 it's just a further example of so much money

00:25:16 sloshing around the system.

00:25:17 And so I just think this is gonna keep taking a long time

00:25:21 to shake out as evidenced by the speculation going on.

00:25:24 - No, I agree.

00:25:25 Listen, one of the things that I've noticed on my end

00:25:28 is, let's play it out here a little bit.

00:25:30 And I don't wanna get bogged down in Bitcoin,

00:25:31 that's not what I'm here to do.

00:25:32 But it's not coincidental, we've mentioned it here,

00:25:35 that Bitcoin topped out around 68,000 or thereabouts

00:25:39 at precisely the same time this Federal Reserve

00:25:42 correctly pivoted in November.

00:25:44 I don't think that's coincidental.

00:25:46 But what I think is interesting,

00:25:48 obviously Bitcoin has bounced a little bit.

00:25:49 I think they're taking their cues from

00:25:52 potentially a Federal Reserve that's gonna pivot

00:25:54 or pause, whatever word you wanna use.

00:25:56 But I gotta tell you something, there's something,

00:25:58 and again, I know I'm a gold bug, I totally get it,

00:26:00 I grew up on it.

00:26:02 But over the last week, week and a half, Danny,

00:26:03 something is happening in gold.

00:26:06 And my sense is the following.

00:26:08 Either the Fed's gonna lose control of the situation,

00:26:11 which is bullish for gold, or they will do a pivot

00:26:14 or a pause, whatever, which is bullish for gold.

00:26:16 I think the cards have aligned where gold

00:26:19 might actually be really interesting here, Danny Moses.

00:26:21 - Yeah, and Dan's away, maybe that's why gold

00:26:23 went up so much.

00:26:24 And he gave me a lot of heat like a month ago,

00:26:25 and I was getting destroyed on Twitter,

00:26:27 oh, good call, gold, yeah, whatever.

00:26:28 My point was, I'm just gonna own it.

00:26:30 I don't care at some point it's gonna make its move.

00:26:32 And hopefully this is the move potential.

00:26:34 Look at these miners.

00:26:35 I mean, you look at some of these things,

00:26:36 and when oil goes down, by the way,

00:26:38 and gold goes up, the miners win-win.

00:26:40 'Cause correct me if I'm wrong, boys,

00:26:41 but one of the biggest input for these miners

00:26:44 is energy in order to get that gold out of the ground,

00:26:46 I believe, if I'm not mistaken.

00:26:47 So that's kind of a win-win there.

00:26:49 So what are you guys' thoughts on gold?

00:26:50 You know how I feel here.

00:26:52 We mentioned on the tape episode last time we were here

00:26:55 as one of the few things we were buying.

00:26:57 It's obviously done pretty well since then,

00:27:00 but underperformed the broad market.

00:27:01 But let's take the turn in Bitcoin.

00:27:05 We were just talking about micro strategies.

00:27:07 And Bitcoin bounced off the bottom from 19,000 to 22,000.

00:27:12 Micro strategies doubled on that.

00:27:15 And that's just because the short interest

00:27:18 was 30% in the stock, and it was the shorts

00:27:20 that took it up.

00:27:21 The value of their Bitcoin and their balance sheet

00:27:23 is $66 a share, the stock's 300.

00:27:26 So I just think there's speculation all over the place.

00:27:30 And I think as far as gold, I think it continues

00:27:32 to go higher, and it's sniffing out,

00:27:34 finally sniffing out the Fed's pivot.

00:27:36 And like I said earlier, the Fed's pretty close

00:27:38 to being done anyway.

00:27:39 Call it what you want.

00:27:40 The Fed's already pivoting, and the stock market

00:27:43 and the gold market has figured that out.

00:27:45 - So Porter, on this micro strategy,

00:27:47 tell me if I'm wrong, but this is exactly what happens

00:27:49 in a hedge fund.

00:27:50 The analyst comes to the portfolio manager,

00:27:51 says, "I have figured out the code.

00:27:53 "I'm gonna go long Bitcoin and short micro strategy,

00:27:56 "because I figured out that Bitcoin has to get back

00:27:59 "to 30,000 before micro strategies can afford

00:28:01 "to get to 300.

00:28:03 "So we're gonna put this trade on.

00:28:04 "I've done the modeling, I've looked at it out,

00:28:05 "I've extrapolated it out.

00:28:07 "Next day, Bitcoin goes up 1,000,

00:28:09 "and micro strategies goes up 30%."

00:28:12 The portfolio manager says, "By the way,

00:28:14 "I took off that trade, and you're fired."

00:28:16 This is exactly the kind of shit that is going on,

00:28:19 where people try to overanalyze and figure out

00:28:21 actually to do fundamental work in this market, right?

00:28:24 - That was very Eric Cartman from South Park.

00:28:27 (laughing)

00:28:28 - Eric Cartman?

00:28:29 - Danny, to be honest, let's play this out at Seawolf,

00:28:31 because this is exactly what would happen.

00:28:33 So I would come with my spreadsheet,

00:28:35 all squeaky clean, right, to you guys

00:28:38 and show you the spreadsheet, and probably tell you

00:28:41 to do exactly what you just did in that Cartman voice.

00:28:44 You would wanna tear it up and use it as toilet paper,

00:28:47 right, and say, "Vinny, that's great.

00:28:49 "You're right, you're right.

00:28:51 "Why don't we just short micro strategies?"

00:28:53 And Porter would turn around and say,

00:28:54 "That's exactly what we should do."

00:28:56 So at the end of the day, all we would do

00:28:58 is be short micro strategies,

00:29:00 and forget about that whole convoluted trade.

00:29:02 That's the Seawolf way of doing things.

00:29:05 - Exactly.

00:29:05 All right, I just wanted to round that out, boys.

00:29:07 Thank you.

00:29:08 - No problem.

00:29:09 - Vinny, should I put my tinfoil away,

00:29:11 or is it about time to put that hat on?

00:29:13 - In terms of what, Guy?

00:29:15 - Gold, in terms of gold, man.

00:29:17 I know all these cats out there with the tinfoil,

00:29:19 and I wanna hear from you,

00:29:21 because you can synthesize this shit better than I can.

00:29:24 - I think I've said this before.

00:29:25 I think gold, and I guess to a lesser extent, Bitcoin,

00:29:28 but Bitcoin, I think, is dealing

00:29:29 with a bunch of leverage issues

00:29:31 associated with crypto world.

00:29:32 But I think gold is the report card for central banks.

00:29:36 I've said that before, I'll say it again.

00:29:38 And right now, central banks were getting an A

00:29:43 for what they were doing,

00:29:44 and I think we all know at the end of the day,

00:29:46 they're gonna fail.

00:29:47 They kinda have to fail at the end of the day.

00:29:49 So I'm with you.

00:29:51 And by the way, central banks have been buying gold.

00:29:54 So it's been one of the few things

00:29:56 that we've actually increased our exposures to

00:29:58 on the long side.

00:29:59 It was painful doing it, but as it kept going down,

00:30:03 but we were kind of adamant that it's hard for us

00:30:06 to see the Federal Reserve staying in a tightening bias

00:30:09 over the next six months.

00:30:10 - Central banks bought 60 tons of gold last month

00:30:13 as the price of gold was collapsing.

00:30:15 Let me just say, speaking of gold, Goldman Sachs,

00:30:18 I wanna bring this up for a reason.

00:30:19 So I know there's some prop trading and stuff

00:30:22 that's been going on various places,

00:30:24 and you saw in the quarter that Goldman reported

00:30:25 how well they did kind of in their trading.

00:30:27 Well, I noticed near and dear to our hearts

00:30:30 that there was two traders that were let go

00:30:33 because they were threatening to leave.

00:30:34 I looked at where they worked.

00:30:35 They were in this index trading group,

00:30:38 brilliant guys, I'm sure, that wrote code.

00:30:40 And Goldman was accusing them

00:30:41 'cause they were gonna leave and go to a hedge fund

00:30:43 that they were taking code again.

00:30:45 This reminds me, and we all know,

00:30:47 when Michael Lewis found the coder,

00:30:49 ended up writing Flash Boys was a starting point

00:30:51 for how he kind of got to it.

00:30:53 I think that that group made $700 million.

00:30:55 I mean, so this stuff is still going on.

00:30:57 But it made me think when I saw an article this morning,

00:30:59 and listen, I'm a capitalist,

00:31:01 I'm obviously a pro-Wall Street guy.

00:31:02 You guys know how we feel about certain prop trading groups

00:31:05 in Wall Street and certain people that get free rides

00:31:08 on bank depositors and stuff like that.

00:31:10 So I have mixed emotions, but I'm a capitalist, I'm a fan.

00:31:12 But here we are, I saw an article crying

00:31:14 about bonuses are gonna be down.

00:31:16 I started to think to myself, I'm like,

00:31:18 this has been a Fed-induced Wall Street rally for years.

00:31:21 If anyone's bitching and moaning right now

00:31:22 about gonna be down 10, 20, 30% or whatever,

00:31:25 they should thank their lucky stars that they have this seat.

00:31:27 And so when I saw that article,

00:31:29 it made me think about all the stuff

00:31:31 that's still going on behind the scenes.

00:31:32 And when you talk about trading gold or trading anything,

00:31:35 I think these banks are still, some of them are very active.

00:31:38 We've seen some things happen, obviously,

00:31:40 Nickel, JP Morgan a while back.

00:31:42 But I think they're much more involved now

00:31:44 than I would have thought, Guy.

00:31:45 When people have to decide whether or not,

00:31:47 and this is coming to a theater near you as well.

00:31:50 People in Europe are gonna have to decide

00:31:51 whether they're gonna feed their family

00:31:54 or heat their homes, number one.

00:31:55 And to a certain extent,

00:31:57 we're seeing some similar things here.

00:31:59 When those are decisions you have to make,

00:32:00 and on the flip side of that coin,

00:32:02 you have people pissing and moaning

00:32:04 'cause they're not gonna get the bonuses

00:32:05 they think they deserve, that's a problem.

00:32:08 That's the chasm.

00:32:09 And that, my friends, in my opinion,

00:32:11 was created by these reckless policies

00:32:13 of the Federal Reserve.

00:32:14 So when you ask me why I get so exercised about this shit,

00:32:18 that's why, because the wealthy have never been wealthier,

00:32:22 and the poor, quite frankly, have never been more poor.

00:32:24 And for 35 million people in this country,

00:32:27 for almost 10% of our fellow citizens,

00:32:30 this is late 1920s, early 1930s shit,

00:32:34 and it ain't getting better for them.

00:32:35 - People finally have the ability

00:32:37 to put money in the bank and earn a return,

00:32:39 and savings are at the lowest they've been in 13 years.

00:32:41 That pretty much sums it up, boys, right?

00:32:43 So give us your thoughts there.

00:32:45 - I'll start.

00:32:46 It's one of the things I've been really going bonkers on,

00:32:49 and it's a bit wonky, but I'll try to make it simple,

00:32:51 is that if you look at bank world,

00:32:53 it's controlled by the regulators,

00:32:54 and they put risk weights on every single type of asset.

00:32:57 So whatever asset is on a bank,

00:32:59 they have to hold a certain amount of capital.

00:33:01 You wouldn't be surprised that the risk weights

00:33:06 for everything capital markets and treasuries

00:33:08 have the lowest risk weights,

00:33:10 and all things loans have the highest risk weights.

00:33:13 So everything that you just said to me, Danny,

00:33:16 doesn't surprise me at all.

00:33:18 Wall Street and the banks are being pushed

00:33:22 by their regulators to be in securities and capital markets

00:33:25 versus making loans out to the communities.

00:33:29 So all of it is like, well, what do you expect?

00:33:31 And the people who run Wall Street banks

00:33:34 tend to come from the security side of the business,

00:33:36 and Porter can speak to this

00:33:38 'cause he's near and dear to his heart,

00:33:41 versus the banking side of the business.

00:33:43 So everything that is happening,

00:33:45 when you think about it from that perspective,

00:33:47 what the fuck do you expect?

00:33:48 Of course that's gonna be the case.

00:33:50 - And real quick, Porter, I don't think it's coincidence

00:33:53 that as we sit here, having seen a significant rally

00:33:57 over the last month and a half or so,

00:34:01 names like JP Morgan are not trading well.

00:34:03 I think the 52-week low in JP Morgan was 106,

00:34:06 if I'm not mistaken.

00:34:08 That stock now trading either side of 115.

00:34:10 This, by the way, on a tape where Goldman Sachs

00:34:13 and the same tape has gone from 275 to 330, 340 or so.

00:34:17 So something's going on with the banks

00:34:20 that nobody is choosing to acknowledge

00:34:22 or bring up right now,

00:34:24 and I think that's gonna be problematic.

00:34:26 - That sort of makes complete sense to me

00:34:27 because, first of all, the banks need rate hikes.

00:34:30 And if you're talking about Wall Street bonuses,

00:34:33 they're gonna be down, rightfully so,

00:34:35 because activity's way down.

00:34:36 And IPOs and high-yield issuance and all this stuff

00:34:40 is at 2008 levels, and it's just,

00:34:44 there's not much activity going on.

00:34:45 And going back to Vin's risk weights and making loans,

00:34:49 back to my whole point earlier that I was making

00:34:51 is that we're not doing the right type of investment.

00:34:55 If the world wants to grow, it needs to invest,

00:34:58 and it needs to invest in energy.

00:35:00 We're not doing enough of that.

00:35:01 That's the frustrating part to me

00:35:03 is that Wall Street banks are still vilifying

00:35:04 the energy complex ESG.

00:35:07 We were talking with an energy company the other day

00:35:09 is that, "Well, the banks won't lend to us."

00:35:12 And so that still goes on,

00:35:14 and that's the reason we're in all these issues.

00:35:17 We're not fixing the root problem here,

00:35:19 and so that's just frustrating to me.

00:35:21 - I love having you guys on because you're clear thinkers.

00:35:26 You're able to synthesize, you're able to present,

00:35:29 and you look past the bullshit,

00:35:30 and you're not just sort of grin, everything's okay.

00:35:33 And before we get out of here, I want to say one thing.

00:35:36 On Twitter, a lot of times people say,

00:35:38 "Oh, you're always negative, you're un-American.

00:35:40 "You're always bringing up the negative."

00:35:41 I think it being patriotic is pointing out things

00:35:45 that are problematic and trying to show people

00:35:47 some of the things that go wrong.

00:35:48 It's easy to go on TV every night

00:35:51 and just be happy and grin, everything's okay,

00:35:53 buy the dip, all that bullshit.

00:35:55 I'm selling calls on the way up, and I'm buying on the dip

00:35:58 because there's no repercussions for that type of nonsense.

00:36:02 In reality, I think the people that do the best service

00:36:05 to the audience are the ones that point out things

00:36:08 that nobody's thinking about.

00:36:09 And Vinnie and Porter, that's both of you guys.

00:36:12 Danny, that's you as well.

00:36:13 - Yeah, well, listen, here's to rooting if you're bullish

00:36:15 for a horrible economy so you can make a little bit

00:36:18 more money and get the S&P to 4,300,

00:36:20 and we'll see what happens.

00:36:21 And I can see both sides of it.

00:36:23 If it's a better job, like, see, there's no slowdown,

00:36:26 and the Fed's already raised all these rates.

00:36:27 So people will take away from tomorrow's number

00:36:29 whatever they want it to be, but we'll see.

00:36:31 - And guys, we will have you guys back on,

00:36:32 obviously, very soon.

00:36:34 I think we're gonna be talking about what happened

00:36:37 after the last time that you came on, which is today.

00:36:39 So thank you guys for coming on the tape.

00:36:40 - No problem, and listen, I'll apologize

00:36:42 to the audience members if we're not as geeked up

00:36:44 as we used to be, but we've spent the better part

00:36:46 of this past month getting squeezed

00:36:48 in a lot of our shorts, and so.

00:36:50 - Vinnie got squeezed with COVID too at the same time,

00:36:52 so I appreciate you guys even doing it.

00:36:54 - By the way, if this makes it to the audience breaking news,

00:36:57 one of my favorite things when being in Seawolf

00:37:01 was about four o'clock and earnings would come out.

00:37:04 Danny would have, on his Bloomberg machine,

00:37:07 NI earnings, or actually, I think Danny

00:37:09 would do NI warnings, and it was just entertainment

00:37:14 beyond entertainment for 45 minutes

00:37:17 as everything hit the tape.

00:37:19 And in terms of, even names that were in, not in,

00:37:22 it was just pure insanity of things just hitting the tape.

00:37:27 And it just happened right now as I'm looking at it,

00:37:30 and I'm just, a stock that we've been involved in

00:37:33 beyond meat just missed, and I'm just bringing back

00:37:36 of where would Danny be running around the office

00:37:40 on a miss like this?

00:37:41 It would be fantastic to watch.

00:37:43 - Name of the podcast, "On the Tape,"

00:37:44 don't even think it came from,

00:37:45 maybe I'll change it to NI Warren.

00:37:47 Thanks so much for coming on.

00:37:48 When we come back, we'll have Emily Paxia

00:37:50 from Beside Investment Management,

00:37:52 and Brady Cobb, who is in the weeds, so to speak,

00:37:55 in the cannabis industry.

00:37:56 - Like what you did there.

00:37:57 - Thank you.

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00:40:07 - Welcome back to On the Tape.

00:40:11 We are very lucky to have two of the most influential people

00:40:14 and most experienced people in the cannabis sector,

00:40:17 Emily Paxio from Poseidon Investment Management,

00:40:20 which she founded in 2013 with her brother, Morgan.

00:40:23 They're currently involved in several different things.

00:40:25 They have three private funds, seven different syndicates.

00:40:27 They have an ETF, PSDN.

00:40:30 Emily has been involved in not just business causes,

00:40:33 but many social causes as well, which we will get into.

00:40:36 Brady Cobb, who has been a guest on this podcast

00:40:38 a few times, needs no introduction, obviously,

00:40:41 to the people that have listened to him before,

00:40:43 but his background, obviously, as a lawyer and a lobbyist,

00:40:45 really activist, turned into an operator side

00:40:48 of the business within cannabis, still very active in both.

00:40:51 We'll talk about what he's already accomplished

00:40:52 and what may be ahead for him in his career here.

00:40:55 So I wanna welcome you both to On the Tape.

00:40:57 - Thank you for having me, Emily.

00:40:58 It's great to see you.

00:40:59 - Thanks so much for having us.

00:41:00 It's fun to be with this group.

00:41:02 - So first things first, which I kind of discovered,

00:41:04 I knew more about Brady's background and his father

00:41:07 and kind of when he became really passionate

00:41:09 about the flower and its uses.

00:41:12 Emily, I was unaware, both your parents, sounds like,

00:41:14 had gone through various bouts of sickness

00:41:17 and have used cannabis, and you saw it firsthand,

00:41:20 kind of relief that it can bring them.

00:41:22 And if I'm not mistaken, maybe I'll start with you,

00:41:23 that was kind of when you first realized

00:41:26 that this plant had medical benefits to it

00:41:28 and you took off from there.

00:41:30 Is that accurate?

00:41:31 - Yeah, it was kind of an early seed that was planted,

00:41:33 so to speak, that then evolved into getting

00:41:36 into the industry multiple years later.

00:41:38 Because yeah, with our dad being sick,

00:41:40 it was introduced as a idea.

00:41:42 I mean, he had been a long and happy consumer of cannabis.

00:41:46 You know, he's in the Woodstock movie, he's all around.

00:41:49 But when it came to him being very, very terminally ill,

00:41:52 it came up as a palliative care kind of end of life

00:41:55 suggestion from a hospice nurse.

00:41:57 And being raised in the Nancy Reagan,

00:42:01 war on drugs, DARE programs, this was something

00:42:04 that stood out very clearly in my mind and my family,

00:42:07 and we've all discussed this as we've gone forward.

00:42:10 And so when we put together our firm,

00:42:13 it was very much a conviction-based investment thesis

00:42:16 that we felt like capital is a change agent.

00:42:18 If we invested in this industry, it could expand and grow,

00:42:21 and then more people could benefit from it.

00:42:24 - Amazing, and around that same time

00:42:25 that you started your firm, I believe, Brady,

00:42:27 you started your own law firm down in Florida, obviously,

00:42:29 and you were also inspired, unfortunately,

00:42:32 by your father as well.

00:42:33 Maybe just tell that story again

00:42:34 to the listeners that haven't heard it.

00:42:36 - Yeah, so for me, it was very similar to Emily.

00:42:39 I call us early prospectors in the cannabis industry.

00:42:43 We are also, I would say, gluttons for punishment,

00:42:46 but I have been a fan of the plant for far too long.

00:42:49 Obviously, big believer in it, user of it,

00:42:52 but also, for me, it meant something more

00:42:55 than just something you roll up and smoke.

00:42:56 My father was a, 1977 to 1983,

00:42:59 he was one of the biggest importers of cannabis,

00:43:01 as I like to say, illegal imports,

00:43:03 ultimately went to prison, and I finally get to reconnect

00:43:07 with him in right around 2007, 2008 in a real way.

00:43:12 Then he, terminal bone cancer in the latter part of 2009.

00:43:16 He passed away in 2010.

00:43:18 I had just made partner at a big law firm,

00:43:20 youngest guy to ever make partner there,

00:43:22 excited, euphoric, and then that happens,

00:43:25 and it's like, all right, get busy living or get busy dying.

00:43:28 It was, again, a conviction-based move for me.

00:43:30 I think it's a great way of saying it, Emily.

00:43:33 It was time to jump into the space.

00:43:34 It was time to jump in headlong,

00:43:36 both in the regulatory and legislative side,

00:43:38 but ultimately, began working in the early Canadian days,

00:43:41 began working in the Western states,

00:43:43 and then ultimately worked really hard to make sure

00:43:46 that we got a constitutional amendment passed

00:43:47 here in Florida in 2016.

00:43:50 So that was kind of what made me jump headfirst

00:43:52 into the space and kind of have tentacles,

00:43:54 both into the reform efforts,

00:43:55 as well as trying to be one of the few voices in the space

00:43:59 that doesn't treat this as a true commodity,

00:44:00 but also caring about the authenticity of the plant

00:44:04 and the authenticity of the purpose that you operate.

00:44:06 It's not just about biomass and volume and earnings reports.

00:44:09 So I pride myself on being a little bit different

00:44:11 in that regard.

00:44:12 - Right, so perfect segue.

00:44:13 You just quoted Shawshank Redemption,

00:44:15 get busy living, get busy dying.

00:44:17 This whole sector has to do with prison, right?

00:44:19 It has to do with getting people out that shouldn't be there

00:44:21 and I feel like as an investor,

00:44:23 you've been in prison for some time.

00:44:25 So Emily, I'm gonna shift back to you.

00:44:26 We'll get back to Brady on the operating side in a minute,

00:44:28 but just on the investment management stuff

00:44:30 that you've seen over the last, call it nine years now,

00:44:34 that you've been doing this.

00:44:34 You've seen a lot of iterations, fits and starts.

00:44:37 You've had successes.

00:44:38 I'm sure there's been some things that haven't worked out

00:44:40 when you deal in a sector like this, you learn from them.

00:44:42 Talk about kind of where we are right now,

00:44:45 what you see happening and what you learned along the way

00:44:47 that got you here.

00:44:48 - The way the world has shifted around cannabis

00:44:50 since when we first dollars in to the legal industry

00:44:53 with external capital was January, 2014,

00:44:56 when Colorado opened their adult use market.

00:44:58 So the way we think about cannabis is it is an emerging

00:45:01 market and you see these kind of condensed hype cycles

00:45:04 that occur and some of the first cycles

00:45:07 included Canada legalized on a federal medical level.

00:45:10 And you saw some of the big operators up there

00:45:12 and we were investors early in private rounds

00:45:15 before those companies went public.

00:45:17 And now they're some of the names

00:45:19 that are listed on the exchanges.

00:45:21 But then we saw that arcing up and felt like

00:45:23 there was a disconnect of the metric

00:45:25 that was being used there, which was funded capacity

00:45:28 versus the actual demand or capability for the population

00:45:31 to consume the amount of cannabis being produced there.

00:45:34 And we cycled capital at that point into the US

00:45:37 and we were really fortunate to have spent a lot of time

00:45:40 building up our network and we were able to participate

00:45:43 then in private rounds and what are known

00:45:45 as the multi-state operators or MSOs.

00:45:47 So we've gone through that and then there was this

00:45:49 really interesting arc that occurred again

00:45:52 after Jeff Sessions came out and rescinded our Cole memo,

00:45:55 which was basically a memo outlining how this industry

00:45:58 may be able to create infrastructure,

00:46:02 KYC, AML around banking.

00:46:04 And it felt like things were shifting

00:46:06 and so then all of a sudden a lot of companies

00:46:07 went public in Canada via the RTO process

00:46:10 or even potentially an IPO process up there.

00:46:13 And things we saw arc up again, we went through that cycle.

00:46:17 We just really have stayed focused on investing in teams

00:46:21 and fundamentals and in thinking about

00:46:23 where this market is going.

00:46:24 And for that, we have avoided a lot of the high up,

00:46:28 well, the high ups would be great

00:46:29 if you could actually get out in the high moment,

00:46:32 but we know that's not always the case.

00:46:34 So we've been able to avoid some of those roller coaster

00:46:37 rides and just really invest into what we think

00:46:39 are the strong teams in the industry

00:46:41 who are going about execution in a way

00:46:44 that's really for the long term.

00:46:46 But what's really interesting is I feel like

00:46:48 at this particular moment in cannabis,

00:46:50 we've seen a drawdown in the capital,

00:46:52 in the public markets around the cannabis names

00:46:54 while these businesses are building.

00:46:57 Since February, 2021, it really started at that moment.

00:47:00 And then there was some externalities

00:47:03 like the Arcegos event caused some of the custody

00:47:06 to leave the space and some of the risk off sentiment

00:47:08 to shift out of the space.

00:47:10 And so we've seen capital just continue

00:47:13 to kind of retreat from cannabis

00:47:14 because it's a difficult industry to invest in.

00:47:17 And yet I couldn't have stronger conviction in the companies

00:47:20 and in what I see setting up to be a very interesting

00:47:24 kind of political situation.

00:47:26 So the way Morgan, my business partner and my brother

00:47:29 and I talk about it is it's the great reset.

00:47:31 And we feel like you have greater visibility

00:47:34 into what this market could look like.

00:47:36 You have greater understanding and visibility

00:47:38 on the quality of the teams.

00:47:39 The teams have done great work to set themselves up

00:47:42 for uplisting opportunities when the exchanges

00:47:45 open up to the US operators.

00:47:47 And I'm just really excited.

00:47:49 I've just invested further into our own vehicles

00:47:52 because I think this is a great reset

00:47:53 and I don't know how many times you get to enter in

00:47:56 at these levels.

00:47:58 - So Emily just gave us a look kind of what it looks like

00:48:00 to be an investor looking inside.

00:48:02 Brady, your story among other stories is well known

00:48:05 that you were able to build one plant Bluma

00:48:08 over a very short period of time and turn around

00:48:10 and sell this over a year ago for over $200 million

00:48:13 to Cresco Labs.

00:48:14 But being an operator, what Emily just described firsthand,

00:48:17 literally sharpening pencils, selling pencils,

00:48:21 whatever he had to do to make ends meet,

00:48:23 maybe just tell that story for people that don't understand.

00:48:25 I'm gonna get in also now to, after you talk about this,

00:48:28 why it's so hard technically to do business in this space

00:48:31 and how incredible it is that companies even now

00:48:34 are able to pull off what they can with all the laws

00:48:36 and rules that are out there for them.

00:48:37 - Yeah, from an operating standpoint,

00:48:39 it's truly a life on the frontier.

00:48:41 It's like the Oregon Trail.

00:48:42 It's really hard.

00:48:44 You're clipping along in your wagon

00:48:45 and all of a sudden the Indians attack you

00:48:47 and you're like, "Ah, whatever, we'll get past that."

00:48:49 Maybe we lost one or two people

00:48:50 and then you hit the Rocky Mountains and you're like,

00:48:52 "Okay, how are we getting around this?"

00:48:54 And then it starts snowing and then your wheel breaks.

00:48:56 So it's basically a game of resilience.

00:49:00 I'm not complaining because there's a lot

00:49:01 of black market operators that have been doing this

00:49:03 for a long time in the shadows

00:49:06 that I think would kill for the opportunity

00:49:07 to do it in the legal market

00:49:08 where they could actually be profitable.

00:49:10 So I'm not complaining, but it's a hard business.

00:49:13 This is not for the faint of heart.

00:49:14 And I think you've seen a lot of operators

00:49:17 come over from CPG or alcohol or tobacco

00:49:20 and be like, "Ah, this isn't gonna be so bad.

00:49:22 "How hard can it be?"

00:49:23 And then you look at what Constellation's experiencing

00:49:26 with Canopy right now and I'm thinking

00:49:27 they're reevaluating some of those decisions.

00:49:29 Though I believe that investment was solely based

00:49:31 on a beverage development in Canada,

00:49:33 but that's a whole 'nother discussion.

00:49:35 So it's a very capital-intensive business.

00:49:38 Because of the Schedule 1 designation,

00:49:40 capital is hard to come by and it's very expensive

00:49:43 as compared to our peers.

00:49:44 If I was selling beer, my cost of capital

00:49:46 would be drastically different in a better way

00:49:48 than if I'm selling free rolls.

00:49:51 So it's an incredibly hard business.

00:49:53 Execution is incredibly hard.

00:49:55 There's a very specific reason that I haven't joined

00:49:57 some of my peers like Ben Covler and Boris Jordan

00:50:01 and Charlie Bachel and others in chasing down

00:50:03 multiple state operations or operations

00:50:05 through a myriad of states.

00:50:06 It's because of the Schedule 1 designation.

00:50:09 You have to have individually siloed manufacturing,

00:50:11 retail and operations in each individual state

00:50:14 because the product cannot cross state lines.

00:50:16 This is not making bourbon on the bourbon trail

00:50:18 in Kentucky and shipping it to warehouses

00:50:20 around the country.

00:50:21 You wanna be in 10 states, you have to have operations

00:50:24 in 10 states, CAPEX in 10 states, OPEX in 10 states.

00:50:28 So as we chose to come into Florida

00:50:30 'cause we believe Florida's one of the most important

00:50:32 markets in the country.

00:50:33 If you look at it from a total sales in the aggregate,

00:50:35 it's always one of the top five.

00:50:37 It has been for a period of time.

00:50:39 But giant like Trulieve, kudos to Kim Rivers,

00:50:41 80% of their business is from Florida

00:50:43 and they're a market leader.

00:50:44 It's a huge state opportunity.

00:50:46 And we chose to go deep, not wide, into one state

00:50:49 when we built Bluma, that's what we're doing again

00:50:50 in our next jump into the marketplace

00:50:53 because of the ability to focus on one state,

00:50:55 dial things in, build a brand and then take it out

00:50:58 once we have the opportunity to potentially

00:51:00 not have to have that schedule one problem

00:51:02 of not being able to cross state lines.

00:51:04 That's ultimately the longer term vision,

00:51:06 but it's a tough business.

00:51:08 I mean, we built out Bluma One Plant,

00:51:09 we had a CAPEX budget, we had commitments from investors

00:51:13 and then about 60% of it came in

00:51:15 because the cannabis markets had one of its,

00:51:17 we're gonna sell off this month moments

00:51:19 and everybody lost everything and gotta be pretty crafty.

00:51:22 Getting through payroll is not fun,

00:51:23 getting through health insurance when it's 30 to 40%

00:51:26 more expensive, access to banking.

00:51:29 So again, I'm not complaining, it's part of the job,

00:51:32 but it's a really hard industry and when I see,

00:51:34 congrats to Berner for making the cover of Forbes,

00:51:37 but it's not sitting on the cover of Forbes smoking a joint.

00:51:40 This is a hard business.

00:51:41 If you go across the California landscape right now,

00:51:44 there's a lot of people that have jumped

00:51:46 into the legal industry that are going upside down

00:51:48 really fast and it's not just in California,

00:51:51 you can lose a lot of money.

00:51:52 I mean, Danny, we see this in Florida,

00:51:54 I know you've been spending more time down here.

00:51:56 Bo Wrigley, 800 million into Saterra, vaporized.

00:51:59 They're in full blown litigation.

00:52:01 This is a tough industry, you have to be a really good

00:52:04 steward of capital, but I think the most important thing

00:52:06 and where I'm incredibly humbled is you gotta have

00:52:08 a really good operations and management team

00:52:11 that understands that you have a finite amount of capital,

00:52:13 you have to know who you wanna be,

00:52:15 which most companies are in a race,

00:52:16 so I don't think they've done the work

00:52:18 of knowing what they wanna be.

00:52:19 And one of the things that I've,

00:52:20 best pieces of advice I've ever got from someone was,

00:52:23 it's not what you say yes to, it's what you say no to

00:52:25 that will define whether you succeed in this industry.

00:52:28 And chasing shiny objects is bad.

00:52:29 So for us, we have a very defined purpose.

00:52:32 We skated through on the Bluma, sometimes clearing payroll

00:52:34 by under $1,000, which when you're talking about

00:52:37 a $300,000 payroll run, that's quite the moment.

00:52:40 But we made it and we're excited to go do it again

00:52:42 because like I said earlier,

00:52:44 I think I'm a glutton for punishment,

00:52:45 but I truly believe in the industry.

00:52:47 I believe it's gonna be transformative.

00:52:49 The alcohol lobby and the alcohol companies

00:52:52 are all showing up in mass to jump in when they can.

00:52:55 And it's just about surviving until that moment happens.

00:52:58 - So you just brought up a lot of people out there

00:52:59 that don't know there's 280E,

00:53:01 you can't deduct certain expenses as a cannabis company,

00:53:04 you can't get normal insurance, you can't run payroll

00:53:06 because you can't use a bank,

00:53:07 you can't, it's a very cash heavy business.

00:53:09 There's just not a lot of economies of scale.

00:53:11 And Emily, I know you have some private investments

00:53:14 that address some of those issues

00:53:16 that are trying to build that regardless

00:53:18 of what the laws say,

00:53:19 they're actually coming up with these types of solutions.

00:53:21 Can you talk about maybe some of those,

00:53:23 give an example of who actually is taking advantage

00:53:25 of these dumb archaic rules?

00:53:27 - Yeah, I mean, we do have different platforms

00:53:30 that help with QMS systems or compliance tracking.

00:53:33 Like we just did a new investment

00:53:35 that's a compliance software to help each operator

00:53:38 get scaled up in each of these patchwork frameworks

00:53:41 that Brady was talking about.

00:53:43 But we also have data analytics that we invest into.

00:53:46 And that to me is actually one of the most useful platforms

00:53:49 when you're trying to look at the total story

00:53:52 of the United States and trying to see the different trends

00:53:54 and the different markets.

00:53:55 And that does really guide our investment.

00:53:58 It's an interesting experience

00:53:59 when you can invest into something

00:54:01 that also helps to inform your investment decisions.

00:54:04 And I do like those tech platforms

00:54:06 that reach across the different markets

00:54:08 and create a whole ecosystem for the operators.

00:54:11 So there is technology that is improving

00:54:14 and trying to support these operations

00:54:16 and improve efficiency, visibility,

00:54:17 and transparency into the business.

00:54:19 And also the state regulators really do appreciate that

00:54:23 because then they have a better picture of the business.

00:54:25 Like today, I was just running around New Jersey,

00:54:28 checking out some of these new dispensaries.

00:54:30 And this is the kind of thing you have to do

00:54:32 if you're an investor in cannabis

00:54:33 is get out there into the new markets

00:54:35 and see how excited people are to be able to stand in line

00:54:39 and order legal cannabis

00:54:41 that comes in really cool packaging

00:54:43 that has all of this information

00:54:44 about what it is that they're actually consuming

00:54:46 and that they can take home and share

00:54:48 and have a great experience.

00:54:50 And we invested into this platform called Dispense,

00:54:53 which is really interesting

00:54:54 because the founder was one of the founders of TableList,

00:54:57 which is a nightlife booking platform.

00:55:00 They also created this platform

00:55:02 as an adjacency into cannabis

00:55:04 as something where you're trying to really corral people,

00:55:06 move them through doors quickly,

00:55:08 high volume transactions,

00:55:10 and just being able to use that platform,

00:55:12 hearing people in the store,

00:55:13 seeing how excited people were.

00:55:15 It's great to see how that digital relationship

00:55:18 to the retail experience is really elevating the whole thing.

00:55:21 - So one of the elephants,

00:55:22 or the elephants and the donkeys,

00:55:23 I would say in the room is the Safe Banking Act.

00:55:26 And what's amazing in this

00:55:27 is there's been fits and starts now

00:55:28 for two years at least, right?

00:55:30 I can remember back maybe three years at this point, Brady.

00:55:33 And I know you guys are both involved

00:55:34 in various public policies having to do with the sector,

00:55:37 but the safe banking checks many boxes.

00:55:40 And I totally understand

00:55:41 how Democrats want there to be expungements.

00:55:44 Everyone does.

00:55:45 And there needs to be some social causes

00:55:47 that are connected to it, I agree.

00:55:48 And it seems like we're getting very close.

00:55:50 So in the game of boy crying wolf now,

00:55:53 for the first time, it's as real as it's ever been.

00:55:55 And it seems nobody's paying attention,

00:55:57 maybe because there's so much scar tissue, Brady.

00:55:59 But a couple minutes maybe on just safe banking,

00:56:02 where we are and what you see,

00:56:03 'cause there's been some big pivots.

00:56:05 - Yeah, I mean, if you look back,

00:56:06 and I've been a commentator on safe banking.

00:56:09 I was in the room when it was teed up to be drafted.

00:56:12 I've worked alongside Representative Perlmutter,

00:56:16 I've worked alongside.

00:56:17 It feels like a lifetime of working alongside

00:56:19 this legislative process in DC,

00:56:21 being in the room all the way back

00:56:22 to help draft the State's Reform Act with Cory Gardner.

00:56:24 No one fails to recognize,

00:56:26 and there's a lot of very impatient people

00:56:27 in today's instant gratification world,

00:56:30 is that moving legislation

00:56:31 and comprehensive reform legislation

00:56:33 in our federal government is not turning a speedboat.

00:56:36 It's turning an aircraft carrier.

00:56:38 It's slow and it takes time and it's frustrating.

00:56:42 But if you look across the last,

00:56:44 we had a really good opportunity

00:56:45 to get safe banking passed last December.

00:56:48 And the issue that I started lobbying on cannabis reform

00:56:51 is I didn't go to the House Democrats

00:56:53 or even the Senate Democrats when we started in 2015.

00:56:55 I hired Haley Barber, Republican,

00:56:58 who chaired the Republican Governors Association,

00:57:01 and whose firm is probably

00:57:02 one of the top Republican backed firms.

00:57:04 They're bipartisan, but at the time it was,

00:57:06 we started this process in late '15, early '16.

00:57:09 I went in and started working the Republican Senate

00:57:12 because that's where we needed the votes.

00:57:14 I didn't think back then I needed House votes.

00:57:16 I needed Republican votes.

00:57:18 So we began the process and it was a cold winter.

00:57:20 Nobody wanted to talk to us.

00:57:22 Been thrown out of McConnell's office twice

00:57:23 for talking about cannabis.

00:57:24 When we went in there and set a meeting for hemp,

00:57:26 immediately pivoted to medical cannabis

00:57:28 and we were shown the door.

00:57:29 The badge of honor, by the way.

00:57:31 So the Democrats last December, much to my chagrin,

00:57:36 spiked safe banking out of the NDAA.

00:57:38 Not only did they spike it,

00:57:39 like I called they would have to,

00:57:41 they did it publicly and owned it.

00:57:43 And I think that was a decision

00:57:46 that they gravely regretted

00:57:47 over the next three to four months

00:57:48 because they took a lot more backlash than they thought.

00:57:51 The voters have spoken.

00:57:52 You look at the national polling,

00:57:54 90 something percent favor full adult use legalization.

00:57:57 Federally and in their respective states,

00:58:00 people between the ages of 21 and 40,

00:58:02 67% prefer cannabis to alcohol.

00:58:05 Alcohol sales tax are being eclipsed

00:58:07 by cannabis sales taxes in states

00:58:09 where it's a recreational legal.

00:58:10 The signs are all around us.

00:58:12 And it wasn't until recently,

00:58:13 and I was laughing with my team at BGR going,

00:58:15 if you would have told me

00:58:16 when we started this process in 2015,

00:58:18 that the Safe Banking Act would be killed

00:58:20 by Democrat Senate majority leaders,

00:58:23 not Republican Senate majority leaders,

00:58:25 I would have told you you're smoking really bad weed.

00:58:27 And that's what happened.

00:58:29 But I think it was honestly,

00:58:30 it's something that needed to happen as painful as it was

00:58:32 because they felt the backlash.

00:58:34 To everyone's credit out there

00:58:35 and to the constituencies credit,

00:58:37 to all the advocacy groups,

00:58:39 National Cannabis Roundtable, a myriad of them,

00:58:41 everyone spoke up.

00:58:43 Amber Littlejohn and everyone lost their minds.

00:58:45 And somebody that's near and dear to my heart,

00:58:46 Weldon Angeles, who's been a freedom fighter for us.

00:58:49 And I'm proud to sit on his board

00:58:50 and help get his message out.

00:58:52 All of those moments needed to happen.

00:58:54 And if you look at this year,

00:58:55 we've had over seven or eight cannabis related bills

00:58:58 introduced in the legislature,

00:58:59 in the federal legislature just this year.

00:59:01 It feels like in the last 45 days,

00:59:04 it has been an absolute flurry of activity

00:59:06 as we sled towards the midterms and the messaging starts.

00:59:10 The proudest thing for me is cannabis is no longer

00:59:12 a tertiary West Coast legislative issue.

00:59:15 It is a front and center, tier one,

00:59:18 top of the envelope issue.

00:59:20 It's being talked about by leadership.

00:59:21 It's even being talked about Republicans.

00:59:24 We have over the 10 votes we need for Safe Banking Act.

00:59:26 And just recently Cory Gardner,

00:59:28 who was a blocker just signaled

00:59:30 in at least a flurry of interviews,

00:59:31 I feel like over the last five days

00:59:33 that he's looking to make a deal with Safe Banking Act.

00:59:36 And I admire him for holding resolute

00:59:39 on getting some level of social reform

00:59:41 and social justice before banking passes.

00:59:43 But I think the message that they received

00:59:45 is one that I actually talked about on this podcast, Danny.

00:59:48 The first time you ever had me on it in March of 2021

00:59:51 with you and Guy was empowering small business owners

00:59:55 and minority business owners in this space

00:59:57 to have access to banking and financial services

00:59:59 is a social justice win

01:00:02 because they can't enter the space otherwise.

01:00:04 The big five MSOs, they have bank accounts.

01:00:08 They're all good.

01:00:09 Okay, they have the complex structures necessary

01:00:11 to access capital and to do it.

01:00:13 The small dispensary owner,

01:00:14 if you look at like the state of New York,

01:00:16 I thought it was an amazing moment that they said

01:00:19 the first 100 dispensary licenses

01:00:21 in the adult use program are gonna go to minorities

01:00:23 that have been convicted of a cannabis related offense.

01:00:26 That's amazing.

01:00:27 The second bullet point that didn't make the news

01:00:29 is you had to have two years of audited tax returns

01:00:31 to show you could run a business successfully.

01:00:33 I don't know a single trapper on the street

01:00:35 operating out of their trunk that has a tax return.

01:00:37 So it's not having access to those types

01:00:40 of financial services and banking

01:00:42 is gonna make it incredibly hard.

01:00:43 And Emily probably knows this better than anybody.

01:00:45 If you look at some of the social equity licensing

01:00:47 that happened out in California,

01:00:49 it was the best of intentions, but terrible results.

01:00:52 Oakland, most of them have no access to capital.

01:00:54 Los Angeles, when they did theirs,

01:00:55 most of them have no access to capital.

01:00:57 So we've seen a real defined, I call it a pivot on Twitter

01:01:00 where Dem leadership is now recognizing

01:01:03 and make no mistake about it.

01:01:04 President Biden or Merrick Garland could stroke

01:01:06 with a stroke of their pen, an executive order

01:01:09 could address a huge chunk of the social justice reforms.

01:01:14 And I think that's what you're gonna see happen

01:01:15 in this absolutely tragic verdict that came down today

01:01:19 with Brittany Griner as just serendipitous.

01:01:21 I hate to say anything about someone getting sentenced

01:01:23 to nine years in prison is,

01:01:25 but that is going to be remembered,

01:01:27 I think in the cannabis movement is something

01:01:29 that triggered some real legislative and executive action

01:01:32 for someone that's basically now being treated

01:01:34 as a war prisoner because they were an American

01:01:36 playing basketball and they had something in their bag.

01:01:38 Now they're nine years in prison.

01:01:41 It's elevated the issue to where some major folks

01:01:44 in the world are tweeting about it on a regular basis.

01:01:46 So, and the president is committed to getting her out.

01:01:48 Well, I appreciate the president doing that.

01:01:50 Let's deal with the people here in America

01:01:53 because there's a lot of people in America here

01:01:54 with scarlet letters.

01:01:55 So you're seeing all this come together.

01:01:57 I look at signs, not signals.

01:01:59 I truly believe, boy who cried wolf disclaimer,

01:02:02 we see safe banking either before the midterms

01:02:05 and the NDAA or in the omnibus approach,

01:02:07 which has been echoed by Earl Perlmutter, Cory Booker,

01:02:11 and from what I'm told, even Democratic majority leader,

01:02:13 Chuck Schumer are all seeing what they can get included

01:02:15 in the bill.

01:02:16 - Well, I'm a Brady Cup 2024 guy at this point.

01:02:19 So either of you actually, I'm an Emily fan or Brady fan.

01:02:22 Emily, so I know you probably agree with all of that.

01:02:23 I would assume you're also involved

01:02:25 in the Marijuana Policy Project, I believe,

01:02:28 and talk about what you do there,

01:02:30 and then maybe add on thoughts

01:02:31 'cause before we got on air today,

01:02:32 we were talking about Brittany Griner

01:02:34 and how tragic it is and what that means.

01:02:36 - Oh God, yeah.

01:02:38 That one, oof.

01:02:39 I was on the board of the Marijuana Policy Project

01:02:42 for a few years,

01:02:43 and it was during a really pivotal time

01:02:44 when I think we had seven of the eight states

01:02:47 legalize adult use programs in that election.

01:02:49 It was the year that President Trump was elected,

01:02:51 and it was a really interesting time

01:02:53 because you could see that was a really massive landmark shift

01:02:57 around the United States,

01:02:59 around how we were going to roll out these programs.

01:03:02 And what was important during the time

01:03:03 of the Marijuana Policy Project is,

01:03:05 and I chose to participate in that,

01:03:06 is that, yeah, we are participants in industry organizations

01:03:10 that support the business case of cannabis.

01:03:13 Marijuana Policy Project was really about

01:03:15 decriminalizing cannabis and making sure

01:03:17 that people were no longer going to prison

01:03:19 for nonviolent cannabis offenses.

01:03:21 And they were taking a state-to-state approach

01:03:23 as well as a federal approach.

01:03:25 So I learned a lot in my time at the Marijuana Policy Project.

01:03:29 I mean, as anyone can hear,

01:03:30 Brady is like a fish to water with politics.

01:03:33 I had to come to learn to embrace it

01:03:36 as an aspect of being a cannabis investor.

01:03:39 And I do feel like it has given us an edge

01:03:41 to be so heavily involved politically.

01:03:43 It's something we've really leaned in on.

01:03:44 It does become very fascinating.

01:03:46 And one of the things, to Brady's exact point

01:03:49 about where we are right now with the Safe Plus potentially

01:03:52 is I saw the CAOA, I listened to the hearing

01:03:56 or the witness statements and to the responses

01:03:59 from the senators around it.

01:04:00 I was baffled by a lot of the outdated

01:04:03 and frankly incorrect stigma associated

01:04:05 with legalizing cannabis.

01:04:07 And I was glad that there were factual points made

01:04:10 to counteract that because I just always worry

01:04:12 when these old reefer madness tropes

01:04:14 get back out there again and if they get any oxygen.

01:04:17 But one of the things I had learned during my time

01:04:20 on the board of the Marijuana Policy Project

01:04:22 is you're trying to swing the pendulum further and further

01:04:25 and just hope it doesn't swing as far back behind you.

01:04:27 And that's what it feels like they're doing.

01:04:29 That feels like it was a Hail Mary,

01:04:31 pushing the door wide open and hoping to slide in

01:04:34 through the crack on maybe a more moderate

01:04:36 piece of legislation.

01:04:37 But I couldn't agree more about the banking

01:04:40 and absolutely with the funding of small businesses.

01:04:42 I've often said I associate this with cannabis

01:04:45 reminds me a little bit of coffee,

01:04:47 just like it could have wine and spirits or beer.

01:04:50 I'm hoping this industry doesn't become

01:04:52 just Folgers and Maxwell House.

01:04:54 And we just have two cannabis brands

01:04:56 because then we had to work all the way back

01:04:57 and now we have all these amazing craft coffee brands

01:05:00 that have been very successful businesses.

01:05:02 And I'm just hoping we can maintain more differentiation

01:05:06 across the entire spectrum of what's offered

01:05:09 in the cannabis industry,

01:05:10 just because it would be frankly more interesting.

01:05:11 And I think it's more interesting

01:05:13 from a financial perspective

01:05:14 to have that level of diversity,

01:05:16 but it's also the right thing to do.

01:05:18 And without any banking reform to Brady's point,

01:05:22 the MSOs are all fine banked.

01:05:24 They have access to decent lending capacity

01:05:27 in terms of their cost of capital.

01:05:29 But where it really comes in is there's no

01:05:31 like micro lending programs for smaller businesses,

01:05:33 which would be a perfect pairing

01:05:36 with these social equity programs

01:05:38 is to have micro loans that are associated with that.

01:05:40 I know New York is trying to establish a fund around it,

01:05:43 but I just think there could be so much more done

01:05:45 if safe banking passes.

01:05:46 So I was a 0% chance person on 2022,

01:05:50 but now I'm looking towards positive.

01:05:52 - You just brought up brands.

01:05:53 And I know that's a thing near and dear to both of your hearts

01:05:56 and even with all the stuff happening

01:05:58 that makes it very difficult

01:05:59 for a lot of these companies to operate,

01:06:00 there are brands being built right now.

01:06:02 And I think for people out there that don't know,

01:06:04 you can't advertise across any FCC regulated channel

01:06:08 about cannabis.

01:06:09 So this is all organic type stuff that's happening

01:06:11 and brands are starting to matter and will matter.

01:06:13 I think you both believe that.

01:06:14 Brady, first to you, we don't have to go into what brand

01:06:17 I know that you're starting to build now

01:06:19 that you see happening, but we are at the point now

01:06:21 and I'll fast forward and come back to you here

01:06:23 where you guys both believe that it's CBG companies

01:06:26 are the barbarians at the gate.

01:06:27 Alcohol is gonna come in, tobacco is gonna come.

01:06:29 They're just waiting for any lot of change

01:06:31 'cause they're seeing exactly what's happening

01:06:33 to the consumer in their sector, market share leaving.

01:06:36 So talk about how brands play a role in that, Brady.

01:06:39 And I'm gonna ask Emily, I want the same question to you.

01:06:41 Emily, you mentioned coffee.

01:06:43 And as we've been building, we built our last brand

01:06:46 and as we're building our next brand,

01:06:47 one of the companies we studied intensely was Starbucks.

01:06:51 Because when Starbucks entered the marketplace,

01:06:54 there was only one way to get coffee.

01:06:56 You either bought Folgers Crystals and it was crappy

01:06:58 out of your home coffee maker,

01:06:59 or you bought gas station coffee

01:07:01 or McDonald's coffee for 99 cents.

01:07:03 And Starbucks came in with an artisanal idea

01:07:06 and made it all about the consumer experience

01:07:08 in the store with the barista.

01:07:10 They made it, introduced an entirely new lexicon

01:07:12 that no one had heard before, grande, Americanos.

01:07:16 And guess what they did for the first 20 something years

01:07:19 of their business?

01:07:20 They sold an artisanal coffee for three to four bucks

01:07:22 and blew everybody else out of the water.

01:07:24 Like you, that's exactly what we're trying to do

01:07:26 on the premium side of cannabis.

01:07:28 And I think one of the things I think

01:07:30 from a branding standpoint, that's so integral,

01:07:32 that I think so many companies are getting wrong

01:07:34 from my personal opinion,

01:07:36 is cannabis has been an established industry

01:07:39 in the shadows, albeit, but an established industry

01:07:42 for the better part of the last 65 to 70 years.

01:07:45 It has been making concerts better.

01:07:47 It has been making your in-laws tolerable

01:07:48 around the holidays.

01:07:49 It has been making a long day at work better.

01:07:53 It has its own music.

01:07:54 It has its own holidays.

01:07:56 It has its own vocabulary.

01:07:58 It has its own movies.

01:08:00 And it's something that people have identified with.

01:08:02 I mean, if you think Woodstock,

01:08:03 you think people rolling joints, running around.

01:08:05 I mean, they're doing other stuff too.

01:08:06 Let's not kid ourselves.

01:08:07 We wish I was there, but at the end of the day,

01:08:10 that's what it is.

01:08:11 And so many cannabis companies today

01:08:13 are running away from that culture

01:08:16 and away from that authenticity.

01:08:18 And they're trying to make it

01:08:19 into a pharmaceutical wellness play.

01:08:21 Cannabis has amazing wellness capabilities.

01:08:23 Emily saw it with her father.

01:08:24 I saw it with my father when he was dying.

01:08:26 It was one of the things that pushed me over the edge

01:08:28 to go chase my dream.

01:08:29 But at the end of the day, people are looking

01:08:31 to replace alcohol for a relaxing feeling,

01:08:34 and for the most part.

01:08:35 People are looking to,

01:08:36 and I don't think you're ever gonna see a physician

01:08:38 write a prescription to go smoke something.

01:08:40 Unfiltered, by the way, for the most part.

01:08:42 To me, I think it needs to be

01:08:43 a more authentic, honest approach.

01:08:45 And I think brands will be built around that.

01:08:48 And I think what you're gonna see in this sector

01:08:50 is there's gonna be the medical play and the pharma play

01:08:53 that I think is the most saturated part

01:08:54 of the market right now, without question.

01:08:57 And then I think you're gonna see

01:08:58 from a quality standpoint,

01:08:59 the opportunity for artisanal regional brands.

01:09:01 I think you have to study where we are as a country

01:09:03 in the CPG world right now.

01:09:05 National brands are no longer how things are done.

01:09:07 Kroger may own grocery stores,

01:09:09 but each individual region there they operate

01:09:11 has a different store that's unique

01:09:13 and favored by that region.

01:09:15 Across the board, you can take that with restaurants,

01:09:17 you can take that with coffee shops.

01:09:19 There's a hyper-local,

01:09:20 and there's a push towards regionality.

01:09:22 And that's what I think you're gonna start to see

01:09:24 emerge in cannabis as well, because guess what?

01:09:26 They're not waiting.

01:09:27 Alcohol is already making bets.

01:09:29 They're coming into the sector.

01:09:30 They're all distributing.

01:09:31 The biggest alcohol distributors

01:09:32 are all distributing CBD in the US,

01:09:34 and cannabis in Canada learned the market.

01:09:37 Beverage company like Constellation Brands,

01:09:38 first one over the wall,

01:09:39 $4 billion into canopy growth.

01:09:42 That wasn't so they could sell joints

01:09:43 out of pharmacies in Canada.

01:09:45 That's because they're up there developing a beverage.

01:09:47 I can tell you on the lobbying side,

01:09:49 they are all lining up.

01:09:50 So ultimately, brands will matter.

01:09:52 I think it's a huge deal.

01:09:54 I don't think any real brand

01:09:55 has been created in cannabis yet,

01:09:57 not a lasting brand.

01:09:58 I think there's still an opportunity to do it

01:10:00 at a regional basis and somebody could scale up.

01:10:02 But let's just talk about this for a second,

01:10:03 and then I'll be quiet.

01:10:05 I think it's amazing to note that,

01:10:06 look at it from a share of wallet

01:10:08 or a share of stomach standpoint against alcohol.

01:10:10 Let's just talk purely about alcohol for a second.

01:10:13 If a consumer had 20 bucks in their pocket

01:10:15 and they're going out on a Friday night to go out,

01:10:17 and they go buy $10 worth of edibles at a dispensary,

01:10:20 and they take that edible,

01:10:21 and because they take that edible,

01:10:23 this is a personal case study, by the way,

01:10:25 they only have two beers instead of five beers.

01:10:27 They now just took a significant amount of money

01:10:29 out of the alcohol's potential purchasing power

01:10:32 to be spent in revenue for the alcohol company.

01:10:34 That's a big hit that they can't ignore.

01:10:36 Share of stomach, if you take that edible,

01:10:39 or you smoke a joint or hit a vape pen before you go out,

01:10:41 and you only have two beers instead of five beers

01:10:43 or six beers, and you get up the next day

01:10:45 and you feel like a million bucks

01:10:46 because you're not hungover and you had a great night's sleep,

01:10:49 guess what, that becomes the new normal.

01:10:51 And that's what you're seeing in a lot of the data.

01:10:53 And I know I'm a big fan of Headset,

01:10:55 which I know Emily's involved with as well.

01:10:57 Cy, and I'm a huge fan of data.

01:10:59 We're data geeks, my whole team are data geeks.

01:11:02 We study the data, the trends will show you

01:11:04 that the fastest growing category right now is edibles,

01:11:06 and more importantly, 'cause it's ease of use,

01:11:08 and secondarily, people are figuring out

01:11:10 that if they take an edible and go out,

01:11:11 they're gonna get up feeling really good

01:11:12 without a hangover.

01:11:13 That's gonna become the new normal,

01:11:15 and alcohol cannot let that happen.

01:11:17 I think the barbarians at the gate thing,

01:11:19 I think it's flipped around.

01:11:20 The cannabis industry, even though we don't have access

01:11:23 to the same capital and playing field,

01:11:26 we are the disruptor.

01:11:27 And ultimately, those that can make it and survive

01:11:29 are gonna completely disrupt.

01:11:31 I think it's alcohol and tobacco first.

01:11:32 I think pharma's further down the road.

01:11:34 That's just me, but on the branding piece,

01:11:36 brands absolutely will matter.

01:11:38 And the only way, in my opinion, you can have a brand

01:11:40 is you gotta be really authentic.

01:11:42 - Emily, I heard you talk about wonder.

01:11:44 I know you see it more on the West Coast,

01:11:45 obviously, than I would, but that's a perfect example,

01:11:48 right, of what you think is starting to take mindshare

01:11:50 and market share from people, right?

01:11:52 - Yeah, absolutely.

01:11:52 I think the cannacurists who are now getting

01:11:55 into the industry are really curious

01:11:57 about this beverage category,

01:11:58 because it's a form factor they're familiar with,

01:12:01 and it's something that's been so well-socialized

01:12:03 in our society.

01:12:04 And frankly, the new wonder and can

01:12:07 in these new beverage products have a much more predictable

01:12:10 onset and offset that is more akin to an alcoholic,

01:12:13 like one glass of wine or a beer,

01:12:15 instead of having some of the effects

01:12:17 of some of the edible products,

01:12:20 where if it's a heavy dose, you can have quite a surprise.

01:12:23 So I'm very in favor of these,

01:12:25 what they're calling Sessions-style beverages.

01:12:27 In fact, I took the red eye to New York last night,

01:12:30 and instead of having alcohol before flying,

01:12:33 I had a Sessions wonder drink,

01:12:34 and it was a really pleasant experience.

01:12:36 And by the way, I wasn't dehydrated on the flight,

01:12:39 slept really well, had a great experience.

01:12:41 So I think one of the things that's so awesome

01:12:44 about cannabis as an opportunity from a branding standpoint

01:12:47 is cannabis has kind of lived in a silo

01:12:50 just because of the regulatory status of it,

01:12:52 but cannabis integrates very well

01:12:54 into so many aspects of our lives and also augments it,

01:12:57 purely on a lifestyle side,

01:12:59 like to Brady's point about music and to movies, everything,

01:13:02 anything you can experience can be augmented by cannabis.

01:13:06 And I think Carl Sagan was one

01:13:07 of the great proponents of this.

01:13:10 But where I'm going with that is that brand building,

01:13:13 where you can tie experience to it,

01:13:15 is one of the stickiest and most resonant ways

01:13:17 to build brands.

01:13:19 And by the way, millennials are the experienced generation.

01:13:21 That's one of our great spending groups

01:13:23 from a cohort in the cannabis industry.

01:13:26 But what I'm excited about too is Generation Gen Z,

01:13:29 because to me,

01:13:30 they are going to be the cannabis native generation,

01:13:33 where their share of wallet,

01:13:34 as they enter the workforce and grow their personal wealth,

01:13:38 they will have a dedicated allocation to cannabis

01:13:40 as a part of their spending pattern,

01:13:42 not just alcohol, not whatever else they might be doing,

01:13:45 but it's just a part of their universe

01:13:48 being substantially more legal

01:13:49 than it was for any generation before them.

01:13:52 - I would say that both of you have great brands.

01:13:54 People should be paying attention

01:13:55 to what you two are saying.

01:13:56 Pioneers in the space continue to be advocates,

01:13:59 success stories, investors, operators.

01:14:02 I think people can learn a lot

01:14:04 from playing the long game here,

01:14:05 as opposed to, Brady, your point earlier

01:14:07 about immediate gratification and trying to get it.

01:14:09 Things are happening behind the scenes

01:14:10 regardless of the laws that are getting passed,

01:14:12 and we are well on our way.

01:14:14 And yes, we're still in the early innings,

01:14:15 but we've already seen so much success happen.

01:14:17 So I wanna thank both of you for coming on the tape here,

01:14:20 and I know we're gonna have you back on again,

01:14:22 and it feels like this is gonna be

01:14:23 over the next two to three, four quarters.

01:14:25 We're gonna see a real sea change, I think, politically,

01:14:28 and I think we're starting to see culturally a change

01:14:31 where we just talked about

01:14:32 where people will start to notice

01:14:34 more brands that are out there.

01:14:35 So thank you guys so much for coming on.

01:14:37 - Thanks for having us.

01:14:39 - Thanks once again to CME Group and iConnections

01:14:41 for sponsoring this episode of "On the Tape."

01:14:44 If you like what you heard,

01:14:45 make sure you hit follow and leave us a review.

01:14:48 It helps people find our show,

01:14:49 and we love hearing from you.

01:14:52 Can also email us at onthetape@riskreversal.com anytime.

01:14:57 Follow and connect with us on Twitter @OnTheTapePod,

01:15:01 and we'll see you next time.

01:15:03 On the Tape is a Risk Reversal media production.

01:15:06 This podcast is for informational purposes only.

01:15:09 All opinions expressed by me, Dan Nathan,

01:15:11 Guy Adami, Danny Moses, and any other participants

01:15:14 are solely our opinions and should not be relied upon

01:15:16 for specific investment decisions.

01:15:18 (upbeat music)

01:15:21 [BLANK_AUDIO]

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