This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. Yes, another round in US politics thanks to the New Hampshire primary and an easy win for former President Donald Trump. And yet what was most on the minds of investors
this past week? The big megacap tech companies as Alphabet, Meta, and Microsoft all hit record highs either intry day or at the close, Microsoft, by the way, hitting a historic three trillion dollar market evaluation at one point, Meta hitting the one trillion dollar mark for the first time since twenty twenty one. Irrational exuberance, anyone? What do you think?
I have no idea, but no way. It's a term that Eddie or Danny used in a recent note, So who knows. Hey, those megacap tech fang names were ord earnings in the coming weeks. This past week we got results from Netflix and Tesla. Netflix sitting it out of the streaming ballpark on a key Metric and Tesla a bit more down to earth for Elon and Company. More on both of those in just a moment.
Also the first FED meeting chickick calendars. It's just around the corner. It is this coming week, and we have a FED insider on what the US Central Bank may be thinking when it comes to monetary policy this year. And speaking of the new year, after a few rough ones, why twenty twenty four maybe the year to ride high on cannabis.
I saw what you did there.
That's kind of name, isn't it. Cure Leaf's executive chairman, Boris Jordan, stops by in our next hour.
Twenty twenty four is off to a good start for Spelman College, the recipient of the largest gift in the school's history. What one hundred million dollars means with the Spelman President, doctor Helene Gail, and how a morning meditation starts his day. From the creator of several publicly held billion dollar and multi billion dollar companies.
All right, tim, Well, all of that to come, but first to two earnings reports that definitely got our attention this past week and Tesla. First up, Netflix out with a blockbuster fourth quarter as the streaming service blew away Wall Street estimates for new subscribers, reporting its best quarter since the early days of the pandemic, sales to topping estimates.
Just ahead of earnings, Netflix announced its first big move into live events with a five billion dollar purchase of exclusive rights to raw and other programming from WWE, that, of course, is World Wrestling Entertainment. To put it all in context, we caught up with Michael Pactor, managing director and entertainment analyst at Webbush Securities, who was among the analysts raising their price target on the stock. Michael, good to have you with us. Good to talk to you again.
I mean, this is a company even covering for more than a decade, and your view has certainly shifted. Let's talk about where your view is right now. You've got an outperform on the stock. You've up your twelve month price target to six hundred and fifteen dollars from five hundred and twenty five. Not quite a street high, but you're among the highest according to the analysts that are tracked by Bloomberg. Why the upgrade, Well, you know, we I've covered it for twenty years.
In August, actually we had to sell on it from roughly ten dollars to six ninety, so wrong for ten years out and then I upgraded at one eighty. We put on the Best Ideas list at three point thirty. So what I'm seeing is what I criticized ten years ago, thirteen years ago on the downgrade to sell. I'm seeing them do what I said they needed to do, which is stop being fixated on adding subs at all costs and start focusing on profitable subs. They're doing everything right.
They're managing their spend properly. They're shifting their their budget more toward television away from movies. You saw Scott stuper left the other day. They are shifting their their budget more toward international production, which costs about half as much as domestic. They are far more international. And what you're seeing now is that subscribers are coming in at very
very high margins. You're seeing operating profits expand materially literally three hundred basis points a year, which means they're going to make a lot more money than anybody thinks in the next several years. So they created, you know, a twenty something multiple. We have a thirty multiple price target. Could I be at forty or fifty or sixty. Sure, it really depends on how fast.
Hey, Michael, we want to bring up a chart for all of our viewers, and it shows just the blowout number of subscribers added in that last quarter. It looks like it could, you know, pull back a little bit in the next quarter in a big way. But as you are saying, it's not just the net number of subscribers, it's that the folks that they are signing up, they're making more money off of them.
Absolutely. And you know, if you see that thirteen million number new subscribers, forty percent are signing up for the six ninety nine ad supported tier, but they're generating about sixteen dollars because the ad load is about ten bucks. So you know, they've shown that by lowering price and adding advertising, they're attracting people that couldn't afford fifteen dollars before.
The balance of those people are largely coming from asword sharing crackdown, and you know there are people whose kids, their adult children or their parents.
Tim's brother included. We're just going to share that. We've shared that several times on it. I'm sorry Tim's brother again.
That has a double whimmy. You know, the people who shouldn't be using it or signing up on their own, people who you want to pay for. My kids who are college grads, I'm paying for them. I pay for their cell phone. I'll pay for their Netflix subscription. So that expands average revenue per member, and it expands new members. You're seeing it all just dovetail nicely. And now they're doing something clever. They're adding gaming they got they finally have figured out how to do it, and that makes
the service stickier. You're less likely to quit if you've been on the network personal last month. Stuff like Grand Theft, Auto Trilogy gets people coming back.
Hey, Michael, I mean you're also a gaming analyst. We should note so you covered this stuff really closely. What is Netflix doing that the other companies are not doing that? You know, the Disney's aren't doing the Parents aren't doing the Peacocks aren't doing Like, why is Netflix executing so much better?
First mover advantage is the biggest thing. They've kind of created the fund that would buy licensed property, would license things like suits from the other networks. The other guys. We're trying to go all proprietary all the time. So CBS Content State on Paramount and NBC content, State on Peacock, ABC, State on Disney Plus, and they didn't have the critical mass to actually support giving away all that content without
collecting subscription revenues. Netflix has two hundred and sixty million subscribers. They can pay up. They did this for WWE. It's a perfect example of something that took away from USA network and now they're going global with it. Their idea is, we're taking something that has an audience of fewer than a million people a week, and we're going to expand that to five million people. And when they do that, they leverage their subscriber base they can afford to pay more.
The network or in this case, WWE says, of course, I'm taking more money. So the other guys are being dumb. You know Peacock Okay, one hundred and ten million dollars for one game, so we can all see Taylor Swift one game? Dumb, really dumb. I know they got three million subscribers. All those people are going to quit another two weeks.
Hey, noticeant on Taylor Swift here. Hey, having said that, Michael, that's fair we all do. Hey, listen, we've got just about a minute left here so you obviously are a beat. You like the WWE deal that they just did and the kind of front ran earnings yesterday in a big way. Having said that, what would make you turn bearish again on Netflix? And again just got about thirty forty seconds valuation?
I mean, if the stock gets to you know, much much more than it's worth, of course I would downgrade. I am very comfortable at six fifteen. I probably could be comfortable at a higher number if I see greater earnings growth that we have forecasts. But you know, if the stock ran to two thousand or five thousand, of course that would doubgrade.
Michael Pactor, Hey, you know what, it's okay that you pay for your kids Netflix. Okay, I'm just throwing it out there, like that's fine. You're not the only one.
But two kids are older and you're paying for everything.
I just, you know, I'm just wondering if the other streaming services are going to wise up soon to you know, crack down on passwords sharing the way Netflix has. Let's get the sense they are, but it's going to create a lot of changes in households.
Well, you know, talk with our Geeta ringing Athon yesterday. I mean this whole idea that Netflix has figured out how to pivot right from when they used to be what the little red boxes and that you put them in the box.
The DVDs you're talking about the little red fix bhs's.
They did never do it.
They did never do it.
They were all DVDs.
It just feels like they did.
They love it a lot.
All Right, You've got Netflix shares folks up almost twelve percent in the session. This is Bluemberg.
You're listening to the Bloomberg Business Week podcast. Can't us Live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then brought auto with a Bloomberg Business act or want just live on YouTube?
All right?
Tesla to start in a next generation platform production at its Giga factory in Texas. Teams to work in a launch of a next generation vehicle at Tech Texas and continue to make progress on a next generation platform. So a lot of stuff that that is to come. So let's get to it, because we've got a great roundtable. Red Brown is Bloomberg News Earnings reporter. He covers the numbers and we'll give us some more insight into what we just got Ross Gerber is with US President CEO
of Gerber Kawasaki Wealth and Investment Management. They have about two point two billion in assets under management, including about eighty four million dollars worth of Tesla stock. You folks know him well. He owns Tesla's, he invests in the company, he sells at times. I do want to start with you, Ross, are you concerned stock still doubt about two point seven
percent in the aftermarket. But when Tesla says twenty twenty four volume growth maybe notably lower than twenty twenty three, I don't know, does it worry you a little bit? Does it make you want to sell any stock?
Well, I don't want to talk about our training because I'm not allowed to. But if you look at our you know my fund GK, we've been selling the stock over the last several months, as well as if you look at our public filings, we've been lowering our position over the last several months.
So there's a lot of.
Clients of mine who are very upset with some of the things Elon said and sold their stock in the two two hundred and fifty dollars range that are probably pretty happy they did that.
Today.
Russ Stick with this for a minute, because you've been pretty critical of Elon Musk lately, which has been a marked, a marked difference from how you've been over the past few years. I mean, you were among the biggest Tesla bulls out there, but now you're concerned. You write that
Elon's becoming the Kanye of business. Is this what's hitting the company's stock or is this a bigger question about what we were talking about earlier with evs, EV demand falling and what we're seeing from Ford, what we're seeing from GM. Is it a bigger issue outside of Elon's control.
I think Elon's created the issue for EV's across the board more than like it's an EV issue. But you know, the bottom line is, and you see it in the numbers, and this is what we were kind of waiting to see, is that margins continued to go lower. They're like basically not able to sell cars unless they lower prices because
Elon refuses to advertise. And then the advertising he's doing are trips with his child to Auschwitz and you know, anti Semitic and racist comments all the time, and him you know, basically using X as a platform for every political debate possible that he could get himself into, which is exactly how you not sell cars. So god forbid, they actually got him off Twitter and advertised maybe Tesla's problems would be solved.
Interesting, Hey, I want to bring you in red brown things that you're seeing and noticing. We've been breaking down the earnings with our TV colleagues. The key point that you're focusing on, well, I.
Think obviously the production target notably lower volumes for next year. It does raise some questions about this strategy of continuing to lower prices. They lowered prices just last week again in Europe, so it seems like that is going to be the strategy going forward, but it doesn't seem to be kind of paying dividends in the company's view going forward in terms of actually selling cars.
Still yeah, and Tesla les bullishaw it's cyber truck, noting in the investor deck that it's ramp time will be longer than for the other models given its manufacturing complexity. So it's also adding that, all right, Ross, so can definitely, you know, respect your different tone here in Tesla. So I don't know, how how do you think about this company going forward? Is it a case that it's hard to kind of remove the man and the creator from
kind of the company. But how do you do that, or do you do that at some point?
Well, what I've been saying is that the Tesla story has just changed from what the story was a few years ago before Twitter, And as long as investors are comfortable with that story, then the long term for Tesla, the story is still intact, whether it be charging energy ev you know, Tesla's the prime player in this climate
change revolution that they began. And the real issue is the company is being mismanaged now by the CEO who's demanding a massive compensation package but won't do any of the things that the company needs to really like resolve
their sales and margin issues. So I think as we move forward as investors, it's really about what is the right valuation for Tesla, Because Tesla has been the highest value of the mag seven or one of the highest value tech stocks for years, you know, and before he bought Twitter, you know, it traded one hundred times multiple of future earnings. Today it's treading at sixty times multiple
future earnings. But now that future earnings number is definitely in doubt, And does it really deserve a higher multiple than Nvidia and Microsoft, and I think that's what's hurting the stock.
Irrelevant of the company.
Stock still down about two percent. Hey, Tesla also noting ross that they have reached the quote natural limit of cost town of our existing electric vehicle lineup.
It's goint a corporate to be But what does that mean euphemism for we can't lower prices anymore?
Right, It's like we have reached maximum efficient see a production and so basically every time we discount, it's just going to cost shareholders more. Now, the good news is this is great for Earth because people are getting cheaper and cheaper you know, evs, which you know are great. The bad news is it's coming from shareholders pockets. And so if you're a shareholder, you know it's time to really assess, like does this company deserve a sixty multiple
afford earnings? And I think that's what investors are going to be doing over the next several months.
Okay, I want to bring back in red round because he's been watching the numbers come out red what else sticks out to you? I know, the looking at the production numbers certainly sticks out any anything else in these numbers here we're seeing shares down about two percent as we speak.
Yeah, I mean, it's just it's I think everything that we're seeing right here from the numbers is that this is kind of the cost you pay for the game that they're playing. Of continuing to cut these prices. They you're seeing a bigger and bigger disconnect between their top line growth and their earnings growth.
Right.
They did hit record revenue that's going to get lost in the shop here today, but it came at the expense of over forty percent drop in their earnings, right, So it's not it doesn't seem like it's the path forward. I think. I think Ross is hitting on some interesting topics here as well as kind of where does the growth come from a lot of the share price is predicated on some of these sort of pie in the
sky initiatives. Be it ai huge question marks over that with whether or not Elon does that inside the company or not. So hopefully get some more insights on that when the call, when the call goes later today, Ross, what is the.
Number one question on that call today? In your view?
I think from my perspective, it's kind of what we're hitting on right now, which is where's the growth I mean from If you're not going to grow cars by a lot, you know, like this is not a good thing. So I think my concern is forty six eighty. And this is the story behind the story, which is one of the scaling issues they're having with cyber and Semi is that forty six eighty is just not working quickly
as they had hoped. And they planned all of production in Texas around forty six eighty originally, and they've now had to pivot and so this has caused extra costs, lots of complexity issues, and I don't think they've mastered forty six eighty y at or even close for scaling in any mass level. And this is a huge detriment to Tesla moving forward because they have to get this technology right to ramp cyber and some which is where growth will come from.
Hey, what do you mean forty six eighty?
These are the new cells that OK that they built for EVS and these new cells are seven times more powerful, much more efficient, charge faster and they're wonderful, but they haven't been able to scale them as quickly as they had hoped.
All right, good stuff, as always, so appreciate it. I know you've had a busy day. Our thanks to Ross Gerber, presidents at you of Gerber Kawasaki Wealth and Investment Management, and then of course our thanks as well to our Red Brown, He's Bloomberg News Earnings reporter right here in studio, Tesla shares back down about three point seven percent. We're seeing in the stock fall here in the aftermarket.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business Ad. You can also listen live on Amazon Alexa from our flagship New York station just say Alexa playing Bloomberg.
Eleven thirty.
We do have a headline crossing the Bloomberg terminal, the Fed Inspector General issuing its report on two former members of the Federal Reserve System. And we're talking about Boston Fed Chief Eric Rosengren and also Dallas President Robert Caplan. Remember they stepped down in September of twenty twenty one. So we're getting that report crossing. Having said that, let's bring in Bloomberg's Mike McKee because he's also seen these headlines as they cross.
Well, I've just been reading the report, and according to the Inspector General, with regard to mister Kaplan, he says, we did not find that his trading activities violated laws, rules,
regulations or policies related to trading activities. His twenty twenty form A Federal Reserve Bank Confidential Financial Disclosure Report did not publicly disclose the specific dates of his trading activities, nor did it specify transactions that involved the selling of stock option contracts, and that lack of information, in the Inspector General's opinion, did not support public confidence in the
impartiality and integrity of the policymakers. As far as Eric Rosengrin, the Inspector General found that he did not report multiple trades on his twenty twenty form A. Additionally, they found multiple discrepancies between the transactions reflected in his brokerage statements and trading data and what he reported on that form A. Moreover, in the Inspector General's opinion, they say mister Rosengren's trading activities in real estate investment trusts during a time of
financial market volatility that prompted the Federal Reserve to authorize the purchase of agency mortgage backed securities created a quote appearance of a conflict of interest that could cause a reasonable person to question mister Rosengren's impartiality under the Federal Reserve Boards Code of Conduct. They go on to say that the rules in effect at the time did not sufficiently support confidence in the impartiality and integrity of the policymakers. Those rules have been changed.
So Net Mike, I know this is just your first reaction, but was it a conflict of an interest or merely an appearance of a conflict of interest? What's the report saying.
It's hard to say exactly with regard to Eric Rosengren, because it sounds like there may have been a conflict of interest, but the Inspector General does not highlight the fact that there is one. But it could appear that way. In Kaplan's case, there wasn't a conflict of interest and he didn't violate the rules, but the fact that he didn't completely dot every eye and cross every te suggests that it could have had an impact on how people think about the FED. And that's kind of what this report,
I think is going to be saying. When you read it all twenty four pages, I'll get to.
It, but basic if we can help it.
Well, basically it's a question of can you trust the FED? And that this seems to sort of say there were problems.
Well, and we have a great voice on this. Former New York Fed President Bill Dudley is with us. He's also, of course a Bloomberg opinion columnist. Bill is joining us on zoom in New York. Feel so great to have you here across our Bloomberg platforms. Can we trust the FED? Based on what the Inspector General the report that they just released. Do you feel confident about the US Central Bank?
Yes?
I do.
I think the change in procedures as far as reporting and trading what you're allowed to do from a trading perspective has been tightened up considerably in light of what happened, And I think.
That the regime today is far better than what we had before.
Bill, how damaging overall over the last couple of years was this to the Federal Reserve, or at least the appearance of the Federal Reserve?
Well, I mean any thing that caused to question the impartiality of the FED or the idea that the FED was somehow people were trading on information that wasn't public.
Obviously, that's terrible.
The good thing is it sounds like this report, which I haven't had a chance yet to read, sounds like that there were no actual violations of rules and regulations. But certainly the appearance of a conflict is a bad thing because it can undercut to the credibility in the Central Bank bill.
Mike McKee here, I'm just wondering if you if you felt at the time, if anybody felt at the time that either President Rosingrad or President Kaplan had done anything wrong. The stories we have at the time suggested there was no pressure from the Federal Reserve for them to resign, but was it the right thing for them to do.
I'm not going to appine on that.
What I will appint on is that you need to have a regime in place that creates confidence in the Federal Reserve system, and.
That regime needs to be robust.
I mean, I think the thing that's sort of remarkable about this, frankly, is how long it's taken for the Expector General to come out with these findings. I mean, it seems to me like this was something that could have been expedited much more quickly. So I'm not really sure why this took so long to become public.
That's a fair question. I also do wonder is it a fair question to say, or a fair kind of assessment to say this should never have happened, It should have never even been a concern or cause for worry about.
Well, I think there's always you know, with the manefes hindsight, everything you know, you know, it looks, it looks obvious.
I'll get you an example.
When I was the president of the Near Fed or when I was the heead the Marketsprice Near Fed, there were very few restrictions on the trading activities of people within it, within the bank, and you know, you couldn't do things around FOC meetings. But you know, people were in possession of non public information at other times, and the regime just wasn't very robust. And so when I
became president, I changed that. I put it in a much to a tougher regime because I didn't think that the regime that we had in place was you know, robust to you know, you know, people were behaving on their own, but you want something, you want governance and controls above that.
I think the key headline here at The bottom line is that, according to the Inspector General, Rob Kaplan and Eric Rosengren did not do anything legally wrong. So it's more of an appearance of a conflict.
Now.
We also had issues at the same time with j Powell and Richard Clareda. Is that do you think behind the FED now? Is this you mentioned how long it took to get this report. Is this sort of ancient history and the Fed's moved on?
Well, I think it's ancient history in the sense that the FED has changed all their rules. You can't do these things now that you could have done before. That's the same thing that I did want as a president of r FEDI said, this is a regime in place that allows too many things that could potentially happen that could create create the appearance of conflict. Let's just tighten this up a lot.
So there's no question, there's no question, there's no risk, and I think that's what the FED Reserve is done. So I don't think there's much risk of anything happening in the future.
But you know, it would be nice if you would tighten up the regime before this happened, rather than that.
All right, we're going to pivot a little bit, because the reason we really initially wanted to talk to you was about what the FED does next. And we're looking at the markets where we had another record on the S and P five hundred. Investors continuing to embrace maybe this risk on trade on expectations build that we're going to have a pretty aggressive FED and they're pricing in or it seems to be pricing in a fair amount
of FED rate cuts this year. What are you seeing when you look at the markets and what do you think FED officials are thinking and seeing when they see the move up, especially on the equity side of things.
Well, I think the reason why the markets are doing well is because the probability of a soft landing has gone up. I mean, what basically happened is the comments continued to grow.
And that's kept the labor market type. But the tightness of the labor market.
Is not leading to acceleration and wage inflation or an increase in ongoing prices for goods and services. So it's sort of like the best of all world. So we've had we brought inflation down without much there.
Are you saying goldilocks? Are you saying definitely a soft landing here.
No, not at all.
So far so good, So I don't think the story has been fully written yet, and we'll have to see where we go. I mean, it's very difficult for the Fed to generate a soft landing because you basically need growth weak enough to keep the comming from overheating, but strong enough to keep the commy out of recession.
And that margin for aerois right now is very very small.
So I think it's really too soon to conclude that we're on this golden path.
But the chances of a soft landing definitely have gone up, and that's what the market's reacting to.
A month ago, you wrote a colum for Bloomberg Opinion that said that the pivot is a pretty big gamble and that there's a significant chance there won't be a soft landing. Would you say there's still a significant chance or if not, what data has come in to show you that there is a better a soft landing.
Well, I think there's risks on both sides.
Number One, mantary policy might not be as tight as the Fed thinks it is. And if that's the case, the kim keeps growing, the labor market stays tight, and we don't get inflation all the way back to two percent, and so the Fed reserve.
That's that's sort of the no landing scenario.
The other scenario, course, is that if it keeps manitary policy a little too tight for too long, the labor market deteriorates. And once the labor market starts to deteriorate, that usually tends to be fairly sizable.
Rather than small.
The sum rule says, every time the unemploy rate goes up by more than a half a percent, you have a full blown recession.
So you know, the Fed is trying to find the exactly right guidepath.
And you know when polls, you know, does this press conference, I think everyone's going to ask the questions about what are you going.
To do in March? What are you gonna do to May? And the answer is they don't know at this point.
Because the economic information is going to tell them whether they're.
In the on the right guidepath or not.
If the economy is weaker than expected, the labor market has more slack than expected than the Federal Reserve will cut rates sooner and by more. If the economy is stronger than expected and inflation stays a little bit higher than expected, then the federally deserve will keep monitary policy on hold, and relatively small differences in the growth trajectory right now are going to have pretty big implications for
the interest rate path. That's why the market's very molatile, is reacting to each piece of incoming information, because each piece of incoming information affects the probability of these three different outcomes.
Well, we're talking a lot about politics these days, with the primaries and caucuses underway, and I'm wondering I question. I know the answer to your basic answer to if I ask you, will politics of the selection your play into FED decision making, You're going to tell me no, the Fed doesn't let that happen. But we know from
the transcripts that it gets talked about. And given the fact that one of the candidates has said a lot of nasty things about the Federal Reserve, would the FED prefer, if it knows it's going to be cutting interest rates to do it before the September meeting to sort of stay out of the headlines and politics.
I think at the end of the day, the Federal Reserve will set monitary policy on what they think is right formula to generate the best possible combination of full employment and price stability. The FED can't take pay attention to politics because if they start to pay attention to politics, that politicizes the FED and makes the FED vulnerable to attack. This is why Cherpaul, when he's asked about fiscal policy, tax cuts, and things of that sort, he never.
Wants to talk about any of those things because he doesn't want the FED involved in the political debate. And so I think the FED will stay very apolitical.
My own experience, I was at the Federal Reserve for eleven and a half years around the FMC table. Never what did politics come up as a reason to adjust manentary policy, either more slowly or more quickly.
I just as did you ever feel any sort of internal pressure as a human being thinking about what your decision might mean in the context of how voters react.
I think at the end of the day, you just have to be blind to that.
I mean, I think the only way it might come up is there are there are having cases in the past, or the election has been right after the right after an FMC meeting.
So maybe that f C.
Meeting that's a couple of days before the election. You know, maybe that's one that you take a pass on. But you know that onlyccurs every once in a while because a lot of times the meeting happens after the election. You know, election is the first Tuesday in November, and FED has an FMC meeting around that time, and where that fit FMC meeting falls could maybe have a very
very very very marginal FED. But I think beyond that, I think there's just nothing there because if the FED starts going down this path, where.
Does it end?
Then the FED gets accused of being political. Then people start to talk about, well, maybe we need to rein in the Fed's independence. FED loses independence, then it loses ability to conduct monetary policy in a way best designed to achieve it's two mandate objectives. So it's a slippery slope. You don't want to start going down that slippery slope.
But safe to say Donald Trump, if he is and everything is pointing to him being the Republican presidential candidate again, if he you know, he has not been shy is feelings, certainly about the FED and Jay Palace specifically, should Jay powellin FED officials worry though possibly about becoming part of the campaign, whether they like it or not.
Well, wouldn't surprise me at all.
If you know, the candidate Trump started to you know, attack the FED for cutting interest rates, arguing that that was somehow eating the Biden, you know, reelection chances, So that certainly could come up.
I mean, that wouldn't surprise me at all.
But the FED reserve would be No, We're doing what we think is appropriate to achieve our dual mandate objectives.
All right, So your best bet and we totally get it data dependent. We're going to move from data point to data point. Having said that our investors' markets not being smart and not and not including in their thinking that the FED could actually raise rates again or how how do you think about that?
Well, I think that the likelihood of the FED raising rates from her is very low, and I think the reason is that FED already thinks monetary policy is quite restrictive, so they would have to be convinced that mantra policy
is not restrictive. I think if if it turns out that the economy is stronger than expected, inflation is higher than expected, it's more likely to just just stay at the current level for longer as opposed to move to actually start to hype rates again, I think the bar to raising rates at this point is pretty high.
Why does it seem to you that the dot plot kind of shows that FED officials are all over the place over the next couple of years. What kind of uncertainty does that suggest? It does suggest that there are real camps of doves and hawks.
I think that this is just a very uncertain outlook.
I mean, how many times have we had recoveries from pandemics and the economy having lots of inflation with the Federals are being very slow to tighten mantarc policy and that. So that's sort of the bad news, and then the good news. It seems like it's working out pretty well so far. So the FED is caught up, economy has slowed a bit, inflation has come down. So I think you know the reason why, you know, it's just a very tricky and tricky environment.
I think that you know, FED officials probably disagree mostly.
About the economic outlook. You know that it's certain it's about the economic outlook. I think in terms of how they would respond to the same economic outlook, I probably imagine the reaction function how they would respond probably doesn't vary as much so I think it's mostly uncertained about the economic outlook.
Hey, Bill, just got about one minute left here. We're getting ready for read on GDP here in the United States that's later on this week, and then of course the FED meeting next week. What do you think is the smart conversation, smart thought mark, or smart metric that you think investors should be watching ahead of all of that to kind of figure out where we go from here?
Well, I think the GDP news this is sort of old news.
It's like describing what happened in the fourth quarter, and that's really not really that important from the FEDS perspective.
It's really where are we going from here?
Right?
So, I don't think the GDP news is going to be very very important in terms of influencing the Fed. I think what's really going to be important is number one, what happens to the labor market, what's having to pay all employment, what's having to the unemployer rate, what's having to wages? And number two, what's happening to inflation? Is the hot final mile on inflation actually going to be harder or not so hard? That's really the cool question on the table.
All right, Well, Bill, Dudley, so appreciate your time on this Monday with the breaking news and then of course getting your outlook and thoughts on the US Central Bank. Bill Dudley, of course, former president of the New York Fed, Bloomberg opinion columnist, and of course our Michael McKee, who covers the Fed and everything going on with interest rates. Bill, by the way, will be part of the Bloomberg Radio
and TV special on the Fed Decides. That's on Wednesday, January thirty first, that starts at one thirty pm Wall Street Time.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then brought Auto with a Bloomberg Business act or want us Live on YouTube.
Well.
A billionaire couple is giving one hundred million dollars to Atlanta's Spelman College, which the women's school says is the largest ever single donation to historically black college or university. The donation announced yesterday by Roonda Striker and her husband William. She is the billionaire granddaughter of the founder of medical device maker Striker Corporation. He is the chairman of money management firm green Leaf Trust. They live in Michigan.
Spelman said it would use seventy five million dollars to endowt scholarships. The rest of the money will be used for other purposes, including developing an academic focus on public policy and democracy and improving student housing, a sore point in recent years among Spelman's students.
We are so delighted to have with us to talk about this historic gift in what it is a historic here for Spelman. Doctor Helene Gail, she's president of Spelman College. She is on Zoom from Atlanta and also with us, delighted to have here. Bloomberg News Higher Education Finance reporter Janet Lauren in our Bloomberg Interactive Brokers studio, Doctor Gail, congratulations,
Thank you for giving us some time here. Can you talk to us a little bit about how this gift came up, how did Rhonda Striker come to be a trustee at Spelman, and what's it like to receive the news of a gift of this magnitude.
Well, thank you and thanks for having me on.
Well.
Rodes Striker is one of our longest serving trustees. She was brought on by one of my predecessors, over.
Twenty years ago, and over the years, she and her.
Husband have continued to contribute to Spelman, and you know, have been incredibly generous donors, but this is clearly the largest single.
Gift that they have ever given.
And as you said in the run up to this, it's the largest single gift that Spelman has ever received, and the largest gift to any HBCU. So it's pretty exciting and you know, truly a transformational gift that I think can make such a huge difference for Spelman, not only now but bar into the future.
So thank you again for coming. So tell us how does this donation impact your endowments long longjectivity, especially when it comes to scholarships.
Yeah, so, you know, we plan to use seventy five percent of it or endowing scholarships. We will obviously put that money to work immediately, and you know, in a year or so there will be returns that we can
use to start increasing our scholarships already. But you know, as you know, endowments really really what you can do with an endowment is to think about future generations, and so you know, we look at this as the way that we can secure the future for right talented young women who want to get us an education but oftentimes are not able to because of financial barriers. So you know, we think this is going to make a difference for our students today but also for the students of tomorrow.
Well, and I was looking at your most recent value of June twenty twenty two. It was less than five hundred million dollars. And then this gives you a huge amount of money more to invest. Can you talk about what that means for having you know, having that in the fund and to be able to build on it and to be able to do things like help students graduate and boost those rates and help them return the next semester of there's trouble.
Yeah, no, totally, that's exactly what you know, we hope to be able to do. As you stated, you know, we have an endowment that's just under five hundred million dollars. You know, that's that is large for an age for many of our h PCU colleagues. But you know, when we compare ourselves to similar schools, similar size, type, and similar types of populations, you know, our endowment is trails
many of our peer institutions. And so you know, we think that this which is a huge increase in our endowment will be able to provide scholarships for students.
As you know, we have a high need population.
We've got brilliant students grade point averages to range three point nine and above, but we also have a high need population. Forty percent of our students are PAL eligible. About eighty percent of our students get some sort of need based financial aid.
So, you know, we want to be able.
To bridge that gap between the talent that we see walking through the door and the you know, real gap.
In financial resources.
You know, when you can take this incredible talent pool and match it with the resources that allow them to have this kind of life changing education, you know, I think we can make a huge contribution through this gift, and you know, hopefully many more. We hope that this is the kind of gift that will inspire others to invest not only in Spellman, but other HBCUs.
So, you know, I want to talk a little bit about more about the cost of higher education because because we got some news earlier today that the President Biden is continuing with his efforts to try to reduce the debt load that Americans have. Whether or not that is successful remains to be seen. But the cost of higher education at your school is forty six thousand dollars a year for a student living on campus. I got to tell you that's a relative bargain in this day and age.
We were talking with a colleague recently who about another school, not an Ivy League school, a small liberal arts college, over ninety thousand dollars a year. Why does the cost of higher education continue to be so high, doctor Gale.
Well, you know, every school is different.
We've tried very hard to keep our costs as low as possible. In fact, we reset our tuition and fees a couple of years ago to be able to try to make our education as affordable as possible.
But you know, costs continue to rise. Employment costs continues to rise.
You know, we have to be able to the kind of high caliber faculty that attracts, you know, the student population that comes to Spellman. We've got to make sure that we pay our staff and administrative support the kinds of resources and so you know, a lot of the cost of a college or university are the personnel costs that continue to go up. But we also know the construction costs, other supply costs have all continued to go up.
So you know, we try as hard as we can to manage those costs to not have to increase tuition and fees. But we also have to be competitive in today's market.
But does it feel a little crazy when it's almost one hundred thousand dollars? I'm just you understand this world?
Well, you know, I think we've got to work on both sides.
We have to work on making education more and more affordable, but we also have to look at how are we making sure that students do have the kind of resources, access to scholarships, access to low cost loans to be able to afford education. So we've got you know, we've got to work on both ends, and you know, we've got.
Work to do.
So I write a lot about fundraising, and I would love to hear how does a gift like this come about? It must have you must have been working on it for years and years. If you could take us through that, And also, what's it like to get the nod? Yes, we're giving you one hundred million dollars?
Well, you know, as I mentioned, Ronda Striker has been a long serving board member and she has seen the transformative nature of a Spellman Education. You know, we we have young women who walk through the door, you know without you know, as young women, and whose lives are transformed.
By the education that they get here.
She has seen the economic value that occurs when a young grow comes in the door leaves ready to get go out into the workforce. You know, if you look at the statistics, HBCUs like Spelman have punched above their weight for so many years. And I think she has seen that the value of investing can make such a huge difference. And so, you know, gifts come because people believe in your mission. People who have resources who believe in your mission have the opportunity to experience why it's
so important to invest. So Ronda Striker has had the opportunity to see what it means when you can match the talent pool that we have with the kind of resources that can be transformational and change lives. You know, Spelman College has the.
The product of Spelman College is obvious. You know, we can rattle.
Off the names of the important leaders in business, in policy and politics and arts, entertainment, entrepreneurship, and so we know that there's a product from Spelman that changes lives.
Well, thank you so much for finding time for us. Congratulations. We know it's also an important anniversary for you guys in the official naming of the school, So congratulations on that, doctor Helene Gail, President of Spelman College, and of course, Bloomberg's own Janet Lawren.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Easter on Apple car Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including time to get high on the cannabis industry. I'm asking, and I'm really sorry.
I had to go.
How many of these punts do you have?
It's the only one I have with cannabisiness.
What you did one earlier meantime, plain old booze do and just fine, it seems, especially if you want to delivered right to your doorstep.
Who doesn't.
Derek Ray is CEO of Reserve Bar. He'll join us with a business update and adapting to changing drinking habits as younger generations are drinking less and older ones are drinking more, and a lot of people Carol just seem to be taking part in dry January.
I'm amazed that people like who come into our studio like it. I'm part of it.
You offer somebody like, oh, let's go for a drink, They're like, no, I'm doing dragging anyway.
A lot of them work here, By the way, what does that say?
I don't know.
First up this hour the CEO who meditates before getting down to business, and he does have a lot of business going on. Brad Jacobs is the founder and chairman at freight services provider XPO.
He's a serial entrepreneur. Brad has started five companies and he's the author of a new book just out this week, How to Make a few Billion dollars. A lot to talk about, and we kicked off Brad being back in our studio by getting his take on today's business environment.
I think we've started to see the economy slowing down for sure here and in Europe. I think it's going to continue to slow down, and depending on what the Fed does, it could start picking up. But and what the Fed does is that.
More an issue of what the FED does versus the war's overseas and we're looking at the Red Sea and ships not being able to go through. We're worried about does a supply chain already you know, have some problems in it and maybe it even gets worse. Is the FED more important? And really global central banks?
The FED is more important than what the hoodies are doing. The hoodies are driving hooties if you want to look at an economic terms or inflationary because they're driving up shipping costs which will pass we will be passed along to consumers in the end.
But the FED is.
The overall stimulator or slower downer of.
The economy, so that more important.
Yeah, well there.
Is a big I mean the big debate that we talk about every day is like, will they or won't they in March cut rates? You say, the economies depending on what the FED does. What do you think the Fed should do?
I think the Fed should keep looking at the data and do what ignore everything else and go buy the data. If inflation cools down more, yeah, it may make sense to start lowering rates. If inflation continues to rear its ugly head, then it's not the time to be lowering rates.
Are you seeing in your various businesses, what you're hearing from colleagues, what you're hearing from associates, is inflation wearing it's ugly head again or does the Fed have this tamed.
It's more slowing down and having slowed down than inflation coming back. So I look at wages a lot, since it's a big part of all of our businesses. Wage growth has slowed. Input costs are still going up, but they've slowed. Rents at least has gone up, but they're going up slower. So it does feel it's slowed down quite a bit.
Brad. Are you holding on to workers?
Are?
Yeah? Much more than Well, first of all, we couldn even find workers a couple of years.
Ago, right, But I'm just curious, are you still worried about like losing someone and not being able to or letting somebody go. If you're starting to see some softness, would you rather hold on to a worker at this point?
Well, you always want to hold on to your talent, and in the book I talk to you about that at this your number one asset are your people, and you've got to make sure you have a plus.
You know what I'm saying that when you when you run a publicly held company, and if you're worried about any kind of slow down, you've got to start to look at your costs again and work certainly playing.
And you should be looking at your costs in every part of the cycle. Should be managing your costs intelligently.
All right. So having said that, when you think about capital expenditures, you're comfortable to move ahead.
Yeah. Absolutely, I'm about to start a new company.
You have started a well almost are almost?
Well?
Where are you that? Help us out with that because we've talked about it with you last year. We're talking about QXO, right, tell us about where you are and you're looking to buy businesses. From what I understand, it's all about kind of moving businesses and materials around in North America. So where are you in the process.
North America and Europe?
And Europe?
So it's exactly I did exactly what I said I was going to do when I sell you last time.
So we've agreed to put a billion dollar pipe equity investment into a very small cap company where they going to spin that company back to its legacy owners, give them a two and a half million dollar dividend, give them a small less than one half percent of equity ownership in our new company, QXO, and we'll have a pure play called QXO, which will consolidate the eight hundred billion dollar building products distribution industry.
So where are you in the process.
Where a couple months or so away from finishing that. Yeah, and depending on various approvals we have to get from the SEC and so forth, and then we'll be off to the races.
So you haven't acquired anything yet, correct, But do you have like a list that you're ready to go? Oh?
Yeah, we're talking to lots of companies. Okay, well, we have a lot of discussions going on privately held.
I'm assuming smaller players.
Right now because our budget is only a billion dollars. They're all private.
How are you going to make one plus one equal three with these acquisitions? Like, how will you bring operational efficiency?
I'm going to follow the same exact playbook that I've done for the last few decades. I'm going to buy companies that are good companies but can be better. I'm going to buy companies. When you put them together, you find synergies, particularly in procurement, which is the biggest line item in billing products distribution. I'm going to apply technology to be the most tech forward building products distributor in
the world. And I'm going to do all that together and get economies of scale as we get bigger and bigger and bigger. And now I've put the numbers out there, I expect to be at at least a billion dollar revenue run rate after year one, at least a five billion dollar revenue run rate.
You're sticking to that.
Absolutely, and most importantly, tens of billions of dollars of revenue over the decade.
Why is this such a smart bet right now? This of distributing building materials in North America and Europe? You said specifically, what's the trend that you are seeing? Is it infrastructure?
What is it long term? There is a there's three drivers. In residential construction. Houses are old, they are average age of a house is over forty years is old. So and there's repair remodeling going on, and there's more construction that will be driven by that. They're on the non residential construction, they're even older. Non residential buildings are over fifty years old on average. On the infrastructure, there's about two trillion dollars of infrastructure spend that needs to be
done over the next twenty years. So there's a lot of activity that has to happen here.
Why not just relax?
Why not?
I mean, like, what motivates you to keep doing this? Like you love to create times over and over again, and I mean.
I love the job. I've been to CEO since I've been twenty three years old. It's just a fantastic job. You get to be very creative, you get to think big, you get to dream these large, large business plans. You get to recruit people you love to work with. You design compensation program so everybody's in it to win it. And you come to work every day and you just knock down the list and make it happens, and you create huge amount some money, not just for the employees
but for the shareholders. You know, our companies over the years have really excelled at shareholder value creation. If you looked at at Expo Logistics, our initial investors made thirty two times in the money. If you look at United Rentals, United Rentals, we started it was three dollars and fifty cents a share. Today it's over five hundred and fifty dollars a share. So it's a lot of values to be created for a lot of people, and I just love that. I take a lot of pride in.
That this value creation of maybe a billion, you say, of annual revenue in the first year and then five billion within three years. Can you do that if there's any weakness in the global economy or in the US.
At I can do this business plan regardless of what happens in the economy. If it's strong, if it's weak, if it's flat, I can still do this business Why Because there's seven thousand distributors to buy in the United States. In North America in cluding Canada, there's thirteen thousand to buy. In Europe, there's a lot of them are owned by
private equity, and private equity will have a choice. Private equity can dribble out over a number of years through an IPO and the secondary and so forth at a discount, or they can sell to me on a win win deal where I pay them a premium.
So like when you wake up in the morning, what's the first thing you think about?
The first thing I think about is how to get my head in a good place. Okay, before I start getting into business. How do I center myself?
Really?
Yeah, I try. I do a series of meditation exercises to expand my mind and to think about very large areas of space, and then I try to shrink it into very small likeking down into atoms. And I have a whole spiritual exercise I do in the morning. I get in the zone. I like to get in the zoo.
Is that different than when you were twenty three and you were a CEO or you do.
Now a little more now I wasn't doing anything.
Yeah, that's interesting because I do feel like the you know, it would these days to hear an executive say that, it's not that surprising. It's widely accepted that is a way to actually closet from that.
But but you have the meditation stuff quiet. Yeah, but at the beginning of your career.
Yeah, that's interesting.
That is interesting. How did you Why did you start then? Like what?
I started transcendental meditation when I was a teenager in high school, and then I did that for decades for a long time, and then I started experimenting with other
forms of meditation. I studied Milton Ericsonian neuro hypnotherapy, and I studied psychotherapy, the different mindfulness techniques, the cognitive therapy techniques, and I kind of blended them all together and picked and choosed, and I made my own think, well why because I think, as I say in the very first chapter, you need to rearrange your brain in order to accomplish big stuff.
But what was the awareness that you had in high school to actually do that? I sort meet high school posters.
Of Maharshi Meshiogi up on a screen. It said something like life is bliss. That's interesting. I think I'll go to the election.
Do you do yoga too?
I do yoga?
Yea, yeah?
Yeah?
Interesting? That is really fascint all right, so I'm like getting my head around that love that. So with this book, and I know we've talked about it before, I mean, what are you trying to inspire another people? Knowing what you've done so far and kind of laying this out because you make it. The title makes it feel like, hey, anybody can do this. I don't know that anybody can do it. Are you saying anybody can do this?
What this is?
I don't think anybody can make a few billion dollars because that's just mathematically, there's only a few people who do that, but I think anybody can rearrange their brain to think in a different way. That's big, that's confident, that's strong, that's very off the beaten track, and accomplish great stuff. Now that doesn't have to be making money. That can be all kinds of stuff. That could be just being a great mom or dad. That can be a great artist, That can be a great musician, It
can be a great anything. But yes, I think what I've shared in the book are the techniques that have work for me in order to attract great people and to organize those people in a way to accomplish big things. And I think that can be taught.
One of the things I think about is to be fair. Like a lot we'll have a lot of leaders in and talk about great people, But what is it that you think? Really people have to understand what does that mean? Is it allowing them like we talked about the Smucker CEO and that company is allowing people to come to work what Tuesday to Thursday every other week?
Like, that's not my culture at all, But what is it.
To create great people?
Like?
What does that mean? How do you do that?
You need to think in your mind very clearly who you're trying to attract. What are the traits and qualities and characteristics that you're looking for. I know what those are very clearly.
For me.
I look for people who are super smart. They've got to be smarter than me. Why do I want to depend on people less smart?
Thing?
I want to depend on people smarter than me. So I always try to get people who are hopefully significantly smarter than I am. They may not have this. I bring certain business talents and commercial sense to the table, leadership talents, But in terms of row IQ, I like smart people. I really really enjoy that. I want people with grit. I want people want or hungry, who want to work really hard, who actually like working with enjoyable. And then I want people who are honest as the
day as long. I definitely want people who I'm trying to analyze what they what.
Do they really mean?
I want?
I want people who are collegial and collaborative and team players and play well in the sandbox with each other so that you can create well. If you're an ant or you're a super organism, I talk about that in the book. You want to create a culture that's say super organism, not just a bunch of people, but a collect a highly integrated group of people.
Is there a leader you admire?
Oh, lots of people.
Is there one that you would share?
I admire Jeff Bezos, I admire. I admire Elon Musk, even though you know he has certain traits I don't admire, but I do admire his ability to think huge.
You brought up Elon Musk. So I want to go somewhere that Carol and I go each and every day, which is some people. Are you the biggest revolution when it comes to technology right now? And that's what's happening with AI. Certainly a lot has changed when it comes to computers and AI over your career. How do you think about harnessing AI, using it in your businesses and even concerns that you might have about the technology.
I've always used technology to my advantage. All my companies have been TechEd forward right from the very first one. So when I was in the oil business, way before the Internet, our main edge was to have a rudimentary technology system to collect information globally about buyers and sellers of crude oil and refined products. When I was in the waste management business, we'd be the first ones to pioneer very advanced route optimization software, so the trucks weren't
just randomly driving around. We were efficiently optimized what the routes were going to be. When I was in the construction equipmental business, one of the first acquisitions we made, and we made hundreds of acquisitions was a company called wind Systems, which.
Was a.
Way to record where all the equipment is and we had billions of dollars of equipment where everything was at any one point in time, and to predict it and monitor its utilization so that we could replenish the fleet where we needed it, where there was demand, and we'd know where to lower prices or raise prices depending on demand. XPO is all about technology. One of the first few people I hired was Mario Harrik, now the CEO of XPO, who as my CIO because the vision was to automate
truck brokerage. And fast forward to today, we've spun that off as RXO. Drew Wilkinson runs it and ninety eight percent of their orders are either sourced or cover electronic, and that was zero percent when we started the company. So yeah, I've always embraced technology. I think it's really important to do that.
Only have about thirty forty seconds left here, so I'm going to ask you, but you say, bigger is better in business most of the time, but not always. And I think in a world where we're always wanting more, we even talk about companies. Look at this market cap, they're number one. Why is this an important concept? And forgive me abrep because we only have about thirty seconds.
So over the last year, I've looked at dozens of industries and hundreds of companies and I had a checklist of everything I wanted, size, growth, fragmentation. One of them was Bigger is better. That means there's economies of scale. In the case of QXO, the big economy of scale is purchasing power procurement because if you buy lots of materials, you going to get a cheaper price.
Promise you'll come back and as you build out your new business.
I always like to come on here because it seems like it was one minute.
I agree, I agree, and we learned something new about you which was really fascinating. Project ups, Thank you so much, good luck with everything. Founder and chairman of XPO. Of course, We've talked about his new book, How to Make a Few Billion dollars in looking forward already to the future conversation.
Feeback, Thank you.
You are listening and watching Bloomberg Radio.
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All right, everybody.
Investors not so key on the cannabis sector. Last year. The Advisor Shares Pure US Cannabis ETF little changed in twenty twenty three, after dropping seventy three percent in twenty twenty two. This year, however, as a whole tim the group is up about twenty percent as measured by that ETF.
We have seen the group pop this year as investors seem optimistic about a possible reclassification and potential regulatory changes that could benefit the cannabis industry after the Department of Health and Human Services released some two hundred and fifty two pages of documents asking the DEA and to ease its position on cannabis. We're talking, of course, about the Drug Enforcement Agency. This according to Bloomberg News over the summer.
Yeah, a lot of pages. What's key and for the first time, the HHS recommending that the DEA reschedule cannabis from Schedule one to Schedule three. It gets a little wonky under the Controlled Substances Act, but it's significant. To do this, HHS had to find that cannabis had acceptable medical uses and relatively low potential for abuse and dependence. Many people reporting the Wall Street Journal kind of noting this out specifically as to why this is so significant.
Yeah, the AHHS recommending sweeping changes to federal marijuana laws, and yet we've seen this industry high before PAPA and then societal norms and politics have their say. Politics a big part of.
This, absolutely, So let's get more on the industry. We welcome back Boris Jordan. He's executive chairman at cure Leaf here with us in our Bloomberg Interactive Brokers studio cure Leaf shares. By the way, they're up about seventeen percent year to date after three down years with the stock losing more than seventy percent. It's a high on February tenth, twenty twenty one. We know it's been tough going, but much different tone this week and this year. I should
say boris. First of all, Happy new year. Good to have you back in the studio.
You're right to be back in the studio, walked.
This is the first time since COVID.
Right, yep, first time since COVID back in the studio.
All right, talk to us about the mood this year. We got a little wonky in terms of what is going on with regulators, the DEA and HHS. But this is significant potentially.
This is literally a game changer. I think that in many ways if you read it, and I actually spent the all paple of days reading two hundred and fifty pages, and the thing that I took out of it the most is this was largely an apology almost by the federal government about cannabis we for the last fifty years.
Well because if you look back at it when they rescheduled, when they scheduled cannabis to schedule one, you know, there was a tremendous amount of papers written on how awful it was, how terrible it was for your health, that there were no medical benefits, that this was the root of all evil. And if you think about it today, not even drugs like cocaine or fenton or our scheduled one right, things that actually kill people. I mean alcohol isn't even scheduled, which has a lot worse effects on
the human body than cannabis. Books classification right of these, it's a classification, and I think in many ways that also not only are they following the people in the country, you know the fact that you know eighty percent of the country now has access to either medical or recreational cannabis and is frankly using it, but also you have
major countries like Canada and Germany. Germany on the twenty second of February is going to be voting to take cannabis off their narcotics list, not rescheduling from scheduling too schedule three, but taking it off completely. So you have major countries around the world that are starting to recognize the medical benefits of cannabis and are taking it off the lists.
As Germany's approached the right approach in your opinion.
I personally think, you know, every country has its own approach. I think for Germany, they have decided that that's the right approach. They want to take it off and what that allows them to do in Germany at least is that all doctors will now be able to prescribe cannabis. And more importantly, today in Germany, under their current law, you have to try other drugs before you can try cannabis.
So now that won't be the case. You can go use cannabis as a primary drug and you can have any doctor prescribe it under that the new legislation.
So what about the timing for the potential dea rescheduling of marijuana burs How are you thinking about it? And so it was a timing, do you have any clarity on that because I'm hearing reading upbeat stuff, but they're also saying slow it down, everybody.
Yeah, I think what you said in your introduction was right. I think this is very political now we are going into political season. This is something particularly with the Democratic Party to get out the younger vote, the younger vote. It's very much pro cannabis. We all know they're using a lot more cannabis than they are alcohol. Alcohol sales in all states or cannabis is now legal are downs, you know, ten to fifteen percent. So this is a real real vote getter potentially, And so I think this
is going to be tied to politics. If that's the case, if we're right on that, then the latest they can really come out with this is mid April. And the reason for that is you have to have a sixty day common period after the recommendation, right, and then you have to have sixty day legislative period. Sixty legislative under our calculations, about three months before it can be before
it become active. And so that means if they want it active before the election, if this is really political in nature, then they really hit The latest they can do this is really April. However, if it's not political, then they can you know, they can take it out nine years. I mean, we've seen that before.
Which one do you think they'll do?
I personally think that they wouldn't do all of this if this was going to be, you know, a nine year thing. I think that they are going to probably make the recommendation reschedule sometime in the next three months.
All right, So if that happens, what does it mean for cure specifically?
What's the securely?
If it's an absolute game changer for a variety of reasons. For instance, on twenty twenty four numbers, we would pay an extra two hundred million cash in taxes to the federal government over and above our normal corporate tax rate, which would be equal to everybody else's, so largely the cannabis industry, and one of the reasons that these stocks have been down is people have realized that the cannabis
industry is working for the federal government. Anything we make goes gets paid out in taxes to the federal government. So we can virtually not produce positive numbers on the bottom line. Explain that because we our effective tax rate is over seventy percent, and the reason for that is we cannot write off any expenses, which is, by the way, really bad for benefits for employees. Anything we try to do for employees is not we can't have irais we
can't do anything because of this tax system. And so you know today we can't write off any expenses. So that brings us to an effective tax rate of seventy plus percent is what we're paying.
How do you run a business like that?
If that's the case, that shows you how well these companies are actually run. The fact that they can actually survive in an atmosphere where we're paying seventy plus percent taxes.
Okay, beyond the tax benefits, which I know you've talked about in the past and have been well documented. How do you pivot your business into new areas? Do you start selling things differently? Do you start doing things differently unrelated to tax?
So a lot will depend and this is the big unknown. A lot will depend on what the DOJ says after this rescheduling. So we're expecting a DOJ memo. The code word for it is called the Garland Memo that's going to come out, very similar to the Cole Memo under Obama, which will then describe what they mean by this reschedule, like what are the rules going to be in the marketplace. And there's a lot of unknowns because at the moment, the states control the regulation of cannabis. Right it's still
federally legal. Rescheduling doesn't make it federally legal. It just rescheduled from Schedule one to Schedule three. So now we need to see what is the DOJ going to say on the back of that. We also have safer banking that's going through Congress right now. It's now in joint committee. Many people don't realize.
That my entire career, I'm just.
Going to say, right, but It's been a big since we've been talking about this.
It's literally I've been looking at this for ten years. I'm just as frustrated. But I will tell you what I learned last Friday. This is absolutely enjoint committee between the Senate and the House that's never happened before. Since the beginning, they are now negotiating aspects of that bill, and they're looking to bring it in March. I believe that's also part of the coordination.
So you're not worried about November elections in terms of how that plays out and could affect this, because do you think a lot of it's going to be done prior to that.
I think they're going to try to get a lot of it done prior to that. I mean, we have two candidates right now that are front runners that are both anti cannabis. Let's be honest, both Trump and Biden are not necessarily pro cannabis, and so a lot of this that's happening today is happening by the Biden campaign
and by pressure because of the political situation. You know, even against all the lobbying by pharma and interest groups that are against cannabis, this thing is really starting a great traction.
So tell us a little bit about your business and what people are buying. You know, are we moving beyond flower and buds? Are we moving into vaping product?
Like?
What are you selling the most of I have.
To say, the industry is really matured, you know, if you take a look, and it's different in the US and Europe. Purely if is the only company that's got US company that has a very substantial presence in Europe. We're selling cannabis in four different countries in Europe, and in Europe it's very medical, it's almost pharmaceutical in nature. So we're selling a lot of formulated pills. We're selling a lot of products, but also flour and flour is very popular with doctors in Europe as well. In the
United States has a much broader array of products. It's much less regulated in Europe, and so we sell a whole assortment the product. One product that's really gaining, and I said this a year ago, is drinks. Drinks are really starting seltzer waters are really starting to gain iced teas with cannabis.
That's where the growth is bores.
But what is the growth is definitely in products. But flour is still the door opener.
The bulk of your business.
The fifty percent of our business is flour and for all cannabis company. But when I started it was ninety percent and today it's fifty. So that forty percent has largely been formulated products, so it stayed constant.
Everything else has grown.
That's right, or that's gone down.
I think the whole industry has been expanding, so I would say that's right.
Okay.
I'm wondering about your thoughts on the rising concerns over high potency THHC products, addiction and associated with that psychosis associated with that high potency. Is there any sort of threat when it comes from a regulatory perspective in certain states about potency caps.
So I'm going to get criticized from the industry by my comments. I'm fully in agreement that there needs to be regulation around potency. That's my view. I mean, we run the largest company in the world in this area. We want to be the responsible company to push this. I personally think that there should be potency caps. I actually think that the THC is not the most important part of the product. I think a lot of the
terpenes on these products are actually more important. Terms of entourage effect than THHC.
Meaning those other things are the things that make people have the feelings.
Of DAH or relaxed or working with anxiety. Like we're doing a lot of R and D right now, and cannabinoids outside of THHC that are in the cannabis plant. I think that. I mean, for the most part, the evidence of addiction on THHC is really anecdotal. There's no real evidence that THHD is addictive. Psychosis part though, but the psychosis part is a problem. And so in my personal opinion, as we need to do science and what rescheduling will allow. By the way, that's probably the biggest
benefit of rescheduling. It will allow federal dollars to finally flow into R and D around the cannabis plan because today there is no federal dollars around R and D. This is going to be a game changer because we can now openly do R and D working with the government on issues like potency.
I am curious. We've been talking a lot about elections, and I want to go back there. I know we talked a little bit about it with you already, but does the industry like one candidate over another? And let's just zoom that it is a repeat of the Trump Biden matchup. Is there one candidate that the industry likes.
Going into this, I'll tell you because the industry, the industry is just like all of us were Americans and we're all tired of the political part.
I can tell you we're just getting started. I know you ask is there one that is.
There's no question. Historically the Democrats have been more favorable, but for the most part through lip service, not necessarily through action, but at least on the political side, the Democrats have been more open to try and push through regulatory change on cannabis. So yes, I think the industry would err on the side of Democrats for the most part over the Republican body.
I always like to ask about actually using the product. CEOs and executives of companies, how do you use cannabis? What products do you use?
So I'm a user every day. I use it for sleep, So I travel a lot, I've got a lot of jet lag, a lot of stress, anxiety. Being in the cannabis industry and having five children definitely adds that. I use it every single evening for sleep, and it has changed my life.
Okay, I don't want to blow up your spot or anything, but how do you travel with it?
You know, I just put it in my necessary and I travel with it.
Okay, Sorry, sorry for blowing up your spot.
You know. In the United States, the worst thing that the TSX will do to you, is TSA will do to you is actually have you throw it out. That's what they'll do, right And for the most part though, when it comes to edibles, they are our problem. If you're traveling with flour or something like that, they may have an issue with it. I have found that edibles are not something that they really have an issue with.
Really interesting, very quickly, what's the one risk to all of this since we have been here before, we've had a lot of optimism only to kind of have the rug pulled.
Out for There's two things that I would say at risk because first of all, political will will they actually is this again lip service for politics, But they won't take it to the finish line. Because what this industry is all about now is show me. It's about show me. I mean, if you look at Cure Leaf when public in twenty eighteen at a four billion dollar market cap at that time, we were doing seventy million dollars in revenue.
We're going to do over one point five billion this year and we're trading at a market cap of three point six billion, so we're actually down on our IPO five years ago, even though we've grown the business fifteen times, all right, right, so it's an amazing thing.
Is there any other risks or did you get them all in?
I think that the main risk is a political one as well, they'll do it. And two is you know the lobbying, you know by the pharmaceutical industry that doesn't want to see cannabis because it is a replacement product for a lot of the pain medicines. We're doing a lot of R and D in that area in Europe, and I can tell you we're about to launch a
drug that will address pain medication out of it. We're working together with the Imperial College of London on this and it's a game changer and that will be a big competitor to opiates.
We'll come back and talk more about that. With that and love to hear more about what's to come on Boris Jordan, thank you so much. Happy new year to have you back, ready.
To be and it's good to be back in the studio.
Good to get to know, like the personal loadown on how you use your products. He's founder an executive chairman of Curely. Joining us here in our interactive Brokers studio.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple.
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I don't know if you saw this news earlier this week, did you, Tim?
I did, yeah, axios recording that Uber was shutting down Drizzly. You remember Drizzly. It's the alcohol delivery service it shelled out more than a billion dollars for back in twenty twenty one. You can still order alcohol using the Uber app, but Drizzly will stop taking orders in March.
Ah done, that's it all right, well, dob despair. There are other ways to get alcohol deliveredy if you're over twenty one. Of course. One of those ways is using Reserve Bars Minibar Delivery, which has been delivering booze for more than a decade.
We've got Derek Correa on with us. He's CEO of Reserve Bar. It's an e commerce company specializing in rare and high end spirits and also of course the company that runs mini bar delivery. Derek joins us on Zoom from Bedford, New York. Derek, good to have you with us this afternoon. We made a joke earlier in the day about dry January and giving up your phone for January, but of course, drive January is when people tend.
To give up booze. How is business?
Do you notice a drop off when it comes to January as a result of dry January?
Hi?
Tim? Yeah, thanks for having me on. Yeah, definitely. In fact, starting about five or six years ago, it started to be a noticeable thing. And I would actually say that it seems that dry January is becoming more popular, which is a great thing. There's a lot more beverages available to satisfy, you know, a not drinking situation where you can still drink a quality non alcohol beer or a mocktail. So there's a lot better options in the market now.
So how much of that you're Tim? You're into mocktails.
Oh yeah, and I'm all about that alcoholoholic beer. The mocktails. It's like, yeah, it's kind of funny. I mean I drink more of that than the actual real stuff.
So Derek, you tell that as well.
Correct, Yeah, we do, and increasingly so. So we have those products on our platform as well. And in fact, you know, even on an everyday basis, if you're using our platform to provision because you're having a party or you're getting stuff for your own home, we always encourage
people to buy non alcohol product as well. If you're a host, that's the way to be a good host is to serve a great variety of beer, wine, and spirits and cocktails, but also have non olt drinks available for your guests, many of them who don't drink even when it's not January.
I see this at restaurants all over the city. Kill Do you see this where you look at the wine list or you look at the beer list and it always includes in this in twenty twenty three, twenty twenty four, a list of mocktails or non alcoholic options.
Totally see.
It hasn't always been like that.
No, it hasn't. So this is where I want to go. Derek. You guys correct me if I'm wrong. I think you started back in twenty thirty, is that correct?
Yeah? Pretty much right around the same time as Drizzly.
All right, all right, so tell us about that. That's a good look at kind of this market. So a decade in, how has the market changed and what are the trends that we were seeing today when it comes to ordering this way.
Yeah, so the market grew pretty steadily and you know, relatively conservative conservatively for a lot of that time. Then, of course COVID came along and shut down bars and restaurants and to a certain extent even shut down retail because people weren't out, and that really accelerated the e
commerce adoption rate. When you know, for the most part, it was the only way to get beveridge alcohol, So that accelerated all the businesses, including Reserve Bar and Drizzly and Mini Bar at the time was not owned by us, and we acquired Mini Bar Delivery during the midst of the pandemic. And since then, you know, now the restaurants and bars are open, there's been a little bit of
a cooling off. People are going back out and enjoying restaurants and bars and their favorite cocktails and drinks out. But e commerce, in addition to the platforms, is happening in a lot of new ways. So when we saw that Uber acquired Drizzley, we fully expected them at some point to ingest it into the Uber Eats platform. That makes sense, But people are buying on platforms like Mini Bar Delivery, which can get you most products you could
ever want in an hour. On Reserve Bar, where we offer a little bit more curated, higher end, information rich experience, that's better for people who are enthusiasts and want to explore new bourbons and scotches and so forth. But increasingly people are buying. They're not just shopping intentionally. That only happens about fifteen or twenty minutes a day. That's when you end up on a platform like Reserve Bar and
Mini Bar Delivery. But when you're reading an article about great spirits, or you're out and you're watching a video and it includes a great cocktail. We're creating shoppable moments in all of those instances, because even though you weren't shopping, if you're exposed to the right product at the right moment and you can buy it right, then people are and that's really the future of e commerce.
Hey, Derek, So I want to go back to this idea of what Carol was talking about in the trend of what you're just seeing on the platform. I was doing some research ahead of this, and it turns out that I'm not alone, Carol when it comes to, you know, not drinking alcohol anymore. So Gallup says that younger adults these days, oh, I don't know if I'm considered younger adult anymore anyway, are less likely to drink than those of the same age two decades ago. So that's happening. However,
older adults are drinking more. So is there this shift happening where young people aren't drinking as much and they're going to continue not drinking as much, or they're going to actually start to drink more as they get older.
You know, that's a really interesting question. What we're seeing is people are drinking differently. I think the older people have more disposed income are drinking better. And especially during the pandemic, we saw a lot of premiumization of you know, people weren't spending money at restaurants or bars, they were not going on vacation. They had more money, so they started to explore higher end marks. If they liked scotch, they started drinking nicer scotches. Drank gin, they drank nicer ones.
The younger people, I think when I say they're drinking differently, they're drinking more mindfully, They're thinking more about how and when they drink. They're more dialed into calories and wellness in general. They actually drink cocktails more frequently than younger people did, even as recently as four or five years ago,
when young people mostly drank beer and wine. So the things are changing, and you know, the nice thing about our platforms is we have an immediate view, literally day by day, minute by minute, as to what the consumer is doing, and can constantly adapt our product assortment and our tactics to those changes.
You know, we do a beach house typically we have with kind of our family and extended family, so it's you know, the kids have grown up. They're all teenagers or in their twenties and thirties, and it's just interesting. It's not beer. It's a lot of wine, but it's also a lot of cocktails that we increasingly are making and that's what they want to make as well. Having said that, is there a core consumer that is doing the most business on your platform?
Derek, Yeah, So you know, we have different platforms and different people use them for different occasions and for different things. Right, Mini bar delivery is perfect for provisioning your everyday products. You have some friends coming over, you realize you're out of beer, or you need some vodka. You can get that brought to your house in an hour. Reserve bar is more. You know, you're maybe sort of just kind of flexing yourself into knowing about bourbon, and so you're
coming because you can learn more about bourbon. You can you know, immerse yourself in deep information about distillation methods and ingredients, and that becomes, especially for the younger consumer, not only valuable on that path to purchase and that customer journey and providing that, but increasingly, you know, beverage ago is a very social thing and there's kind of social currency and knowing about tequila and knowing about bourbon
and knowing how to make a great Manhattan or boulevardier. So younger people are often coming to our platform not just to buy, but also because it has the content they need to continue their journey of education and knowledge.
Hey, Derek, we only have thirty seconds left and then we're going to come back. We'll do some news and come back with you, but are you seeing more growth on Mini Bar Delivery or on Reserve Bar.
You know, they both again because they serve as different customers, they grow differently at different times. Reserve Bar does a lot of gifting business and corporate gifting, so it has a tremendous you know, October, November, December. Mini Bar actually pops other times a lot of times for parties like Halloween for instance. Is not a big deal for Reserve Bar,
but it is a big deal for many bar. So they both grow, and they grow in different ways at different times for different occasions and needs.
That's going to be a good for you though, Like you're kind of covering, you know, if you can cover most of the year with these two different businesses. But I want to get to some of the brands because Tim and I have been kind of all over your platforms, both minibar and Reserve Bar, and it's really quite a range and quite a variety. So talk to us about some of what you want to make sure is out there for customers.
Yeah. So the great thing about these two platforms is another difference as Mini Bar Delivery as over thirty five hundred retailers and you can buy essentially all of the products that are available from those retailers, so that's kind of a max assortment, which is great. You can search for and find anything. Products are merchandised within categories. The
shopping journeys are easy. All of your favorite brands are going to be there, whether it's Tito's vodka or Bullet Bourbon, and you can find some unique stuff to Reserve Bar is more curated, so we've actually spent the time with our experts to find really the best stuff to have a lot more information and education and intrigue in those shopping journeys for people who are more passionate to find
rare and limited products. We are the main platform in this industry for launching new products, which includes new products from all of the brands and the companies that create new brands, as well as a lot of celebrity. We just launched The Rolling Stones have a new rum called Crossfire Hurricane Cool and that was just launched on our platform. So oftentimes you can get products on Reserve Bar that really aren't available anywhere else, and including our own cask selections.
For those of you who are really into bourbon and tequila, we go to distilleries and pick tasks specifically for us that we bottle off and have very limited quantity.
Derek, how does fulfillment work with Reserve Bar? Do you actually have the inventory and you guys are responsible for shipping it out or do you do you outsource that like you do with Mini bar delivery?
Yeah, that's a good question. Tim. None of our platforms and we as a company do not hold a license, so we never touch any bottles of alcohol. We don't have any inventory. We're really a technology company wow, that has very deep technology to comply with beverage alcohol laws and to connect with our network of retailers to match you as a as a customer who's interested in buying something with a retailer that so as that product that a good price.
So if that.
Overhead, yeah, so if you.
But if you want to buy something that is exclusively available on your platform, who then ends up fulfilling that order?
Yeah, there's certain retailers in our network that benefit from being associated with us and our relationships with the distributors and the brands, so we know that they're going to be the ones that are getting that product, and we're then able to route the orders.
Or these, But are these retailers like mom and pop liquor stores. I mean, I remember ordering a bottle of bourbon from my mom that she liked, and the closest place it was available was somewhere in Long Island.
Nice missus Stentevik.
Yeah, yes, she.
Liked it, but it was it was something that was kind of hard to find, but it came from essentially a local store on Long Island that just had it.
I don't even know.
Maybe I used reserve bar, I don't remember. But is that how it works? Like they're the ones who then ship it and you guys don't you guys don't ever touch it.
Yeah. Right, So, for widely available products that were available near you, if you were wanting it for yourself or near your mom, it would come from that local retailer and be delivered locally, but you'd get to shop a more interesting assortment that might not be available near you or a gift recipient, and we'll then ship that product to them in a compliant fashion, very packaged, very nicely
and safely. So that's how you can access a more compelling product assortment that you might otherwise be able to get locally.
So then for as the business model. We're Bloomberg and we're always interested in this kind of stuff, so kind of getting in the weeds. So do you guys just get a percentage of the order or do you just get a set fee on every order that's made? How does it work?
Yeah, that's exactly right. So we're basically a marketing service for the retailers in our network, and the reason they sign up with us is because we're sending them incremental orders. So in exchange for that, they give us a small fee associated with sourcing that order because it's incremental to their business and they wouldn't have otherwise. Got it, all right?
Tell us two about pricing strategy, and I'm going to pour a little bit of wine. You guys have been kind enough to send.
Which God knew I would have had my own wine as well.
I wish you had.
I feel terrible.
I'm not quite drinking alone, but it would be nice to have you as a part of this. You shared with us a bottle of Josh Seller's legacy Red Bland Red Bland. Excuse me looking on the website Mini bar delivery, it's about fourteen dollars a bottle. But you guys have quite a range of stuff that's out there. How do you think about price point in terms of I'm going to share it.
Like this, I'm going to share this one is a meme?
Now did you know that?
I know it is a meme?
Our producer was talking about one of our producers. How do you think about price point? Is there any strategy behind that?
Yeah?
So, you know, one of the hardest things about operating in this industry is the regulations federal, state, county, city, and one of those that's very clear is that retailers have to be the ones that sell you beverage alcohol, wine, spirits, beer, and they have to set the price for it. That
is a universal regulatory situation. So the prices that you see on our platforms are actually the prices from the retailers in our network, and so our technology is seeing is the product you want available, which retailer has the best price, which one is closest to you, and kind of doing all of that hard work for you as a shopper to match you with a retailer and a product that can get to you quickly at a good price.
Derek, what was the strategy of getting all these retailers on the platform. Was it old fashioned shoe leather? Was it picking up the phones like it's a one off thing? I mean, this is tough to do.
Yeah, it's all of those things. And in the early days, it was a slog you know, when you were calling you were telling me you were calling from reserve bar, and they'd say who what and you'd have to explain the entire concept of e commerce. Nowadays, I think it's pretty universally understood. And the retailers. We are still you know, reaching out to retailers, but many are coming to us curious about the benefits to them and the commercial terms
of joining our platform. And it is open to you know, expansion, and we are still in the process of adding more throughout the country.
Hey, Derek just got about twenty seconds left here, twenty five seconds. What's next for you guys, as we are going to sample the wine and because it is Josha clock somewhere, but what's next for you guys?
Well, what's next is what's right now actually, which is because we don't hold license a license, we're able to syndicate our technology and all kinds of interesting places, like if you were to read an article on Whiskey Advocate about the twenty best Scotches. You could buy any of those gotches right there without leaving Whiskey Advocate and continue
consuming that content and also buy whatever you wanted. And we're also powering the websites of brands because lots of people go to visit sites like Hennessee dot com or the McAllen dot com and they can't sell you about of alcohol directly because of the three tier system. But our technology enables you to shop and buy because you actually are buying from a license retailers, You're going to take a lot more innovation at that time.
Yeah, it's interesting you guys are doing. Hey listen, come back soon and hopefully then we can share a drink together. But I'd love to kind of hear as you continue on in this business. Derek Correa, who's CEO Reserve Bar and also of course to the company that runs Manibar Delivery.
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