Debt Capital Will Flow Into Cannabis: Canaccord CEO

We'd we're talking um. Maybe that's because it's been, you know, a pretty big business in Canada. We've got more and more US states legalizing uh cannabis. To get the latest on that end, on kind of all things in Canada, we welcome Dave Dan Devio, President and CEO of Canachord Genuity Group based in Toronto, Cannaba, joining us here in

our Bloomberg Interactive Broker Studio. Dan, thanks so much for coming down with us so talk to us about the state of the cannabis business, because we've certainly heard more and more about it as we've gone through the year. Yeah. No, it's been. It's first of all, thanks for very much for having me. And secondly, it's been it's been a

very active segment um. You know, throughout the last two or three years, we've seen in an incredible time where there was a massive rush to the market by you know, probably over a hundred companies that went public, raising four to five billion dollars, and you know, there was exuberance in the market. It's a new market, no one really knew how big it was going to be, and a lot of companies raise money. You know, it's taken a little bit longer for people to realize on their strategic plans.

Part of its access to capital, part of its government regulations taking a little bit longer. So we've seen some volatility in the market. We've seen some people lose money as a result, but people made a lot of money there for a while. Like I can I can remember this market three years ago where you couldn't convince somebody to invest in the cannabis stock and the guys that we took out, you know, we we ended up having to pass the hat, you know, around the firm just

to fill out deals. At the beginning, did you actually ask your employees to the senior people really felt strongly about the industry at the beginning, and it wasn't about asking and it was you know, they decided to do it. But certainly, Yeah, some of our employees at the beginning invested in it and and did well. The ones who invested lately didn't do so well. We've seen the big banks come into the market lately, um and unfortunately that

hasn't worked out as well. A little late to the sector, and some of the broadening of the distribution hasn't worked out well. Some of those deals haven't performed as well. Well. I love the idea of passing a hat around the office to say, like, what what are we putting mine in for? Hot? Exactly? We call that in a business co investing. Yeah, exactly. Well, I will say this, it's interesting that you say that the big banks have tried

to get in lately and it hasn't worked out. Is that good for you because that would have potentially been competition for you. Yeah. We have dominant market share. When I mean dominant, I mean we raise the majority of the money in the market and probably represent most of the M and A trade, So it's clearly competition you'd think would be bad, but but you know, the broadening out of the market would be a good thing. That market would be five times larger, so our market share

would go from the right to clee a hundred. We'd still do very well as an institution because the market would be that much larger. We'll talk to us in the US and so Canada, is it federally legalized? Is that correct? Okay? And so and that's good? Um, And in the US we just have a limited number of states. What's the understanding about at a possible federal legalization in the United States? Yeah, Well, there's the industry is not doesn't have the stigma that it used to have, clearly.

So there's three pieces of federal legislation working their way through the government. There's a Safe Act, States Act, and More Act, all three of them. And who knows exactly what we'll get past and when the point is, eventually it's coming. Eventually we're gonna see it. So we don't I like to make either a prediction or give a time frame. I don't like to do both. But eventually we're going to see federal legislation in the industry, and that's going to help from a state level, there's a

number of state votes happening every year. This year there's four states voting on adult legal use recreational use. So that's going to continue to play out. We're going to continue to see states uh um, you know, legalize it at that level. But until we have federal lead legislation, you're not going to see uh companies be able to list on the NASDAC or New York Stock Exchange, and you're not going to see the big big mutual funds and big big money invest in the sector. All right,

let's just gears a little bit. Uh. I know that Ken Accord focuses a lot and a whole host of different functions within the financial services, whether it's the wealth management business or whether it is facilitating mergers and acquisitions. What are you expecting in in terms of corporate health and their willingness to complete transactions given how high valuations are right now? Yeah, I think high valuations does does

does a lot of things. I mean, certainly, companies are prepared to raise money when their values are high, and companies are prepared to buy and sell each other when their values are high, and there's pretty good access to capital. Still both equity capital, but more importantly credit capital. All those things direct you towards a pretty active market, both from a new issue perspective and an M and A perspective, So we see both markets continue to be active. We're

busy in technology. It's a huge area of US. We bought a firm here called Petski Prunier last year, and are you know the share of our M and A business has gone up substantially. I think we're number three in that mid market TMT area and we continue to see that being very active in the US. We've got a great healthcare presence, both biotech and healthcare services, and that's been very active for us. So broadly speaking, we

continue to be pretty optimistic. Tony Dwyer, our main market strategists continues to see a very strong market over the next year. So well, you know, we're pretty bullish on that industry. Your stocks down, Third Team cent you today, what's what's the story? What's going on? Not in more more more sellers than buyers? No, thank you, No, I mean it's it's unfortunate that our stock is down because our earnings has been Our earnings have been incredibly strong.

We've been increasingly profitable every year. Last year we did about eighty cents of share and earnings. This year today we've done forty one census share and earnings. You know, we trade at six to seven times earnings, and given that most of our earnings come from our wealth business, I think people see as as a relatively volatile capital markets type stock. But but the truth is seventy of our earnings last quarter came from our wealth business and

that's been a growing area of profitability. We've been able to attract a remarkable number of new advisory teams in our Canadian wealth business and in our UK wealth business, which is forty five billion Canadian dollars. It's a big business. We've we've bought a lot of firms and integrated them in and our margins keep on going up, our profitability goes up. We've also been buying back our stock because we see it's relatively cheap. We bought forty million dollars

Canadian stock last year and we're going to continue that activity. Dan, thank you so much for being with us today. Thanks so much for having me. Dan Davio. He is president, chief executive officer of Kenda cord Enuity Group corporation with forty four billion dollars of assets under management, based in Toronto, Canada, but he joins us here in our interactive broker studios in New York City, where it is just about the same type of weather as they normally see in Canada,

which is absolutely freezing. But really interesting to talk about the outlook for cannabis given how much optimism there's been around that sector, although of late has been rather beaten up. Let's talk about emerging markets. This is another consensus call heading into is that emerging markets will outperform on the heels in part of a weaker dollar. Joining us now to talk about this, Vincent Ward. He is a global macro strategist at I N T l F C Stone,

based in San Francisco. Vincent, thank you so much for being with us people saying that there are opportunities here. You're going a step further and calling currencies in developing markets dirt cheap. Please explain absolutely, um, and I mean he's been going on for a wide but uh, last year we added to the case, especially if you'll get Latin American currencies where in a way declines of like

in in some of the spaceless currencies like literally and beso. Um, if you're going to look at Asia, it strikes me as um just in saying that basically the core in one or the Thai bath are basically where they were in two thousands, just after the station crisis, the Internet bubble in the US, and if you look how far these countries have come since that time, it seems odd that on a real effective basis the currencies have not

appreciated in the past twenty years. So Vincent, in your most recent research note you do a maya culpa here. You had a call of overweight em and that's uh not been the right cause that e M is once again trailed kind of the SMP and broader markets. Why do you think emerging markets are in fact not getting rewarded Maybe just from evaluation perspective of nothing else right? Um, Well, I think last year it really came down to two

macro developments that the mark get had not anticipated. One was the escaation of the trade wars in the summer. I mean, if you look at the beginning of the year, he looked like the e M trade was going to work, and then as soon as we had the new round of summer terrists and everything kind of broke down. And then the second element was the wave of protests that we saw from you know, Santiago to Peru to Baghdad to Cairo. UM. So that's what we took down, the

the m trade down. UM. As far as the valuation gap, I mean, it's been there for close to ten years now, but it's it's getting too ridiculous proportions. I mean, one one way to look at it that I like is to compare the growth the valuation of the nastag emerging markets, because I feel, you know, we have two big growth narratives. For the past twenty years. It's been either you know, internet software is going to eat the world or the

rising emerging market middle class. And right now that gap is about forty percent bigger than it was at the height of the Internet bubble. So I know people have said before, but at some point there will be some min reversion that ratio. How much of this hinges entirely on the dollar, and I say this because people are expecting the dollar to weaken a bit next year. The dollar has been the hardest call to get right, uh, and it really has driven a lot of what we've

seen in developing markets. Now, absolutely, I mean this is this is indeed the crucial question it comes to. Yeah, I mean the emerging market trade is a synthetic short data trade. Uh. And the reason is, I mean, part of it for commodity explorers. Obviously you have a very clear relation. You know, the week of the daughter, the more the more to get. But also really what what makes makes it special recycle is the amount of data debts that these emerging markets have contracted three point six

trillion UM as of the latest b I S data. UH. And really, by the way, that is the one common team about emerging markets. I mean, emerging market has been a misnomer for you know, twenty years now. The only one thing in your monkey is like China, Malaysia, Turkey or Argentina having common is that they all borrowing dollars

and they can print it um. So when the daughter weekends, they're you know, servicing plants get easier, they can eat morning if we policy at home, and you see both when the daughters strengthens, as it has in much of the past five years, you have balance of fame and critis all over the board. So it is indeed a daughter's short call, So Vincent, the trade deal between China and the US. It appears that we're making some progress on a phase one deal. We might even actually see

something on paper one day. How critical is the trade deal, even if it's just a phase one or a light trade deal. How important is that for the psyche of emerging market investors? I think psyche is the is the right word again. I mean, we we've been, you know, very close to a trade deal. Four year, talks are going away. You get these tweets every day for four

year now. Um, I have no instad as to what there is in that trade deal or you know, even if the trade deal is going to be the same in the from the perspective of China as it will be from the US. But all that matters, I think is is just no more insanity, as long as we don't have you know, we had, uh, you know, out of the blue, we say I'm going to hike Carris some you know, this country or whatever next year, which I think is unlikely because that's of the electoral cycle,

just the promise of stability. I mean, we don't need to solve I t there's probably no solution there anyway or states on enterprise. Just no more insanity and there's some really The other thing to you know, think about is it's not just about the trade deal. I mean if you look at the auto cycle in China or you know, even even cell phones, these things are bottoming on their own. So as long as we don't kind of you know, run the market with with unpredicted policies,

things should get better. I love it. Our headline for this segment is going to be, uh emerging market global macro strategist says, no more insanity, Just stop the insanity and emerging markets can rally. I'm wondering, are there any developing market currencies that you do not like that you

think are going to underperform? Sorry developing market currencies? Yeah, okay, I mean you still have the the generally the most vulnerable ones, right, I mean I don't ones to have that you know a lot of either other death current account deficits. Uh so. But again so that would be the Argentine pezo, the South African rand to something ex

maybe the Indonesian rupiah. But all these currencies have been so massacreed, uh you know in the past two to three years that you've gotta wonder if despite the vulnerabrilities, they could actually be kind of the the best on on on the bottoming on the bottoming process. Um, it's the same suffering up all the Chilean peso you know got down. I'm sure people would you know that that's one of the ones that will come come come top

of mind. But again there's so much damage that have been done that even a week emerging market currencies may actually do well next year. Vincent Ward, thank you so much for joining us Vincent as global macro strategist for I N T l f C Stone, based in San Francisco. I like his note basically saying, all right, we were really wrong in twenty nineteen with our overweight call on emerging markets, but we're sticking with it. And here are

the reasons why that takes um some gumption. Certainly right now, we want to focus on everything else going on in Washington, d C. Other than impeachment, which brings us to healthcare backstas and joining us now in our interactive broker studio is and the reason why we wanted to have you here, uh is because we always love having you on. You cover biotech and Pharma and healthcare over at Bloomberg opinion.

But it's because there was a court decision having to do with Obamacare that seemed to be potentially detrimental to the healthcare program. Can you talk a little bit about what the decision was. Yeah, absolutely, So. This is a long running case that that made its way to the Fifth Circuit, And what they essentially decided was that the individual mandate, which is you know from a prior core case. You know, this is a decade of legal back and forth,

was deemed at tax. Then Congress zeroed out the tax. So because it's zeroed out, it can no longer be seen as attacks. Therefore it's once again unconstitutional. But they punted essentially on the more important part the case. Because the individual mandate is zeroed out, it doesn't really matter

that it's unconstitutional. What matters is whether that means that the rest of the law or parts of the rest of the law have to go with did And instead of making some kind of decision on that, they kicked it back down to the lower court judge you already ruled that he thought the whole law was unconstitutional. They just thought he wasn't careful enough or didn't look at the details enough to make that decision, although he probably will end up making the same decision. He's a he's

a pretty conservative guy. So what our next steps here? Because I'm just thinking about the election coming up, and boy, it's once again healthcare is going to be a you know, a hot button issue for the candidates. How's the timing of this gonna play into what do youthink? Yeah, so it mostly depends on what the Supreme Court decides to do. They could wait until we get another decision from from that lower court judge and then um, you know that

it might be appealed up to them. I believe that Democrats are going to try and take it directly to the Supreme Court, um, you know, in the hope of a faster resolution and putting this front and center in the election, because it is probably not a court case that at this point is is of benefits of the Trump administration, even though it's his Justice Department that continues to push it because we saw in in the midterm elections, uh, portions of the law that that could be struck down

by this case. Protections for people with prehisting conditions, staying on your parents and surrow stuff like that could go with it, and that's become wildly popular. So if this lawsuit does strike the law down in its entirety, it would create a big mess for the election and the healthcare system at large. I'm wondering, we we've been talking

for years now about uncertainty around Obamacare. What's the practical implication of having a sort of overhang of a cloud on the healthcare program given the fact that insurance companies and healthcare providers have to have you know, two year, three year or four year outlooks for their financial plans. Yeah, I mean it's created uh, you know, there's been a

whole series of messes um. You know, if you go back all the way, so the earliers of law, the fact that the Medicaid expansion wouldn't be universally implemented, throwing out certain categories of subsidies for insurers all along, and then losing the individual mandate all along. This is sort of made it harder to price plans to to profitably

participate in the market UM. And and and that's created a lot of disruption and made insurance UM on the individual market pretty unaffordable for people that don't qualify for for subsidies, the fact that their income linked subsidies. That's kept the market stable enough to survive. But um, you know, enrollment is way down from what was initially initially forecasted, and and it you know, it's down again this year. It persists, but not in the form that the people who are

the law would have voped. Yeah, that's kind of where I wanted to go. It just seems like at Leasta mentioned, you know, it's since Obamacare has been passed, it's been it seems like it's the opposition forces and now the Republicans over the last three years have been chipping away, chipping away, chipping away at the Affordable Care Act. Is there a sense of like how much has even left of the original plan? Yeah, you know it it it

is not what was originally envisioned. There are still you know, more than twenty million people that's still that are covered for the first time, that have insurance that might not otherwise not because of the individual market and because of the Medicaid expansion and then a variety of other you know, changes throughout the U system. Still enormously impactful and beneficial, uh, you know, but at the same time, it's it's not

what it might have been. Or on the other you know, you might say it's not what it could be with a few tweaks to to some some loopholes and errors that that I'm sure the drafters would like to get back. Or if you, you know, you boost this up to these a little bit, you could get that coverage number a lot higher and make that coverage a lot more useful. But that will take a very different Congress than the one we have right now. So just real, quoc, twenty

million people covered that wouldn't be covered. What's the bad part of that? I mean, what's the opposition saying about that it's just too expensive? Um? Well, the the argument in is that by forcing insurance to cover, you know, make women, making sure have give the same place to women as men um, that's basically cuts it freedom and kills the market. You know, I'm I'm I'm articulating for a certain angle because I think the arguments are bad. But but more or less, it's okay, they've made the

market um less functional by adding these regulations. Yeah. Max Neeson, Biotech, Farm and Healthcare Commus for Bloomberg Opinion. Every time you walk in here, I think I'm gonna get smarter, but I just it just reminds me this healthcare thing is brutally complex. Max. Thanks so much for joining us. We appreciate it. It's something that you constantly have to pay

attention to it because it is constantly changing. We are right smack in the middle of the holiday shopping season to get an update on what's going on out there in the world of retail. We welcome back our good friends Sema Shaw. She is director of Consumer and Retail Trends at Credit Intel, formerly a Bloomberg Intelligence. She joins us here in our Bloomberg Interactive Broker studios. Sama, thanks so much for joining us again. We always love having

you talking retail. How is the holiday selling season going. It seems like the consumers in pretty good shape, so our retail sales kind of following suit. No, they're not so. I don't know if you saw November retail sales missed by thirty basis points. There was even though that included Thanksgiving, Black Friday and sup what Small Business Saturday, and they were still missed. I know a lot of holiday is

very compressed this year. It's only twenty six days versus thirty two last year, so it's Christmas is literally in five ft six days from now. And with the fact that you had Prime Day in the summer and you basically have promotions all year round, there's a lot less urgency, so you know, and there's still that shift to online, so the consumer is still spending where they want to, but they want to deal and you know, they it's a little cramped though for them in terms of spending.

One thing that's hard to gauge given the dynamic right now in retail is how much of the weakness that we're seeing in select retailers is their lack of adapting to the modern era and how much is due to a consumer that just really isn't capable or willing to spend the way that they used to. So don't you have a sense of what it is? So I think part of a lot of it from sort of some of the players it is that that they were slow to change. You know, they sort of got taken over

by maths who expanded to that category. So you see the department stores, you see someone like a bed bath, but now you see it like for bed Bath, for example, they have a new CEO. He's basically cleaned House is going to add a new management team. He's known. He came from Target, from adding private label and omni channel. So I think if you see somebody doing that, or you see like the return of a retailer like best Buy, it's possible. But if you're too slow and you don't

do it, that's when you miss the opportunity. So I think a lot of it is that, But I also think that people just really want to deal and when you have things like tariffs, even if there's a threat of tariffs or rising costs or wages, that puts pressure on the retailer because people are like, I'm not gonna buy it. T like Socima. I know the folks are Credit Intel. You guys look at kind of the financial health that credit health across the retail ecosystem. We know

the retailers, particularly some of them. I guess department stores continue to struggle. Is there any light at the end of the tunnel. What are you kind of telling your clients? Um, it really depends on a sector by sector basis. We just mentioned best by doing very very well, had a great quarter, Probably you're going to have a good holiday, But then you also have somebody like an L Brands who Victoria's Secrets is really struggling. They're almost all in

the mall. They're losing share to airy, so how do they revive that business without losing the momentum they have in bath and body work? So it's definitely uh hit or miss there, definitely, But you know, like home Furnishings for example, at Home is someone I'd keep an eye out from a risk perspective, right, they slowed their store growth, they have to suadly invest in an omni channel, so I don't see any margin improvement in the near future.

So these are things that we sort of look at and see, like what's the prospect for them in terms of cash flow? And given the fact that you are focused on the dead side perhaps more than just EPs or other sort of top line growth areas, I'm wondering, what do you think the prospects are of an ongoing retail apocalypse or ongoing kind of wash out that we've seen. I mean, are we going to continue to see that

or is this pretty much terms of store closures. I don't know that you'll see as much as you do, but it will continue to probably be people optimizing their fleet as lisas come up or move to better locations, or trying to figure out how they can improve the productivity of the box. Because retail still in the store, it's still important, but you have to make it appealing.

It has to be a nice experience. And if you want to do things like by online pickup in store, which helps the retailer's margin and people like that service, you have to be prepared and have the associates trained to do so. If you go in there and nobody knows what you're talking about, you're not going to do it again. So these are things I think people have to do. So I think it passed conversations we've talked about the number of stores in American Home America is

still overstored. What are you guys saying to your clients now or what are you hearing from some of your clients about how much more do we have to go

in terms of kind of reducing the footprint of retail America. UM. I think some of the legacy retailers that were closing stores the sears of the world J C. Penny had closer, some of those locations were not optimal as people changed and have its change, But I think a lot of retail it's just a matter if some people overexpanded, but that box might be good for let's say a smaller, maybe non public retailer. So I think, you know, there's still lots of room for stores. It just has to

be in the right location. And part of our analysis to show like how close you already your competitors. Is it going to be worth your while to open a store here? And I think a lot of it was just opening stores without really thinking about it strategically. So everyone wants a deal, So why don't these stores just mark things up twice as much and then it's going to be sixty off. In order for all of them to do that, I guess they would have to collude,

which is illegal. But but I mean, in all seriousness, Uh, you know our stores trying to get away from sort of training consumed brands are Yeah, as many as possible they are. They're trying to pull back, but the immediate effect is that you see a negative impact with example GAP for example. But and that's also the ones that are in the middle tier r H completely pulled back. But they're high in luxury so they can pass through the price and you really like, it doesn't really matter.

But for the middle tier where you're and if you don't have a unique product and you can do like for like comparison, then it's very hard to do that. And that's where you see the problem. So, Sam, I'm just looking at one of the recent reports from your firm, and you know, looking at the Thanksgiving period Black Friday online sales, some people putting up some good numbers. It's not just Amazon, I mean Walmart up fifty percent north is it? Can we say that the tradition retailers have

finally figured out how to compete against Amazon. The larger ones have and I think that the mass is the probably the best example, uh even I mean a specialty maybe best by Williams Sonomas Over, but they have really figured out how to appeal to the customer wherever they want to shop, make it easy for them to fulfill their goods, you know, in the store on the way home, will sell you know, whatever you want to do. They

make it as easy as possible. But they also have the scale to do that, and a lot of the smaller retailers don't have a lot of a lot of capital to invest in this logistics and so I think there are ways to do it, and there are ways to be competitive, but you really have to step up that investment. Have you finished your holiday shopping? I have

for the most Yeah, I can. I can imagine that most people probably who are organized like I know you are, I know personally, just how organized we still have six days? What's the problem? Pickup and store? Our same day delivery? You know, these are all things that they're doing to make the consumer. Hey, like you have basically up until Christmas Eve, right, except they can get it, except that you're you're organized enough to Thank you so much. Thank you.

It's nice to be bas director of Consumer and Retail Trends at Credit Intel based in New York. Talking about the retail landscape. It's kind of an interesting shift that we've seen going on. People talk about the retail apocalypse, but it's more like the retail kind of uh, I don't know, morphologists or something. I mean, it's just changing. I mean, it's a what what what Semens talked about is,

you know then the omni channel experience. I mean, if you're if you can get that right like some of the big mass merchants mass merchants, then you can compete, but if you're not, maybe some of these small companies you can invest in the technology needed. That could be the big challenge. Thanks for listening to the Bloomberg Penl podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on

Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on Twitter at Lisa A. Bramwood's one before the podcast. You can always catch us worldwide on Bloomberg Radio