TAAT CEO on Marijuana Legalization & CBD Cigarettes

now to SETI Costarelity. He's the CEO of TAT Global Alternatives, and we're gonna talk about marijuana legalization, which is big here in the US. I don't think the Germans smoke pot. They basically it's just if you're a beer. If you smell someone smoking weed in Germany, it's usually a brit or An American living in East Berlin. But I just walked up Lexington Avenue and saw a store that was selling actual weed and gummies with THHC none of the cb D you know, fake fakeery going on. Um there said,

is this going to sweep the nation? Is it going to sweep the globe and be come as normal as you know, drinking liquor. Well, first of all, thanks for having me on UM. I do think that it has the absolute potential to do that. Um, you know, it's obviously a burgeoning category. There's there's a number of countries that have started to legalize it now and I think in the US, once those laws start to pass, you'll likely see, um, obviously a lot more uptake in the market.

All right, say so, the big issue for the development of the cannabis market in the US has been federal legalization. And we've had a lot of states, a lot of big states, including New York and New Jersey, legalize it. So where are we in terms of federal legislation. Well, think they they've tried to pass a number of these laws through the House. Ultimately, you know, when when you kind of take a look at this, it's always just

this plug a war between fear and greed. And I think, you know, for for as much as cannabis has been elite goal federally in the US, you'd be hard pressed to find any American or very few Americans that haven't tried it up until this point. Now, I do think that society as a whole is becoming a lot more

progressive and open to the idea. So I think it's just a matter of time before it does end up passing, but even though certain states have legalized it, in order for it to really take hold, you need that federal legalization so that banks can now start getting involved in providing financing and really allowing these companies to generate sort of the capital and access to capital markets in a way that they can become large organizations, which is really what's needed in the US if you want to see

this market flourish. I mean, the banking issue is I would say, probably the biggest in terms of growth. Right, what kind of growth do you expect from from marijuana? Well, I think it's again it's still a burgeoning category. And when you kind of take a look at the product itself, I think in the getting a lot of people thought that cannabis was going to compete with tobacco um, but as a whole it really does. In cannabis competes more with alcohol given sort of the drugs that are involved.

The CD is going to compete with alcohol. CBD, on the other hand, does have the ability to compete, uh with tobacco, which is what you know our company is primarily focused on because it helps you quit smoking tobacco or one well, exactly right, I think one of the things that we're really proud of is that we've been able to apply hemp, which is a derivative of cannabis that doesn't have any t HC but does contain CDD.

We've been able to figure out that when you can apply CBD to a cigarette smoker, it does have a high likelihood of helping them eliminate that nicotine addiction because CBD in and of itself isn't addictive. It's also not psychoactive. Right, so when you think about the pool of smokers, which is immense, and a lot of people don't really understand how big the tobacco market is. It's it's like the

Mount everest of markets. Um, you know, comparatively to water, the bottled water market is about two fifty billion dollars a year globally, Tobacco is approaching a trillion dollars a year. The CBD is not addictive, it's not psychoactive, and it doesn't cause lung cancer. And you know, people behind you on the street don't hate you for it. I mean, there's so many, uh, you know, there's so many arguments

for it. My question is on the th HC side, and and maybe this isn't you know your wheelhouse, But I just wonder, are we going to find out that a kid who smoked a ton of weed in high school and college. I know a lot of kids like that very very well, um ends up having some kind of mental health issues later in life because I know a lot of kids like that too. Well. Look, I think you one of the things that they're going to have to figure out is the regulations around the substance

now different than they have the regulations around alcohol. Right at a certain point when the cognitive factors of the brain that's sort of finished developing, you know, consider these substances won't have the same effect as when you consume them when you're in the developmental stage. So as they right as they kind of progress on on the regulatory side, those are the things that they're going to have to

figure out. And it would probably make sense that they regulate the substance similar to how they would regulate alcohol and put um certain age limits on when someone would be able to legally go in and buy it, Like we wouldn't expect the three year old or ten year old to want to go in and buy cannabis legally. I wouldn't expect a ten year old to walk into a store and buy a Cannabio said, he talked to us about the tat cigarettes. What are they, how do they?

How do they work? So basically, what we've done is we've taken a hemp biomass and we've processed it in a way so that it tastes and behaves like tobacco, which is fundamentally different than what other let's call it hemp cigarettes in the market would have been able to do because one of the key things for smokers is that they want a taste profile that resembles a cigarette. Now, one thing I can tell you is that the number of smokers that exist, there's almost forty million smokers in

the U s alone, about them have tried date. Yet if you take a look at the market of smokers, the number of smokers still weighs the number of vapors twenty one, which tells you what to prefer delivery mechanism is. However, you know, I used to work at Philip Morris and I understand this quite well. You'd be hard pressed to find the smoker that enjoys the factory because's a nicotine and when you take a look at a lot of the vape companies. They're trying to sell you on this

reduced risk element. However, they're still overly reliant on the crutch of addiction in order to sell their wares, which I think is absurd reliant, that's the point. Yeah, But I mean, it's so easy to any other product. There isn't any other product on it. If you have to buy because you're addicted to it, you can buy it because you like it, and there's still a market to be had. So why can't we apply that similar mindset to tobacco and provide smokers with something that they can

consume by choice, not by me. And that's exactly what we're doing. So we've eliminated the tobacco, we've eliminated the nicotine. We give you the same format as a cigarette, but deliver CBD instead, which will still satiate a smoker the

same way nicotine will, but won't create an addiction. And that way we can give the freedom to choose to smokers and they can decide you want to smoke, smoke, you don't want to smoke, don't smoke any chance, you gotta chewing tobacco alternative can you can you help me get get rid of the Copenhagen you like? You like

to dip? I mean yes. I don't know if I should say that publicly because it's kind of embarrassing, especially at my age, but yeah, especially if I'm at a baseball game or driving a pickup truck or listen to country music, I like to throw on a lip. It's a great it's a great alternative. Before you're looking at the markets here and Matt, we had that big sell off on Monday, concern about growth, concern about the delta

variant and its impact on this economy. But boy, the market recovered, to say the least, over this past four days. And uh again, let's get a sense of where we go from here. Brenda O'Connor joins us. She's a senior vice president financial advisor UBS International, based in Miami. I believe, if my notes are correct, we can talk about what's going on down there in southern Florida, all the exodus

from Wall Street. But Brenda, give us a sense of how you because some of the conversations you had with your clients this week after that big sell off on Monday and the subsequent rebound for the remainder of the week. What are some of the conversations you were having. Yeah, I mean, it was a pretty wild start of the week, and you know, when the markets traded off around two percent, you know, it looked pretty familiar to how and what

we saw at the beginning of the pandemic. You know, we saw the relly of the US dollar, a drop in equities, a drop in oil, and an increase in bond meals. And as you said, you know, this was quickly reversed on Tuesday, and we've seen markets grind fire

throughout the weekend. Here we are on Friday. The SMP is up over sixteen percent year to date, and so, you know, while some investors are concerned about the strength of the recovery, whether that's because of the delta variant or inflation, you know, for the most part are clients are big proponents that this recovery will stay intact. And we're so positive on christ As. What do you do

though with clients. I had dinner with a bunch of traders last night who have just made so much money that they want to get some of it into cash before this turns around. Not like it's going to turn aroundy time soon. But you don't need to ride out the last hundred points of the S and P five hundred. Do you start moving them out? No, So we're not

big proponents of moving to cash. I think the tactical things that we've been speaking to clients this week about are taking profit in sectors like US tech for example. I mean, the Nasdaq was up thirty eight percent last year, it's up another fourteenth this year, and so this is an opportunity given where valuations are, where we're happy to take a little profit off the table and allocated to sectors that we do like. So, Bret, I think talk to us about how you're talking to your clients about

international exposure. I know that in Miami that you get tends to be a nice international community, a global community down there, and I'm guessing that's reflected a little bit in your book. How are you and your clients thinking

about international investment opportunities? Al Right, So we're still positive on equities on a whole, and you know, they're still spectors of the U S market that we like, although you know, we do like certain parts of Asia, and a lot of my families aren't even looking at equities, they're turning to things like an alternative investment. So, you know, these are our clients tend to have very long term

time horizons. They're great correlation benefits to alternative asset classes. Um. You know, investors are often rewarded for a little with a liquidity premium. So we've been looking at things like private private real estate and private equities, specifically in the secondary space. Well, luckily, some private equity firms are raising some big funds right now. Carlisle raising twenties seven billion dollar fund right, Blackstone just wrapped up last year at

twenty six billion dollar fund. Um. I think five d twenty billion dollars came into private equity in the first half. There's a lot of cash washing around, isn't there. Yeah, there, there definitely is. And so there are certain parts of the private equity market that we maybe stay away from. But again, um there are subsets like um um secondaries that we're really big fans of, and we still think that you can get kind of mid teen high team

net returns on these asset classes. And if we look forward um to the next five years and we look at ubs as capital market assumptions, I mean those returns kind of beat what we think equities may do over the next three to five years or the market cycle. Brenda, you know, get it. Love to get a sense of

how you're viewing US equities. What are some of the sectors you like, because there is a little bit of a push and pool out there between some of the folks that are saying, boy, I'm sticking with those growth names, the the Amazons, the apples of the world that have done so well for me for such a long time. And then there's obviously people that are you know, kind of rotated into the more cyclical side of the market and may be benefited from the some of this reopening trade.

If you will, let me get a sense kind of where you are putting your client's assets right here in the US. Yeah. So I'll talk about two sectors that we like right now, and that's consumer discretionary and financials. I mean with financials, yes, you know, the sector is up twenty year to date, but we still think there's upside here and that's really based on two reasons. Um. The first is, you know, in an interest rate increasing environment, this um this this subset will will tend to outperform.

And then a lot of the banks that raise these big provisions for loan losses are now starting to release some of this capital, and we think that's gonna benefit bank and financial names. The other area we're looking into is consumer discretionary, and this is really on the notion that there is just a ton of cash sitting on corporate and household balance sheets. If we look at household balance sheets as an example, I mean US savings as

a percentage of disposable income is around twelve orcent. Listen, it's not as high as it was earlier in the pandemic at thirty five percent, but it's much higher than the five to seven that's the historical average. So our view is as this cash continues to work its way through the system, it will benefit sectors like consumer discretionary, anything you like in fixed income. I mean, I know, um, it's tough to chase returns there, find returns there even um,

the further you've got the risk spectrum. Yeah, So you know, most of my clients view their portfolios as an overall asset allocation and a diverse by portfolio. So we still have strategic allocations to fix income, but we tend and are tending to UM stay away from that now, but we still have You know, I would argue ten to allocated to liquidity, cash and fixed income. Hey, Brenda, thanks so much for joining us. We really appreciate you taking

the time. Brenda O'Connor, Senior vice president, Financial advisor for UBS International. Her clients take a look at private equity here and search for return. Since it was a suggesting boy in the fix income mark with a ten year one. Tough to find some yield out there. So some of the folks with longer term investment horizons putting some of the money to work in the private equity. And has mentioned some big, big money is being raised out there

by some of these big funds. Now, let's talk real estate. Cushman and Wakefield's head of head Economists and head of retail research, Ken McCarthy joins us. And this is a hot topic, UM hot industry, and you know, pricing on at least on the retail side, the residential side, I should say, has been amazing. But I have to say, can as I walk through UM the valley of Manhattan and look left and right, everything looks closed, It looks empty. I mean here in our I guess Bornado building. Right,

we have no more UM anchor tenants. Home depot is gone. UH, container store is gone. H and M is gone and no one's replaced them. So it looks really bad. How is it? So? Thanks very much. I don't think it's as bad as it looks, you know. I think retail has been challenged for a little while now because of e commerce penetration, and then when COVID hit, it was considered that this was going to be the end of retail,

the apocalypse. Uh. And definitely there have been some store closings, there's been some movement around in where companies or retailers decides to locate, but overall, the amount that's being spent by consumers continues to grow. I think it's just a matter of location more than anything else. You know. Many cities, particularly cities like New York, which rely heavily on public transit, have seen much slower adoption of back to work UH.

And that's particularly in a place like Midtown where most of the retail is in office buildings. That's creating some challenges. But overall, as we look at the retail sector in commercial real estate, it actually performed surprisingly well in the downturn, So I know it's interesting. I know for retail, the strategy,

the buzzword for many years has been omni channel. You know. Uh, an example that would be, you know, buying something online but picking it up at the physical store, so that brings some life into a lot of the retailers in terms of the bricks and mortar. Is that a long term trend? Do you think? Well? Certainly, right now the consumer is king in the retail world. Whatever the consumer wants, retailers are trying to get it to them. Uh, it's it's going to be a combination. I think you're right.

Omni channel is a good way of describing it, but it's also about um, it's about digitally native brands think Amazon as an example, are now going into bricks and mortar. So it's a fusion of both of those at the same time. Uh, that's gonna content that's gonna lead to higher demand for bricks and mortar as well. I think net net consumer spending is rising, It's probably going to continue to grow, and as it does, the pie is

going to get bigger. But the question is, you know, how much of it is going to be e commerce? How much of it is gonna be bricks and mortar net net, most of it's going to be bricks and mortar in terms of overall as it is today again, as you're speaking, we're watching the SMPI extend gains to set yet another intra day record high. So you know, at least if you're invested, your wealth is rising. Companies

have more power in the stock market. And although a lot of debt has been taken on as we were you know, just talking um, uh with our previous guests about financing costs are basically nothing. So, um, what does this mean for the market? Um? Is there is there opportunity to come in and get some deals here? Is there value out there? Or um, you know, is it fairly valued now? So? I think that's very location sensitive first of all. But second of all, I think there

was value. I think a lot of that has already taken place. Uh that as we go forward, there the opportunities are starting to diminish a little bit. Uh. There There definitely if you're an occupier, there are places you can go and take advantage of softer markets. But overall, I think the market is probably pretty close to fairly

priced right now. It's a good point to keep reminding us, by the way, that it's very location specific, and I'm sure can you probably have to remind people about this a lot because it is such a It's not um, you know, one solid America is very big. Um. Commercial real estate is global, I'm assuming you know. And so it's it's difficult for for the lay person to really get that through, or for me at least to get that through my thick skull. Sure, now I feel the

same way when I walk the streets. I think this is the way it is everywhere, and you have to step back and say, no. You know, some cities, cities that don't have as heavier reliance on public transity, for example, a lot of people drive to work. They're seeing much higher occupancy rates than cities that do rely on transit, and that affects them, you know, effects where retailer is going to open, where they're going to go in the future,

things like that. So, as they always say, in real estate, it's all about location, all right, Well, my location is midtown Manhattan. So here's my question, will Midtown man will Manhattan in general, what's the expectation within the commercial real estate community, what needs to happen for this to come back, because the vacancy rates, as Matt mentioned, are just stunning to to behold, and is it just simply a question of they got all over the rates. So I think

it's going to be about economic growth. That's the fundamental driver. We need to see more people in in the city going to work in the office space. When that happens, then you'll see more retailers come back with them and start to reopen stores that may have been shut down. But the key thing is going to be getting more people on the streets a little long run. It's a good point. I went over to Chick phil A this morning at six am to try and, uh, get my

first taste of that fast food chain. I've never been there before, and um, there was a sign on the window that said we're closed until later because there's no one here, and well then it's probably no one to staff it as well. It's also a probably big issue, yeah, I think, you know. And after that, I walk around and I noticed all of the deli's are just not open as early as they used to. And why would they be because I was the only person walking around

the streets, especially on a Friday morning. Quite frankly, I'm in the office. But you know, it's it's a bit slow to to to pick up overall, and I think you're right, Um, it's going to take a while. So where where Where are the strong places for commercial real estate right now? Well, if you look at migration, that's a good indicator. A lot of it is in UH

in the Sun Belt. So places like Texas and Florida which have UH, which recovered a little bit sooner, they're also seeing faster growth in demand for office space, more occupancy than we saw and driving that also is going you know, as we see more people moving migrating into the Sun Belt, which is in a long term trend. It's not a new trend. Um that's gonna drive demand.

That's gonna drive demand, and demand is gonna drive more occupiers, whether they're retailers or or office occupiers into those areas to tap into that growth. All right, Ken, thanks so much for joining us. Kevin McCarthy is an economist and the retail research lead over at Kushman and Wakefield talking to us about commercial real estate and the retail side. I wish we saw these vacancies and in residential real estate like, especially in Westchester, that would be fantastic for me,

but unfortunately it's quite the opposite. But what a week it's been here. It was a decidedly risk off day on Monday, and again calls about the delta variant and the impact on economic growth. But boy, the markets have kind of turned it around since then. Greg Staples had a fixed income for the Americas for dw S Group, which stands for in German Deutsche vert Papier Specialists and like,

all right, Greg, thanks so much for joining us. Greg, talk to us about what you're seeing in your credit markets, you know, over the recent trading days. You know, it's actually been a pretty interesting market. We actually, we were pretty positive on credit overall. It's it's good that American corporations have taken this opportunity with low interest rates and tight spreads over the past year to issue to issue a fair amount of death, and market has been receptive.

And they strengthened their balance sheet and they pushed out maturities. So there and it's gonna shape as we've ever seen them. So we're pretty positive on credit overall. And and now they've got the positive of grouping economic and market conditions if you dig right in there, if a client comes and gives you some money to put to work, what do you like best. Well, it's a tough market because in the fixed income markets, with interest rates tenure at

one thirty and credit it spreads extremely tight. There's not a lot of upside here, but you are going to earn some coupon interest, which is pretty decent. So we like investment grade credit got to be selective. We like high you'ld at the upper end of the credit spectrum, and there are some opportunities and structured finance as well, like floating rate debt, because we do think that the FED is going to start raising interest rates probably at the end of next year, and you do get that

upside as they start to move shorter term rates up. Hey, Greg, talk to us about just credit quality in general. It seems like with the FED being so accommodative, we the credit quality has really kind of hung in there, and you know, going into this pandemic, you know, I was kind of looking across the high old space saying, oh boy, here are a lot of credits that are going to be at risk. Here, We're gonna see a lot of defaults. But we really haven't have we No, And we've said

a lot of upgrades as well. I'd say again, for the most part, corporations have have taken the opportunity to strengthen their balance sh They've got a lot of liquidity there, and they pushed off maturities, meaning they refinance but prepaying near term maturity debt and refinancing with longer term maturity debt. Overall debt levels are high. Let's let's not ignore that.

But the point is they've been refinancing with lower coupon as well to dept service meaning what they have to actually pay on an annual basis to meet those interest payments, and ultimately in the maturities, that's an actually pretty good shape. So we think it's a positive. But you're not getting the returns um that that you'd like to I'm sure for for the risk. Are you getting paid for the risk? I think you're getting paid for the risk and not too much more than that. And yes, you're not going

to get the returns. It's not a situation where of course, in the bond market you're benefiting from declining interest rates. If you want a bond with a high coupon and high in a high interest rate environment, and rates come down, the price of your bond goes up, and there's where

a lot of the return comes from. But in terms of the current coup on the current yield right now, you're gonna be earning maybe two percent on a good investment grade bond and maybe four on a on a high old bond, which which isn't fantastic, but given the alternatives that are available elsewhere in the marketplace, I mean, you've got cash earning virtually zero, and you know, equity dividends are okay, it still it's probably not a bad place to park your money. All right, talk to us

about this Federal Reserve. How are you viewing you know, the risk here, the tapering risk to the marketplace. It seems like the FED is, you know, doing all that they can to kind of communicate and signal and all of that good stuff, trying to avoid a taper tantrum? Again, is is that kind of how you view it? Are are you kind of pricing in some some risk here

as maybe races start to tighten. Well, first off, we do think that the FED is going to begin tapering, and I think that Powell and the rest of the FED are going to try and inoculate the market as much as they can by talking about it, talking about it, talking about it, and probably don't won't implement it until the end of the year call it December January, and

probably through a reduction in their mortgage back purchases. Initially, they're scared to doubt about what was what we would call a taper tantrum, meaning the pulling back of that quantitative using injecting a fair amount of volatility in the marketplace. There was an episode in two thousand and thirteen that was really egg on the face of of the fedback then. To be honest with you, I think, no matter what

they do, there was going to be volatility. I think when you when you remove the biggest whale in the marketplace that's been buying a hundred and twenty billion hours of treasuries and mortgages every month, and you start to pull back from that, no matter what you think, there's going to be some volatility there. There's really not much you can do about it. The impacts are seen and unseen, and it's worked its way through the equity markets and

the overall risk markets. It's a little bit like pulling uh I I hate to go here, but but a drug addict off the drug and there's gonna be some some volatility as resolved, but there's there's no way to get away from it. How important is Jackson Hole for you? How important is it for you know, fixte income investors to pay attention in August? Well, it's obviously what they communicate, and we think this could be the place where they

do start to talk about tapering. The FED meets next week, and I know it's going to be a big item of discussion. We won't find it out until what they really talk about until the minutes come out somewhere after that. But I think there is an expectation, or at least a possibility that at the Jackson Hole meeting they do start to grouch this tapering idea and present the framework for the pulling back later in the year. Just real quick, Greg, at thirty seconds, where are you and your team doing

your work today? What we're doing in our work work? Are you home in the office. I'm sorry, I was asking about that. We're in a hybrid right now, but we expect to be going back on a on a more dedicated basis after Labor Day. Uh, three days a week, four days a week, and we've got some people in Manhattan that quite frankly want to be in five days a week during studio apartments and would rather be in

the office and out. People on the other side with long commutes would be happy two days a week, but we're being sensitive to our employees needs and looking to go back on that positive hybrid basis after labor dat all right, Greig, thanks so much for joining us. Always appreciate hearing from you, getting your thoughts on these credit markets fixtae point. Yeah, I had a fixing come for the America's at DWS GRIP. Thanks for listening to the

Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller V three on false Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.