Speaker 1: Welcome to Inside Active, a podcast about active managers that
Speaker 1: goes beyond sound bites and headlines and looks deeper into
Speaker 1: their processes, challenges and philosophies and security selection. I'm David Cohne,
Speaker 1: I lead mutual fund and active Research at Bloomberg Intelligence.
Speaker 1: I'm joined today by Brian Dhugherty, head of Thematic Strategy
Speaker 1: at Bloomberg Intelligence, will be my co host, Bri. Thank
Speaker 1: you for joining me today.
Speaker 2: Real pleasure to be here. It's a new podcast, so
Speaker 2: this is the first time I'm joining you. Pretty excited
Speaker 2: about it, actually, David, Great.
Speaker 1: So a couple of weeks ago, you wrote a note
Speaker 1: about a rate. You know what a rate reversal could
Speaker 1: mean for health themes such as neuro mental health. Can
Speaker 1: you describe the types of companies in this theme and
Speaker 1: what a reversal of the risk off tolerance could mean
Speaker 1: for these stocks?
Speaker 2: Absolutely, For those of you who don't know. In Bautomatic Strategy,
Speaker 2: we've got a few different ways that we track themes.
Speaker 2: One of them is we've actually constructed thirty three themes
Speaker 2: ourselves and we have a data set shameless plug here
Speaker 2: head to b I theme go and you can actually
Speaker 2: see that data library of thirty three themes over twenty
Speaker 2: three hundred unique equities map to it. One of the
Speaker 2: themes that we have is called novelneral Mental Health, and
Speaker 2: as you say, we just wrote a piece about it,
Speaker 2: interestingly enough a couple of weeks ago, because we've seen
Speaker 2: a really decent pop in that theme off the back
Speaker 2: of this expected rate reversal that could be on the
Speaker 2: rise of horizon here in the US. So as some
Speaker 2: background on that theme, the real premise behind it is
Speaker 2: that we really need to start tracking within the innovative
Speaker 2: health space, particularly companies that are pursuing more interesting therapeutics
Speaker 2: as well as deep brain stimulations. One of the theme
Speaker 2: exposures within that theme itself is actually cannabinoids and side
Speaker 2: of the sibon. So what's been great about that is
Speaker 2: again we're seeing it go a little bit more mainstream.
Speaker 2: This theme itself is very focused on non OTC so
Speaker 2: pharma grade kind of ainoids in sila sibon. We have
Speaker 2: names in there such as Jazz Pharmaceuticals for instance, which
Speaker 2: is always a big name when we talk about this topic.
Speaker 2: And it's been really interesting to follow because it was
Speaker 2: it was, you know, a pretty rough couple of years
Speaker 2: for that theme. Naturally, the risk off tolerance within the
Speaker 2: US not particularly good for biotech and small cap stocks,
Speaker 2: but we've seen a lot of that come back, and
Speaker 2: in twenty twenty four, actually we've got a decent return
Speaker 2: year to date on the theme as a whole, but
Speaker 2: just as a little bit of a flag here cannaboids
Speaker 2: and sib sil of SIBN theme exposure within that theme,
Speaker 2: it's been a return about thirty one percent, so it's
Speaker 2: definitely been a big mover in twenty twenty four, and
Speaker 2: we think that points again to the fact that we're
Speaker 2: seeing some of this risk off tolerance reverse and we
Speaker 2: expect that this dark we're going a little bit of
Speaker 2: a dark horse theme here that in the back of
Speaker 2: twenty twenty four we could see it get an increased
Speaker 2: amount of attention, especially off the if we do get
Speaker 2: some of those great reversals. That being said, you know,
Speaker 2: it's been a little bit choppy week, so I'm going
Speaker 2: to couch everything I say with the fact that you
Speaker 2: never know, and choppiness could persist. But even in the
Speaker 2: last week, we've actually seen those US small caps actually
Speaker 2: do quite well, and particularly in this novel neuro mental theme.
Speaker 2: They've held up with decent resilience amongst you know, what
Speaker 2: has been some global turmoil. The other way that we're
Speaker 2: actually tracking cannabis though as well, is we also pay
Speaker 2: very close attention we write content around and we also
Speaker 2: have a dashboard that tracks the metfs, so global the
Speaker 2: metfs we track over nine hundred and seventy global theme metfs. Naturally,
Speaker 2: cannabis and psychedelics is one of those themes that we track, uh,
Speaker 2: you know, getting right to the bottom line here, Advisor
Speaker 2: shares pure cannabis theme, which you know we do have
Speaker 2: Dan here with us today is one of those themes
Speaker 2: in there. It's actually the one that has the highest
Speaker 2: AUM within that cannabis theme. It has been another you know,
Speaker 2: it's been another twenty twenty four good story for that theme.
Speaker 2: So against really broad pullback inflows within our whole thematic
Speaker 2: data set, like we're over six billion dollars in outflow
Speaker 2: actually net outflow for theme ETFs as a whole, Cannabis
Speaker 2: and psychedelics have net inflow, so they're fifth highest for
Speaker 2: net inflow. And when you think of the fact that
Speaker 2: only ten of our thirty five themes within that data
Speaker 2: set have net outflow showing some net inflow in twenty
Speaker 2: twenty four. I absolutely mean something. So needless to say,
Speaker 2: I'm excited to be here today to talk about these
Speaker 2: themes and all the action that we're seeing, because naturally
Speaker 2: we have a lot of stuff happening in the regulatory
Speaker 2: environment that has direct impact on cannabis and cambinoids and
Speaker 2: tylo sibon and all these types of things, So I'm
Speaker 2: excited to talk about it.
Speaker 1: So, speaking of cannabinoids, we'd like to welcome Dan Arenz,
Speaker 1: a portfolio manager for several advisors share ETFs, including the
Speaker 1: pure US Cannabis ETF ticker MSOs, which was the first
Speaker 1: US listed active ETF which has been offered to dedicated
Speaker 1: US cannabis exposure. Dan, thank you so much for joining
Speaker 1: us today.
Speaker 3: Happy to be here.
Speaker 1: So before we really begin talking about cannabis, can you
Speaker 1: tell us how you got your start in investing.
Speaker 3: That's going to go way back, and I'm going to
Speaker 3: age myself a little bit, but I had worked at
Speaker 3: a couple different firms in financial services and got directed
Speaker 3: to a investment advisor that put together portfolios of mutual
Speaker 3: funds for individual clients, and then actually launched some mutual
Speaker 3: funds and fund of funds at that firm, and then
Speaker 3: one specialty fund that we launched there was something called
Speaker 3: the Vice Fund that was VIICEX. It got a little
Speaker 3: bit of press for investing in alcohol and tobacco and
Speaker 3: gaming and weapons and so on. I managed that fund
Speaker 3: for its first three years and left there with a
Speaker 3: It bounced between four and five star rated and it
Speaker 3: was in the Lipper top one, two, three percent depending
Speaker 3: on your time frames you're looking at. So successful fund.
Speaker 3: But eventually that led me to Advisor Shares. When Advisor
Speaker 3: Shares was just getting off the ground, our CEO, Noah Hammond,
Speaker 3: had secured one of the very first exemptive reliefs for
Speaker 3: active ETFs. Key knew me for being able to wear
Speaker 3: multiple hats in the investment space. I knew how to
Speaker 3: open funds, close funds, merge funds, and in the back
Speaker 3: of our minds we always thought we might do something
Speaker 3: in the vice or related space, and here we are.
Speaker 2: I can't resist Dan, so before far, before we get
Speaker 2: onto some of the other topics here, I also know
Speaker 2: that you wrote a book about it. So when you
Speaker 2: think about how you've looked at vice over the last. Again,
Speaker 2: we don't need to use yours. I don't need to
Speaker 2: date myself either. Over the last period of time, How
Speaker 2: do you think vice has really evolved from an investor standpoint, like,
Speaker 2: are something still vice or now they just all decent
Speaker 2: investment opportunities.
Speaker 3: Well, it certainly has evolved. It really has. You know.
Speaker 3: Back in the day when I wrote that book, we
Speaker 3: called it the Recession Proof Portfolio. And the idea for
Speaker 3: vice came out of the tech bubble, way back when
Speaker 3: a lot of general indices and sectors fell off a cliff,
Speaker 3: and we were studying different industries and different sectors, and
Speaker 3: we suddenly noticed, hey, alcohol, tobacco, those things that consumers
Speaker 3: are going to indulge in no matter what the economy
Speaker 3: is doing, no matter what stock market's doing, they held
Speaker 3: up real well. And thus we created that fund. But
Speaker 3: I will say it's evolved now at Advisor Shares. I'm
Speaker 3: going to lead us into our subject for today, which
Speaker 3: is the cam A CTF. We were starting to get
Speaker 3: contacted by people who thought they wanted to launch a
Speaker 3: cannabis related ETF, and we studied it and said, no,
Speaker 3: that's not going to work. There's not enough to invest
Speaker 3: in there's not enough large listed stocks that are liquid
Speaker 3: to invest in, and we told people no, but that
Speaker 3: real quickly evolved, much like other vice industries, if you
Speaker 3: even want to call it vice industry, because I strongly
Speaker 3: believe cannabis is a medicine. As things evolved at Advisor Shares,
Speaker 3: we decided to create an ETF, and then we had
Speaker 3: to negotiate with our custody bank and the exchanges and
Speaker 3: everybody else because we wanted to put the word cannabis
Speaker 3: in the perspectus. So what I'm getting to here is
Speaker 3: we launched Advisor Shares Vice ETF ticker symbols actually Vice, VI,
Speaker 3: ic E, and we put the word cannabis initially in
Speaker 3: the perspectus because we were going to invest in alcohol companies, UH,
Speaker 3: tobacco companies, other companies that were ancillary listed stocks to
Speaker 3: cannabis without actually plant touching cannabis. That was our first
Speaker 3: step into you know, vice related slash cannabis related. And
Speaker 3: I'm using all these key words here because when you
Speaker 3: put the word cannabis in a perspectus, it sets off
Speaker 3: all kinds of bells with the regulators and the custody
Speaker 3: banks and even the exchange so we launched this cannabis
Speaker 3: slash related ETF because frankly, a lot of alcol and
Speaker 3: tobacco companies and other companies were starting to dabble in cannabis.
Speaker 3: But I'm glad we had the discussions with our custody bank,
Speaker 3: who was a very good partner of mars At Bank
Speaker 3: New York Melon, and we were able to then talk
Speaker 3: about again. As the cannabis space evolved and more companies
Speaker 3: were becoming listed, we launched Advisor Shares Pure Cannabis ETF
Speaker 3: ticker symbol YOLO. At that time, it still wasn't possible
Speaker 3: to do an investment in pure US cannabis. We did
Speaker 3: not think people have heard of companies like till Rey
Speaker 3: and Aurora and Canopy. Those are frankly, you know, Canadian
Speaker 3: based companies. But if they kept their THHC products on
Speaker 3: the north side of the border, they were allowed to
Speaker 3: list on the New York Stock Exchange and or Nasdaq
Speaker 3: and they got flooded with some institutional investment also sorts
Speaker 3: of things. That's back when you know, Canada legalized. I'm
Speaker 3: slowly getting to the fact that we launched our US
Speaker 3: fund here. When we did that first fund Yolo. We
Speaker 3: knew that we wanted US exposure. We thought the real
Speaker 3: long term growth story was in US cannabis. So we
Speaker 3: sat down with Bank of New York Melon and we
Speaker 3: gave them a what if. What if instead of custodying
Speaker 3: these stocks that are trade at OTC in the United
Speaker 3: States because they can't yet list in the United States,
Speaker 3: what if we serviced the fund with you Bank of
Speaker 3: New York Melon. But we wanted to use a total
Speaker 3: return swap. We want to use a total return swap
Speaker 3: to get access to a US cannabis company that the
Speaker 3: bank frankly is not willing to allow us to trade
Speaker 3: in and custody because they have non permissible lists of cannabis.
Speaker 3: And they said, you know that'll work. We're very happy
Speaker 3: to service. You can take care of that. It's done
Speaker 3: with tri party agreements. It's all you know, collateral movements,
Speaker 3: all sorts of things that are handled by the bank
Speaker 3: without the bank actually custodying stock. So this was an
Speaker 3: idea that we did with our fund, Yolo, which was
Speaker 3: the first actively managed cannabis company approved by the SEC
Speaker 3: in the United States. They asked us to go out
Speaker 3: and get a third party legal opinion on it, which
Speaker 3: we paid for and did. We kind of were groundbreaking
Speaker 3: in that space, and we became the first ETF company
Speaker 3: to have a cannabis fund. With that third party legal opinion,
Speaker 3: the SEC requested utilizing total return swaps. We're the first
Speaker 3: one to kind of invent that structure as a way
Speaker 3: to invest in cannabis in the United States. And I'm
Speaker 3: still talking about our fund yolo here. So US cannabis
Speaker 3: was expanding rapidly, and we filed for with the SEC
Speaker 3: our fund that has become MSOs or you can call
Speaker 3: it MSOs, which is Advisor Shares Pure US Cannabis ETF. Well,
Speaker 3: not a lot of people know that that fund was
Speaker 3: in registration for a full year. It took that long
Speaker 3: the SECS is to get another legal opinion addressing cannabis investing,
Speaker 3: addressing the use of total return swaps. We got that,
Speaker 3: and then we had to go to the New York
Speaker 3: Stock Exchange and say, hey, we not only want to
Speaker 3: have the current allowed limits of use of total return swap,
Speaker 3: we want a much higher use of total return swap.
Speaker 3: And the New York Stock Exchange, very good partners as
Speaker 3: well their attorneys, took the ball and ran with it
Speaker 3: and worked very hard on a on a nineteen before
Speaker 3: rule filing, and not a lot of people know what
Speaker 3: those are, but it is a rule filing to go
Speaker 3: above and beyond the current listing standards for ETFs. And
Speaker 3: you know, they were again a great partner. They worked
Speaker 3: very hard on that, and we got that rule filing
Speaker 3: that allowed us to use more total return swaps than
Speaker 3: people would used before enliced ETFs. We got the Bank
Speaker 3: of New York Mellon on board, we got you know,
Speaker 3: the SEC was satisfied with our legal opinions. So after
Speaker 3: a full year, we were able to launch our advisor
Speaker 3: Shares Us Pure Us Cannabis ETF ticker symbol MSOs MSOs,
Speaker 3: and it's been a success since then, as long as
Speaker 3: we're not talking about federal regulation promises made by a
Speaker 3: lot of pump politicians, the fact that it's taken so
Speaker 3: darn long, everything else. But I wanted to get through
Speaker 3: the story of how that fund came to be because
Speaker 3: it's been a piece of work.
Speaker 2: And when you think about so obviously it was along
Speaker 2: road in there, and you guys put a lot of
Speaker 2: grit into getting it over that finish line. But then
Speaker 2: it pretty quickly did emerge as the biggest cannabis fund
Speaker 2: at least prior data there. So and what do you
Speaker 2: think has been paramount to its success? How has it
Speaker 2: been able? Why has it achieved the investor interest that
Speaker 2: you think it has in a short amount of.
Speaker 3: Time, Because the United States is such a unique opportunity
Speaker 3: for investing in cannabis, and it's very different than the
Speaker 3: Canadian market and other markets around the world that have
Speaker 3: emerged since then for investing in cannabis. So we still
Speaker 3: do a great deal of education trying to get that
Speaker 3: message out and helping people understand. And even though our
Speaker 3: fund has now been around for over three years, I'll
Speaker 3: say investing in the States is still in its infancy
Speaker 3: because when you talk to you, your average advisor, your
Speaker 3: average investor that's really not living in the cannabis bubble
Speaker 3: that I live in. Most people don't know the difference,
Speaker 3: or they still drop names like you know, Canopy and
Speaker 3: Aurora until Ray and they think that's cannabis investing, or
Speaker 3: they hear bits and pieces that have been on the
Speaker 3: news about oh, there's a proposal for safe banking, Oh
Speaker 3: there's a proposal for the for the Safe Act, there's
Speaker 3: you know, the More Act. There's been all these different
Speaker 3: proposals that have been floated. You know, back when Biden
Speaker 3: first got in office, they were talking about decriminalization, legalization.
Speaker 3: The Democrats got control of the Senate briefly sort of,
Speaker 3: and then the runoff elections and everybody thought cannabis was
Speaker 3: going to go through the roof, And now here we
Speaker 3: are four years later. What has happened, though, is enough
Speaker 3: investors have gotten the message, understand the opportunity, and even
Speaker 3: though it's taken a very long time to answer your question,
Speaker 3: there's a large group of investors that know the real
Speaker 3: opportunity is in US cannabis, not in Canadian cannabis. There's
Speaker 3: a difference between the Canadian companies in legalization and potential
Speaker 3: US legalization and the state by state approvals that we've
Speaker 3: had so far in the US. And a very interesting
Speaker 3: thing about our fund. In all the years I've been
Speaker 3: in this business, I have never seen a fund that
Speaker 3: has had as sticky of assets. And what that means
Speaker 3: is usually in an industry or a sector or an
Speaker 3: individual fund, when performance is down, assets flow out. Not
Speaker 3: only does your AUM go down because performance has driven
Speaker 3: down but investors have other options. They rotate other industries,
Speaker 3: they rotate to other sectors, and money flies out the door.
Speaker 3: But very it's very easy to say performance of the
Speaker 3: overall industry and our fund has been really disappointing, very frustrating.
Speaker 3: As we've been waiting on us that'll reform again we
Speaker 3: were promised four years ago, and the assets of the
Speaker 3: fund have only continued to well, they've been sticky and
Speaker 3: it's continued to see net inflows of capital in spite
Speaker 3: of the performance. And that makes us see there's a
Speaker 3: there's a big group of investors here that are very committed.
Speaker 3: They are very let's call them diamond hands if we want.
Speaker 3: Those investors are sicking with it. The fund also has
Speaker 3: it has options. It has a sister fund that is
Speaker 3: a approximately two x version of the fund M SOS
Speaker 3: that adds to the overall assets and the overall because
Speaker 3: one fund and invests indirectly in the other fund through
Speaker 3: counterparties using total return swaps. Again, but the options and
Speaker 3: the two x fund, I have to mention those things
Speaker 3: because that leads to a good deal of market makers,
Speaker 3: market participants that are also holding the fund to hedge
Speaker 3: all those positions and to cover the options exposure. So
Speaker 3: it's a very unique story. The fund has been over
Speaker 3: a billion in assets, even though you know performance is
Speaker 3: up and down, it's still well over eight hundred and
Speaker 3: fifty million dollar fund is so right now that the
Speaker 3: next largest fund might have two hundred.
Speaker 1: Millions as between.
Speaker 3: Yeah, there's a big kasm between. This fund is really
Speaker 3: viewed as the way to invest in US cannabis exposure,
Speaker 3: and the assets have been you know, very sticky. We're
Speaker 3: happy with that, but god, I'd like the uh, the
Speaker 3: net asset value to get a little higher and go
Speaker 3: back to where it was. We're thinking we have a
Speaker 3: very unique opportunity to this fallow to see some growth.
Speaker 2: Can I ask you just sorry? I know David will
Speaker 2: want to get to construction, but you mentioned something fun fact,
Speaker 2: maybe not so fun fact. I'm Canadian, so I take
Speaker 2: no offense to the you know, it doesn't work to
Speaker 2: say it with Canada, but just from your perspective, because
Speaker 2: it hasn't been the silver bullet, like legalization wasn't the
Speaker 2: silver bullet for Canada cannabis? Yes, stocks, can you can
Speaker 2: you just give me your perspective because it's an off
Speaker 2: David debated topic. Actually, I will say between me and
Speaker 2: my friends about why it wasn't I'm interested to hear
Speaker 2: your perspective on why Canada's path isn't necessarily what we
Speaker 2: should expect to see from the US responsor.
Speaker 3: Now, great question. I appreciate that, and I want to
Speaker 3: be very careful. No, I love Canada to Canada. Our
Speaker 3: fund has a lot of Canadian investors. It seems that
Speaker 3: we talked to and our fund YOLO, now we have
Speaker 3: you know, MSOs is a US only and we want
Speaker 3: it to be very pure. We want it to be
Speaker 3: only the plant touching actual multi state operators in the
Speaker 3: United States. Our fund YOLO invests in those Canadian companies
Speaker 3: and US exposure, and it even has exposure in a
Speaker 3: little bit of exposure in Europe and in Israel. But a
Speaker 3: lot of people are very familiar with the Canadians. So
Speaker 3: Canada legalized a number of years ago, and when they
Speaker 3: first had the announcements about legalization, those stocks spiked. They
Speaker 3: went straight to the roof, even though they weren't even
Speaker 3: didn't have sales yet, so they traded like meme stocks,
Speaker 3: and then legalization happened. Well, also these Canadian companies were
Speaker 3: allowed to list on the New York Stock Exchange and
Speaker 3: or more on NASDAC. A lot of them are cross
Speaker 3: listed on the Toronto TSX as well, and they got
Speaker 3: capital that goes along with those listings and the opportunity.
Speaker 3: And they built a lot of greenhouses, they grew a
Speaker 3: lot of weed, and the provincial rollouts in Canada were lousy.
Speaker 3: They didn't have enough brick and mortar stores in the
Speaker 3: most populous Ontario. People couldn't didn't have the stores to
Speaker 3: buy it. They overgrew, they overbuilt, they didn't have the
Speaker 3: sales to back it up, and they burned through a
Speaker 3: ton of capital. Is it a failure, No, it's not
Speaker 3: a failure. There's still plenty of companies that will survive.
Speaker 3: And they had some inroads into the European markets as
Speaker 3: well that are now growing. So our fin YOLO invests
Speaker 3: in companies like Tilray, in sn d L, in Organic
Speaker 3: gram and Canopy even. But yeah, it's been a very
Speaker 3: different market than what we have in the US. And
Speaker 3: I'll go ahead and I'll tell you about the differences
Speaker 3: in the US. The US, these companies for the most
Speaker 3: part were forced to list on secondary exchanges in Canada,
Speaker 3: such as the c S or the NEO that's now
Speaker 3: called the CBO. They couldn't list on NASDAK and n
Speaker 3: y S because these companies are still federally illegal technically,
Speaker 3: even as we see state by state continued growth and
Speaker 3: it's still happening. Just this past week, they turned on
Speaker 3: adult use sales in Ohio, a huge state that how
Speaker 3: I had a successful medical program. Now they have a
Speaker 3: don't use in Alaia. I'm seeing that all over the US.
Speaker 3: So these companies did not get flooded with capital. They
Speaker 3: can't really get institutional investment. They mostly have individual investors,
Speaker 3: retail investors, some family offices and hedge funds and you
Speaker 3: know some some owners and founders. And these companies were
Speaker 3: forced to be quite frugal. That's the best explanation I
Speaker 3: can give. And if you look under the hood, we
Speaker 3: don't see huge executive pay we see solid balance sheets,
Speaker 3: we see frugal operations. And look where they are now.
Speaker 3: We have multi billion dollar companies operating in the US.
Speaker 3: They still don't have it institutional capital, they still don't
Speaker 3: have the exchange listings, but they're actually multi billion dollar
Speaker 3: market cap companies operate rating in dozens and dozens of states,
Speaker 3: and they have beautiful balance sheets and beautiful p and ls.
Speaker 3: For in many cases, if we're looking at, you know,
Speaker 3: the top companies, a lot of people refer to as
Speaker 3: tier ones. So it's really been an interesting story of
Speaker 3: these companies that were forced to have sound frugal growth
Speaker 3: vosus companies that in many cases overbuilt, overgrew, didn't have
Speaker 3: the sales to back it up and had to regroup
Speaker 3: multiple times. That's a difference.
Speaker 1: You mentioned, you know, some of these companies with great
Speaker 1: balance sheets and not exorbit executive compensation. What are some
Speaker 1: of the other things you look at, you know, when
Speaker 1: you're picking securities for the portfolio? Are there any tools
Speaker 1: you use?
Speaker 3: It's not the traditional tools. And I often have to
Speaker 3: remind people of this because I manage a couple other funds,
Speaker 3: you know, and we mentioned the vice ETF, and we
Speaker 3: also have a restaurant theme ETF. I'll give a plug
Speaker 3: tick your symbol eats with a Z, a hotel themed
Speaker 3: ETF beds the Z and for those, they're all MASDAK
Speaker 3: and nys E listed stocks that are perfectly liquid and
Speaker 3: high trading volume. And for those, I'm going to use
Speaker 3: traditional tools. What I like to use personally Inherent Advisor
Speaker 3: shares is we look at earnings revisions and outside analyst ratings,
Speaker 3: and there are some very unique tools for looking at
Speaker 3: high rated, accurate analysts. Because I also think there's a
Speaker 3: lot of analyst ratings out there that are garbage and
Speaker 3: are biased certain industries and certain stocks. Analysts that are
Speaker 3: scored for being very accurate. We pay attention to those
Speaker 3: and not the others, and we like upwards analyst earnings
Speaker 3: revisions intra quarter that can lead to looking at earnings
Speaker 3: beats on the horizon. So I also like managing vice
Speaker 3: and restaurants and hotels because it is a there's pros
Speaker 3: and cons. It's a limited universe of stocks, So I'm
Speaker 3: not saying this is just a large cap growth fund
Speaker 3: and I have thousands of stocks to screen through. I
Speaker 3: have a limited universe, and I'm just trying to find
Speaker 3: which are the best in those particular areas. Which leads
Speaker 3: me to another comment here about active management. You guys
Speaker 3: know from the name of this podcast that active can
Speaker 3: mean a lot of different things. In my mind, and
Speaker 3: most people should understand active simply means it's not an
Speaker 3: index that's the only active really means. Besides that, there's
Speaker 3: funds that are very active, very tactical, and there's funds
Speaker 3: that are simply not so active, but they're not following
Speaker 3: tied to an index. You have some human or group
Speaker 3: of humans or model that's saying we want to overweight
Speaker 3: these docks, underweight those docks. You know, here's something we
Speaker 3: want to avoid. You have some something happening there, whatever
Speaker 3: it is, that's not an index. And I will say
Speaker 3: in cannabis, I think active can be a whole lot
Speaker 3: better than an index, because sometimes some of the biggest
Speaker 3: companies are ones that you absolutely want to avoid and
Speaker 3: might not be the very best. In this US cannabisy
Speaker 3: tf MSOs, we have a very limited universe of stocks
Speaker 3: and the biggest, the tier ones are the ones we
Speaker 3: want to invest in. But our fund does not follow
Speaker 3: an index. We have it very purposely heavily overweighted in
Speaker 3: the top five holdings. The fund has an absolute ton
Speaker 3: in the top five holdings, and that's very purposeful. And
Speaker 3: we have some very small investments in smaller companies that
Speaker 3: don't have a lot of material weight on the portfolio
Speaker 3: but could be a nice call option. If they have
Speaker 3: more torque, we'd call it. If there's some smallest companies
Speaker 3: have more torque double or triple or quadruple or be
Speaker 3: ten baggers, you know, that's great. The fund has a
Speaker 3: very heavy weight in the top five hold top five holdings,
Speaker 3: top ten holdings, and we are very purposely inactive. I
Speaker 3: don't want to be hitting the bid on any of
Speaker 3: those top holdings. These things are OTC traded in the US,
Speaker 3: listed on secondary exchanges for the most part in Canada
Speaker 3: until we get our federal reforms that we're going to
Speaker 3: come back and talk about, I think I don't want
Speaker 3: to hit the bid. So this fund is very inactive.
Speaker 3: I don't use analyst ratings and outside tools. We get
Speaker 3: a lot of information from analysts that we know and trust,
Speaker 3: and a lot of communication. I talk to the companies themselves.
Speaker 3: I have good access to their CEOs and chairmen, a
Speaker 3: lot of communication. It's a pretty unique cannabis bubble that
Speaker 3: we all communicate in, and I know which companies we
Speaker 3: want to have heavy weightings in. So I think that
Speaker 3: was a really long answer to answer your question. But
Speaker 3: I managed this cannabis ETF a lot different that I
Speaker 3: manage those other funds. Cannabis is done through knowing these
Speaker 3: companies and the people there very well and having a
Speaker 3: lot of communication, heavy heavy bets on the top companies.
Speaker 2: So I think that is quite interesting. So that heavy
Speaker 2: concentration on those top five, and you mentioned that the
Speaker 2: focus is on I think the words you use were
Speaker 2: multi state plant touching. Did I get that right?
Speaker 3: Well, yeah, it's they're called most for the most part,
Speaker 3: they're called multi state operators. That leads to our ticker
Speaker 3: ms OS, right, and there's some single state operators, but
Speaker 3: there's also Yeah, these are actual plant touching companies. They're
Speaker 3: usually companies that grow their own product, package their own product,
Speaker 3: sell their own product. That's called vertical vertically integrated, and
Speaker 3: not much of what's called ancillary companies here that sometimes
Speaker 3: can list on the major exchanges, but they're not really
Speaker 3: growing or selling product.
Speaker 2: And in your scope, like how you describe the scope
Speaker 2: of the fund, it does say across industries related to
Speaker 2: cannabis or something. I got that language probably very wrong,
Speaker 2: but something along those lines are meaning that I'm going
Speaker 2: to guess that leaves the door open that if you
Speaker 2: did want to potentially see or you see opportunity in
Speaker 2: other types of industries other than you know, the specific
Speaker 2: plant touching. But it sounds as though to date you've
Speaker 2: been very focused on plant touching. I'd be interested in
Speaker 2: hearing your kind of view on those other types of
Speaker 2: industries that are related to cannabis and why you have
Speaker 2: steered clear of them versus what doors you're leaving open
Speaker 2: or looking at more.
Speaker 3: No, you're absolutely right, and it's not so much of
Speaker 3: steered clear as the portfolio has also evolved over time,
Speaker 3: and our other affiliated fund, our fund Yolo, it does
Speaker 3: invest in some cannabis reads. There's real estate companies that
Speaker 3: really specialize in cannabis only. There's companies like cain of
Speaker 3: called grow Generation. They provide hydroponics and lights and all
Speaker 3: these other systems for growing. There's companies that are just
Speaker 3: in you know, vape manufacturing things like this. So there's
Speaker 3: a lot of ancillary products and support types of companies cannabis,
Speaker 3: and those companies were somewhat in our fund MSOs if
Speaker 3: they were really US focused. But over time, I although
Speaker 3: it's been a painful three or four years, I think
Speaker 3: we're getting closer and closer to the goal line of
Speaker 3: US federal reform and we'll come back and talk about
Speaker 3: it in a minute. But we just came out of
Speaker 3: the public comment period for the DEA to hopefully reschedule
Speaker 3: cannabis off of Schedule one like narcotics and down to
Speaker 3: Schedule three, and we think it's going to be a
Speaker 3: huge step for cannabis. But I digress. As we're getting
Speaker 3: closer to that goal line. In the last year or two,
Speaker 3: we have moved out of those ancillary companies, out of
Speaker 3: the support companies in MSOs because we really wanted the
Speaker 3: pure multi state operator growing packaging, selling actual cannabis products
Speaker 3: in the US. We wanted not only the MSO is
Speaker 3: fun to be pure US, we wanted to be pure
Speaker 3: actual cannabis touching companies because we think that's where the
Speaker 3: upside is.
Speaker 2: Do we want to just delve right into that rescheduling conversation, then,
Speaker 2: I mean we could probably sit here and talk for
Speaker 2: hours about it. As I can attest to the fact
Speaker 2: that on my desk with my texts expert as well
Speaker 2: as with our beverage and he actually covers the cannabis market,
Speaker 2: can say it's an oft debated topic as to exactly
Speaker 2: one will rescheduling happen, and two, where will value get
Speaker 2: unlocked versus how could potentially added cost related to compliance
Speaker 2: and regulatory burden actually present as a drag. So love
Speaker 2: to hear your views.
Speaker 3: And they are just my views. We're going to get
Speaker 3: into a lot of opinions here.
Speaker 2: We all have opinions.
Speaker 1: We love them.
Speaker 3: Yeah, And you know there's people that feel burnt by
Speaker 3: cannabis investing because, man, when the Democratic platform for twenty
Speaker 3: twenty came out, it had cannabis front and center. You know,
Speaker 3: Joe Biden's handlers were you taught him to talk about
Speaker 3: no one should be in jail for cannabis. And and
Speaker 3: again I mentioned earlier when Democrats got control, people invested
Speaker 3: in cannabis because they thought Fiddle reform was right around
Speaker 3: the corner. And we've been waiting very frustratingly for the
Speaker 3: last three or four years. You know, something called safe
Speaker 3: banking was approved in the House multiple times but never
Speaker 3: came to a real vote in the Senate, and people
Speaker 3: were angry about that. And that was just the safe
Speaker 3: Banking bill for cannabis. There's been the More Act. There's
Speaker 3: been a whole slew of different proposals and we really
Speaker 3: haven't seen it. But credit to the Biden administration for
Speaker 3: doing some things right about cannabis is they formally asked
Speaker 3: last fall for the HHS to review cannabis for potential rescheduling.
Speaker 3: They did that, and then under open records the actual
Speaker 3: two hundred and fifty two page document came to light
Speaker 3: that has lots of medical references, actual medical use for cannabinoids,
Speaker 3: and that alone should be the proof that it should
Speaker 3: not be on DEA Schedule one. DEA Schedule one is
Speaker 3: for drugs like carolin that have no medical valid use.
Speaker 3: If you have no medical use, your own schedule one.
Speaker 3: If you have medical uses, you're not supposed to be
Speaker 3: on Schedule one. So then there was a long public
Speaker 3: comment period. It's ninety five percent plus positive. There's more
Speaker 3: than forty thousand public comments. This just came out in
Speaker 3: the last couple of weeks. So I am ninety nine
Speaker 3: point nine percent sure that this rescheduling is going to happen.
Speaker 3: And the problem is investors have been hearing noise for
Speaker 3: the last four years. Your average investor does not live
Speaker 3: in the cannabis bubble that I live in, and your
Speaker 3: average investor just says, oh, yeah, cannabis whatever. No I've
Speaker 3: been hearing this for the last four years, don't I
Speaker 3: don't believe it. And the other part is there's plenty
Speaker 3: of investors that, even if they believe this rescheduling is coming,
Speaker 3: but we can't say exactly when it's coming, can't invest
Speaker 3: in cannabis in the US. And that's something I haven't
Speaker 3: talked about yet. There are the companies that I invest
Speaker 3: in Green Thumb Industries purely, truly Vano. These are all
Speaker 3: you know, tho are the top four holks of the fund.
Speaker 3: They're on non permissible lists at almost all major banks
Speaker 3: and wirehouses. And you know, we all know that most
Speaker 3: of the big wirehouse broker dealers are owned by federal banks,
Speaker 3: Stanley and b of A, Merrill and UBS and everybody else.
Speaker 3: They can't invest in those stocks at all. There's a
Speaker 3: whole number of brokerages that can. People can invest in
Speaker 3: our fund MSOs. It's fully available through all the Bank
Speaker 3: of New York pershing platforms. It's available at Fidelity, Schwab.
Speaker 3: Lots of places can invest in the fund, which also
Speaker 3: helps our fund have you know, well over eight hundred
Speaker 3: million in assets and very sticky assets. But our fund's
Speaker 3: not even available officially at b of A Merrill or
Speaker 3: Morgan Stanley or EBS. I think maybe some very top
Speaker 3: producers and top hedge funds and so on can actually
Speaker 3: hold it because we see the assets at some of
Speaker 3: those places, but retail can't buy it, your average advisors
Speaker 3: can't sell it, so on. So there's a whole lot
Speaker 3: of money on the sidelines supposedly that again, even if
Speaker 3: they wanted to invest in this stuff, they can't. There's
Speaker 3: other investors because of what we've been through the last
Speaker 3: four years, that are like they're in the show me stage. No,
Speaker 3: I'm interested in that, but I'm not going to touch
Speaker 3: it until it's real, until I really see that the
Speaker 3: government is really going to reschedule this, is really going
Speaker 3: to approve it, and we'll go from there. Now, I'm
Speaker 3: of the opinion that again that rescheduling is coming, and
Speaker 3: I think it's coming sooner rather than later, because I
Speaker 3: think the the Democratic side is going to uh when
Speaker 3: they have the DNC in a couple of weeks, I
Speaker 3: think they're going to talk about cannabis. I think it's
Speaker 3: going to be a campaign point and there's going to
Speaker 3: be discussion and they're going to move it to attempting
Speaker 3: to finalize that rule possibly this fall. Now, what does
Speaker 3: schedule three mean. Technically, Schedule three means that it's a
Speaker 3: prescription drug. Okay, there's pros and cons of this. We
Speaker 3: have a multi billion dollar industry in the United States
Speaker 3: that medical marijuana is in forty something states. Now adult
Speaker 3: use or a lot of people will call it wreck
Speaker 3: is in close to thirty states. Now it keeps changing
Speaker 3: so rapidly. I don't even keep track. I used to
Speaker 3: keep close track on it. I keep track of the
Speaker 3: big states like Ohio turning into adult ease this week.
Speaker 3: So that's not to be derailed. What this means is
Speaker 3: when we get Schedule three and they actually put it
Speaker 3: into a formal rule and so on, we are going
Speaker 3: to be required to amend AML and Finsen. We're going
Speaker 3: to have to have guidance from the DOJ or the
Speaker 3: Attorney General. A lot of people in my industry have
Speaker 3: been talking about the Garland Memo. Supposedly what we have
Speaker 3: called the Garland Memo is sitting in a drawer and
Speaker 3: already drafted, waiting for this rule to be final Supposedly,
Speaker 3: that's what rumors say. So there's going to have to
Speaker 3: be guidance from the DOJ, no if ans or butts
Speaker 3: on this that allow the medical markets to exist in
Speaker 3: states where they already allow. You know, we're not going
Speaker 3: to have medical doctors writing prescriptions for cannabis. They're going
Speaker 3: to allow state by state to have their rules for
Speaker 3: how they do their medical programs, and different states have
Speaker 3: more strict and more loose medical programs. On top of that, again,
Speaker 3: there's a huge number of states doing adult use wreck
Speaker 3: So we're going to have some type of safe harbor,
Speaker 3: some types of ruling from the Attorney General and the
Speaker 3: DOJ that allow for states rights and say that those
Speaker 3: states are not contrary to federal law. So here's where
Speaker 3: we're talking about opinions again. I'm of the opinion that
Speaker 3: when that all happens, it's going to indirectly lead to
Speaker 3: banking and listing on major exchanges. I have to say
Speaker 3: indirect because now on Schedule three happens, it doesn't change
Speaker 3: anything for banking, it doesn't change anything for listing on
Speaker 3: major exchanges yet. But I think the snowball effect of
Speaker 3: finsen AML, a letter from the Attorney General, guidance from
Speaker 3: the DOJ, it's going to put those the things in
Speaker 3: progress in motion that lead to banking and federal law.
Speaker 3: The other thing is there's been called the Safe Act
Speaker 3: and the Safer Act. It's been you know, it's been
Speaker 3: through the Senate Banking Committee, even it just didn't go
Speaker 3: to the Senate floor. I think those congressional bills are
Speaker 3: going to become much less controversial. They're going to become
Speaker 3: much less of a political football like they have been
Speaker 3: the last four years. That once we have this rescheduling
Speaker 3: in place, maybe finally the House and Senate can do
Speaker 3: their damn jobs and actually pass some cannabis reforms after
Speaker 3: this rescheduling all gets really done. So that was a
Speaker 3: little bit of a tirade. But I talk a lot.
Speaker 2: About this stuff, and do you think rescheduling is enough
Speaker 2: to unlock particularly and you're concentrated five you know, the
Speaker 2: five that you're most concentrated in your fund enough to
Speaker 2: unlock some of that potential. We don't need broad nationwide legalization.
Speaker 3: I think we're going to have multiple steps. I think
Speaker 3: when that rescheduling hits and people, it's going to be
Speaker 3: huge news and people are really going to see it.
Speaker 3: A lot of these people that are on the sidelines
Speaker 3: and say, oh, it's real now. I think that could
Speaker 3: potentially be a real big leg leg up for these stocks.
Speaker 3: But it doesn't cause listing on the Nasdaq or the NYC.
Speaker 3: It doesn't cause custody at b of a Merrill until
Speaker 3: we get some of the other steps to follow. So
Speaker 3: I think we're seeing a multi leg process, but I
Speaker 3: think it starts the domino to start falling at that point.
Speaker 3: But again, with the what these talks have been through
Speaker 3: the last three years, I think it can be a
Speaker 3: huge leg up when that rescheduling is actually put rules
Speaker 3: in place, because all you have to do is look
Speaker 3: at average trading volume for a multi billion dollar company
Speaker 3: that's our top holding, like Green Thumb Industries GTI or
Speaker 3: Gtbif look at it versus till Ray, and it is
Speaker 3: insane the numbers till Ray canopy. Those stocks trade tons
Speaker 3: of volume listed on NASDAK. You know, all types of
Speaker 3: funds and institutions can invest in them if they want
Speaker 3: or shorten them if they want, and the US trading
Speaker 3: volumes are just anemic. So you know, we're very proud
Speaker 3: that our fund is here as a as a tool,
Speaker 3: as a path so people can invest in these US
Speaker 3: stocks because again, the individual stocks that we invest in
Speaker 3: are they're not available a lot of places, and they're
Speaker 3: comparatively low volume.
Speaker 1: Well, I mean, it'll be interesting to see what happens,
Speaker 1: but this was definitely great. I wanted to thank you
Speaker 1: both Brie and Dan so much for joining me today.
Speaker 3: Happy to be here, thanks for the opportunity to educate
Speaker 3: on all this stuff.
Speaker 2: It's been a real joy.
Speaker 1: Until our next episode. This is David Cohne with Inside
Speaker 1: Active