Speaker 1: This is Bloomberg business Week Inside from the reporters and
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Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. Yes,
Speaker 2: another round in US politics thanks to the New Hampshire
Speaker 2: primary and an easy win for former President Donald Trump.
Speaker 2: And yet what was most on the minds of investors
Speaker 2: this past week? The big megacap tech companies as Alphabet, Meta,
Speaker 2: and Microsoft all hit record highs either intry day or
Speaker 2: at the close, Microsoft, by the way, hitting a historic
Speaker 2: three trillion dollar market evaluation at one point, Meta hitting
Speaker 2: the one trillion dollar mark for the first time since
Speaker 2: twenty twenty one. Irrational exuberance, anyone? What do you think?
Speaker 3: I have no idea, but no way. It's a term
Speaker 3: that Eddie or Danny used in a recent note, So
Speaker 3: who knows. Hey, those megacap tech fang names were ord
Speaker 3: earnings in the coming weeks. This past week we got
Speaker 3: results from Netflix and Tesla. Netflix sitting it out of
Speaker 3: the streaming ballpark on a key Metric and Tesla a
Speaker 3: bit more down to earth for Elon and Company. More
Speaker 3: on both of those in just a moment.
Speaker 2: Also the first FED meeting chickick calendars. It's just around
Speaker 2: the corner. It is this coming week, and we have
Speaker 2: a FED insider on what the US Central Bank may
Speaker 2: be thinking when it comes to monetary policy this year.
Speaker 2: And speaking of the new year, after a few rough ones,
Speaker 2: why twenty twenty four maybe the year to ride high
Speaker 2: on cannabis.
Speaker 3: I saw what you did there.
Speaker 2: That's kind of name, isn't it. Cure Leaf's executive chairman,
Speaker 2: Boris Jordan, stops by in our next hour.
Speaker 3: Twenty twenty four is off to a good start for
Speaker 3: Spelman College, the recipient of the largest gift in the
Speaker 3: school's history. What one hundred million dollars means with the
Speaker 3: Spelman President, doctor Helene Gail, and how a morning meditation
Speaker 3: starts his day. From the creator of several publicly held
Speaker 3: billion dollar and multi billion dollar companies.
Speaker 2: All right, tim, Well, all of that to come, but
Speaker 2: first to two earnings reports that definitely got our attention
Speaker 2: this past week and Tesla. First up, Netflix out with
Speaker 2: a blockbuster fourth quarter as the streaming service blew away
Speaker 2: Wall Street estimates for new subscribers, reporting its best quarter
Speaker 2: since the early days of the pandemic, sales to topping estimates.
Speaker 3: Just ahead of earnings, Netflix announced its first big move
Speaker 3: into live events with a five billion dollar purchase of
Speaker 3: exclusive rights to raw and other programming from WWE, that,
Speaker 3: of course, is World Wrestling Entertainment. To put it all
Speaker 3: in context, we caught up with Michael Pactor, managing director
Speaker 3: and entertainment analyst at Webbush Securities, who was among the
Speaker 3: analysts raising their price target on the stock. Michael, good
Speaker 3: to have you with us. Good to talk to you again.
Speaker 3: I mean, this is a company even covering for more
Speaker 3: than a decade, and your view has certainly shifted. Let's
Speaker 3: talk about where your view is right now. You've got
Speaker 3: an outperform on the stock. You've up your twelve month
Speaker 3: price target to six hundred and fifteen dollars from five
Speaker 3: hundred and twenty five. Not quite a street high, but
Speaker 3: you're among the highest according to the analysts that are
Speaker 3: tracked by Bloomberg. Why the upgrade, Well, you know, we
Speaker 3: I've covered it for twenty years.
Speaker 4: In August, actually we had to sell on it from
Speaker 4: roughly ten dollars to six ninety, so wrong for ten
Speaker 4: years out and then I upgraded at one eighty. We
Speaker 4: put on the Best Ideas list at three point thirty.
Speaker 4: So what I'm seeing is what I criticized ten years ago,
Speaker 4: thirteen years ago on the downgrade to sell. I'm seeing
Speaker 4: them do what I said they needed to do, which
Speaker 4: is stop being fixated on adding subs at all costs
Speaker 4: and start focusing on profitable subs. They're doing everything right.
Speaker 4: They're managing their spend properly. They're shifting their their budget
Speaker 4: more toward television away from movies. You saw Scott stuper
Speaker 4: left the other day. They are shifting their their budget
Speaker 4: more toward international production, which costs about half as much
Speaker 4: as domestic. They are far more international. And what you're
Speaker 4: seeing now is that subscribers are coming in at very
Speaker 4: very high margins. You're seeing operating profits expand materially literally
Speaker 4: three hundred basis points a year, which means they're going
Speaker 4: to make a lot more money than anybody thinks in
Speaker 4: the next several years. So they created, you know, a
Speaker 4: twenty something multiple. We have a thirty multiple price target.
Speaker 4: Could I be at forty or fifty or sixty. Sure,
Speaker 4: it really depends on how fast.
Speaker 2: Hey, Michael, we want to bring up a chart for
Speaker 2: all of our viewers, and it shows just the blowout
Speaker 2: number of subscribers added in that last quarter. It looks
Speaker 2: like it could, you know, pull back a little bit
Speaker 2: in the next quarter in a big way. But as
Speaker 2: you are saying, it's not just the net number of subscribers,
Speaker 2: it's that the folks that they are signing up, they're
Speaker 2: making more money off of them.
Speaker 4: Absolutely. And you know, if you see that thirteen million
Speaker 4: number new subscribers, forty percent are signing up for the
Speaker 4: six ninety nine ad supported tier, but they're generating about
Speaker 4: sixteen dollars because the ad load is about ten bucks.
Speaker 4: So you know, they've shown that by lowering price and
Speaker 4: adding advertising, they're attracting people that couldn't afford fifteen dollars before.
Speaker 4: The balance of those people are largely coming from asword
Speaker 4: sharing crackdown, and you know there are people whose kids,
Speaker 4: their adult children or their parents.
Speaker 2: Tim's brother included. We're just going to share that. We've
Speaker 2: shared that several times on it. I'm sorry Tim's brother again.
Speaker 4: That has a double whimmy. You know, the people who
Speaker 4: shouldn't be using it or signing up on their own,
Speaker 4: people who you want to pay for. My kids who
Speaker 4: are college grads, I'm paying for them. I pay for
Speaker 4: their cell phone. I'll pay for their Netflix subscription. So
Speaker 4: that expands average revenue per member, and it expands new members.
Speaker 4: You're seeing it all just dovetail nicely. And now they're
Speaker 4: doing something clever. They're adding gaming they got they finally
Speaker 4: have figured out how to do it, and that makes
Speaker 4: the service stickier. You're less likely to quit if you've
Speaker 4: been on the network personal last month. Stuff like Grand Theft,
Speaker 4: Auto Trilogy gets people coming back.
Speaker 3: Hey, Michael, I mean you're also a gaming analyst. We
Speaker 3: should note so you covered this stuff really closely. What
Speaker 3: is Netflix doing that the other companies are not doing that?
Speaker 3: You know, the Disney's aren't doing the Parents aren't doing
Speaker 3: the Peacocks aren't doing Like, why is Netflix executing so
Speaker 3: much better?
Speaker 4: First mover advantage is the biggest thing. They've kind of
Speaker 4: created the fund that would buy licensed property, would license
Speaker 4: things like suits from the other networks. The other guys.
Speaker 4: We're trying to go all proprietary all the time. So
Speaker 4: CBS Content State on Paramount and NBC content, State on Peacock, ABC,
Speaker 4: State on Disney Plus, and they didn't have the critical
Speaker 4: mass to actually support giving away all that content without
Speaker 4: collecting subscription revenues. Netflix has two hundred and sixty million subscribers.
Speaker 4: They can pay up. They did this for WWE. It's
Speaker 4: a perfect example of something that took away from USA
Speaker 4: network and now they're going global with it. Their idea is,
Speaker 4: we're taking something that has an audience of fewer than
Speaker 4: a million people a week, and we're going to expand
Speaker 4: that to five million people. And when they do that,
Speaker 4: they leverage their subscriber base they can afford to pay more.
Speaker 4: The network or in this case, WWE says, of course,
Speaker 4: I'm taking more money. So the other guys are being dumb.
Speaker 4: You know Peacock Okay, one hundred and ten million dollars
Speaker 4: for one game, so we can all see Taylor Swift
Speaker 4: one game? Dumb, really dumb. I know they got three
Speaker 4: million subscribers. All those people are going to quit another
Speaker 4: two weeks.
Speaker 2: Hey, noticeant on Taylor Swift here. Hey, having said that, Michael,
Speaker 2: that's fair we all do. Hey, listen, we've got just
Speaker 2: about a minute left here so you obviously are a beat.
Speaker 2: You like the WWE deal that they just did and
Speaker 2: the kind of front ran earnings yesterday in a big way.
Speaker 2: Having said that, what would make you turn bearish again
Speaker 2: on Netflix? And again just got about thirty forty seconds valuation?
Speaker 4: I mean, if the stock gets to you know, much
Speaker 4: much more than it's worth, of course I would downgrade.
Speaker 4: I am very comfortable at six fifteen. I probably could
Speaker 4: be comfortable at a higher number if I see greater
Speaker 4: earnings growth that we have forecasts. But you know, if
Speaker 4: the stock ran to two thousand or five thousand, of
Speaker 4: course that would doubgrade.
Speaker 3: Michael Pactor, Hey, you know what, it's okay that you
Speaker 3: pay for your kids Netflix. Okay, I'm just throwing it
Speaker 3: out there, like that's fine. You're not the only one.
Speaker 2: But two kids are older and you're paying for everything.
Speaker 3: I just, you know, I'm just wondering if the other
Speaker 3: streaming services are going to wise up soon to you know,
Speaker 3: crack down on passwords sharing the way Netflix has. Let's
Speaker 3: get the sense they are, but it's going to create
Speaker 3: a lot of changes in households.
Speaker 2: Well, you know, talk with our Geeta ringing Athon yesterday.
Speaker 2: I mean this whole idea that Netflix has figured out
Speaker 2: how to pivot right from when they used to be
Speaker 2: what the little red boxes and that you put them
Speaker 2: in the box.
Speaker 3: The DVDs you're talking about the little red fix bhs's.
Speaker 5: They did never do it.
Speaker 6: They did never do it.
Speaker 5: They were all DVDs.
Speaker 2: It just feels like they did.
Speaker 3: They love it a lot.
Speaker 2: All Right, You've got Netflix shares folks up almost twelve
Speaker 2: percent in the session. This is Bluemberg.
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Speaker 7: All right?
Speaker 2: Tesla to start in a next generation platform production at
Speaker 2: its Giga factory in Texas. Teams to work in a
Speaker 2: launch of a next generation vehicle at Tech Texas and
Speaker 2: continue to make progress on a next generation platform. So
Speaker 2: a lot of stuff that that is to come. So
Speaker 2: let's get to it, because we've got a great roundtable.
Speaker 2: Red Brown is Bloomberg News Earnings reporter. He covers the
Speaker 2: numbers and we'll give us some more insight into what
Speaker 2: we just got Ross Gerber is with US President CEO
Speaker 2: of Gerber Kawasaki Wealth and Investment Management. They have about
Speaker 2: two point two billion in assets under management, including about
Speaker 2: eighty four million dollars worth of Tesla stock. You folks
Speaker 2: know him well. He owns Tesla's, he invests in the company,
Speaker 2: he sells at times. I do want to start with you, Ross,
Speaker 2: are you concerned stock still doubt about two point seven
Speaker 2: percent in the aftermarket. But when Tesla says twenty twenty
Speaker 2: four volume growth maybe notably lower than twenty twenty three,
Speaker 2: I don't know, does it worry you a little bit?
Speaker 2: Does it make you want to sell any stock?
Speaker 8: Well, I don't want to talk about our training because
Speaker 8: I'm not allowed to. But if you look at our
Speaker 8: you know my fund GK, we've been selling the stock
Speaker 8: over the last several months, as well as if you
Speaker 8: look at our public filings, we've been lowering our position
Speaker 8: over the last several months.
Speaker 5: So there's a lot of.
Speaker 8: Clients of mine who are very upset with some of
Speaker 8: the things Elon said and sold their stock in the
Speaker 8: two two hundred and fifty dollars range that are probably
Speaker 8: pretty happy they did that.
Speaker 4: Today.
Speaker 3: Russ Stick with this for a minute, because you've been
Speaker 3: pretty critical of Elon Musk lately, which has been a marked,
Speaker 3: a marked difference from how you've been over the past
Speaker 3: few years. I mean, you were among the biggest Tesla
Speaker 3: bulls out there, but now you're concerned. You write that
Speaker 3: Elon's becoming the Kanye of business. Is this what's hitting
Speaker 3: the company's stock or is this a bigger question about
Speaker 3: what we were talking about earlier with evs, EV demand
Speaker 3: falling and what we're seeing from Ford, what we're seeing
Speaker 3: from GM. Is it a bigger issue outside of Elon's control.
Speaker 8: I think Elon's created the issue for EV's across the
Speaker 8: board more than like it's an EV issue. But you know,
Speaker 8: the bottom line is, and you see it in the numbers,
Speaker 8: and this is what we were kind of waiting to see,
Speaker 8: is that margins continued to go lower. They're like basically
Speaker 8: not able to sell cars unless they lower prices because
Speaker 8: Elon refuses to advertise. And then the advertising he's doing
Speaker 8: are trips with his child to Auschwitz and you know,
Speaker 8: anti Semitic and racist comments all the time, and him
Speaker 8: you know, basically using X as a platform for every
Speaker 8: political debate possible that he could get himself into, which
Speaker 8: is exactly how you not sell cars. So god forbid,
Speaker 8: they actually got him off Twitter and advertised maybe Tesla's
Speaker 8: problems would be solved.
Speaker 2: Interesting, Hey, I want to bring you in red brown
Speaker 2: things that you're seeing and noticing. We've been breaking down
Speaker 2: the earnings with our TV colleagues. The key point that
Speaker 2: you're focusing on, well, I.
Speaker 9: Think obviously the production target notably lower volumes for next year.
Speaker 9: It does raise some questions about this strategy of continuing
Speaker 9: to lower prices. They lowered prices just last week again
Speaker 9: in Europe, so it seems like that is going to
Speaker 9: be the strategy going forward, but it doesn't seem to
Speaker 9: be kind of paying dividends in the company's view going
Speaker 9: forward in terms of actually selling cars.
Speaker 2: Still yeah, and Tesla les bullishaw it's cyber truck, noting
Speaker 2: in the investor deck that it's ramp time will be
Speaker 2: longer than for the other models given its manufacturing complexity.
Speaker 2: So it's also adding that, all right, Ross, so can definitely,
Speaker 2: you know, respect your different tone here in Tesla. So
Speaker 2: I don't know, how how do you think about this
Speaker 2: company going forward? Is it a case that it's hard
Speaker 2: to kind of remove the man and the creator from
Speaker 2: kind of the company. But how do you do that,
Speaker 2: or do you do that at some point?
Speaker 8: Well, what I've been saying is that the Tesla story
Speaker 8: has just changed from what the story was a few
Speaker 8: years ago before Twitter, And as long as investors are
Speaker 8: comfortable with that story, then the long term for Tesla,
Speaker 8: the story is still intact, whether it be charging energy
Speaker 8: ev you know, Tesla's the prime player in this climate
Speaker 8: change revolution that they began. And the real issue is
Speaker 8: the company is being mismanaged now by the CEO who's
Speaker 8: demanding a massive compensation package but won't do any of
Speaker 8: the things that the company needs to really like resolve
Speaker 8: their sales and margin issues. So I think as we
Speaker 8: move forward as investors, it's really about what is the
Speaker 8: right valuation for Tesla, Because Tesla has been the highest
Speaker 8: value of the mag seven or one of the highest
Speaker 8: value tech stocks for years, you know, and before he
Speaker 8: bought Twitter, you know, it traded one hundred times multiple
Speaker 8: of future earnings. Today it's treading at sixty times multiple
Speaker 8: future earnings. But now that future earnings number is definitely
Speaker 8: in doubt, And does it really deserve a higher multiple
Speaker 8: than Nvidia and Microsoft, and I think that's what's hurting
Speaker 8: the stock.
Speaker 5: Irrelevant of the company.
Speaker 2: Stock still down about two percent. Hey, Tesla also noting
Speaker 2: ross that they have reached the quote natural limit of
Speaker 2: cost town of our existing electric vehicle lineup.
Speaker 3: It's goint a corporate to be But what does that
Speaker 3: mean euphemism for we can't lower prices anymore?
Speaker 8: Right, It's like we have reached maximum efficient see a
Speaker 8: production and so basically every time we discount, it's just
Speaker 8: going to cost shareholders more. Now, the good news is
Speaker 8: this is great for Earth because people are getting cheaper
Speaker 8: and cheaper you know, evs, which you know are great.
Speaker 8: The bad news is it's coming from shareholders pockets. And
Speaker 8: so if you're a shareholder, you know it's time to
Speaker 8: really assess, like does this company deserve a sixty multiple
Speaker 8: afford earnings? And I think that's what investors are going
Speaker 8: to be doing over the next several months.
Speaker 3: Okay, I want to bring back in red round because
Speaker 3: he's been watching the numbers come out red what else
Speaker 3: sticks out to you? I know, the looking at the
Speaker 3: production numbers certainly sticks out any anything else in these
Speaker 3: numbers here we're seeing shares down about two percent as
Speaker 3: we speak.
Speaker 9: Yeah, I mean, it's just it's I think everything that
Speaker 9: we're seeing right here from the numbers is that this
Speaker 9: is kind of the cost you pay for the game
Speaker 9: that they're playing. Of continuing to cut these prices. They
Speaker 9: you're seeing a bigger and bigger disconnect between their top
Speaker 9: line growth and their earnings growth.
Speaker 1: Right.
Speaker 9: They did hit record revenue that's going to get lost
Speaker 9: in the shop here today, but it came at the
Speaker 9: expense of over forty percent drop in their earnings, right,
Speaker 9: So it's not it doesn't seem like it's the path forward.
Speaker 9: I think. I think Ross is hitting on some interesting
Speaker 9: topics here as well as kind of where does the
Speaker 9: growth come from a lot of the share price is
Speaker 9: predicated on some of these sort of pie in the
Speaker 9: sky initiatives. Be it ai huge question marks over that
Speaker 9: with whether or not Elon does that inside the company
Speaker 9: or not. So hopefully get some more insights on that
Speaker 9: when the call, when the call goes later today, Ross,
Speaker 9: what is the.
Speaker 2: Number one question on that call today? In your view?
Speaker 8: I think from my perspective, it's kind of what we're
Speaker 8: hitting on right now, which is where's the growth I
Speaker 8: mean from If you're not going to grow cars by
Speaker 8: a lot, you know, like this is not a good thing.
Speaker 8: So I think my concern is forty six eighty. And
Speaker 8: this is the story behind the story, which is one
Speaker 8: of the scaling issues they're having with cyber and Semi
Speaker 8: is that forty six eighty is just not working quickly
Speaker 8: as they had hoped. And they planned all of production
Speaker 8: in Texas around forty six eighty originally, and they've now
Speaker 8: had to pivot and so this has caused extra costs,
Speaker 8: lots of complexity issues, and I don't think they've mastered
Speaker 8: forty six eighty y at or even close for scaling
Speaker 8: in any mass level. And this is a huge detriment
Speaker 8: to Tesla moving forward because they have to get this
Speaker 8: technology right to ramp cyber and some which is where
Speaker 8: growth will come from.
Speaker 2: Hey, what do you mean forty six eighty?
Speaker 8: These are the new cells that OK that they built
Speaker 8: for EVS and these new cells are seven times more powerful,
Speaker 8: much more efficient, charge faster and they're wonderful, but they
Speaker 8: haven't been able to scale them as quickly as they
Speaker 8: had hoped.
Speaker 2: All right, good stuff, as always, so appreciate it. I
Speaker 2: know you've had a busy day. Our thanks to Ross Gerber,
Speaker 2: presidents at you of Gerber Kawasaki Wealth and Investment Management,
Speaker 2: and then of course our thanks as well to our
Speaker 2: Red Brown, He's Bloomberg News Earnings reporter right here in studio,
Speaker 2: Tesla shares back down about three point seven percent. We're
Speaker 2: seeing in the stock fall here in the aftermarket.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 5: Eleven thirty.
Speaker 2: We do have a headline crossing the Bloomberg terminal, the
Speaker 2: Fed Inspector General issuing its report on two former members
Speaker 2: of the Federal Reserve System. And we're talking about Boston
Speaker 2: Fed Chief Eric Rosengren and also Dallas President Robert Caplan.
Speaker 2: Remember they stepped down in September of twenty twenty one.
Speaker 2: So we're getting that report crossing. Having said that, let's
Speaker 2: bring in Bloomberg's Mike McKee because he's also seen these
Speaker 2: headlines as they cross.
Speaker 10: Well, I've just been reading the report, and according to
Speaker 10: the Inspector General, with regard to mister Kaplan, he says,
Speaker 10: we did not find that his trading activities violated laws, rules,
Speaker 10: regulations or policies related to trading activities. His twenty twenty
Speaker 10: form A Federal Reserve Bank Confidential Financial Disclosure Report did
Speaker 10: not publicly disclose the specific dates of his trading activities,
Speaker 10: nor did it specify transactions that involved the selling of
Speaker 10: stock option contracts, and that lack of information, in the
Speaker 10: Inspector General's opinion, did not support public confidence in the
Speaker 10: impartiality and integrity of the policymakers. As far as Eric Rosengrin,
Speaker 10: the Inspector General found that he did not report multiple
Speaker 10: trades on his twenty twenty form A. Additionally, they found multiple
Speaker 10: discrepancies between the transactions reflected in his brokerage statements and
Speaker 10: trading data and what he reported on that form A. Moreover,
Speaker 10: in the Inspector General's opinion, they say mister Rosengren's trading
Speaker 10: activities in real estate investment trusts during a time of
Speaker 10: financial market volatility that prompted the Federal Reserve to authorize
Speaker 10: the purchase of agency mortgage backed securities created a quote
Speaker 10: appearance of a conflict of interest that could cause a
Speaker 10: reasonable person to question mister Rosengren's impartiality under the Federal
Speaker 10: Reserve Boards Code of Conduct. They go on to say
Speaker 10: that the rules in effect at the time did not
Speaker 10: sufficiently support confidence in the impartiality and integrity of the policymakers.
Speaker 10: Those rules have been changed.
Speaker 3: So Net Mike, I know this is just your first reaction,
Speaker 3: but was it a conflict of an interest or merely
Speaker 3: an appearance of a conflict of interest? What's the report saying.
Speaker 10: It's hard to say exactly with regard to Eric Rosengren,
Speaker 10: because it sounds like there may have been a conflict
Speaker 10: of interest, but the Inspector General does not highlight the
Speaker 10: fact that there is one. But it could appear that way.
Speaker 10: In Kaplan's case, there wasn't a conflict of interest and
Speaker 10: he didn't violate the rules, but the fact that he
Speaker 10: didn't completely dot every eye and cross every te suggests
Speaker 10: that it could have had an impact on how people
Speaker 10: think about the FED. And that's kind of what this report,
Speaker 10: I think is going to be saying. When you read
Speaker 10: it all twenty four pages, I'll get to.
Speaker 3: It, but basic if we can help it.
Speaker 10: Well, basically it's a question of can you trust the FED?
Speaker 10: And that this seems to sort of say there were problems.
Speaker 2: Well, and we have a great voice on this. Former
Speaker 2: New York Fed President Bill Dudley is with us. He's also,
Speaker 2: of course a Bloomberg opinion columnist. Bill is joining us
Speaker 2: on zoom in New York. Feel so great to have
Speaker 2: you here across our Bloomberg platforms. Can we trust the FED?
Speaker 2: Based on what the Inspector General the report that they
Speaker 2: just released. Do you feel confident about the US Central Bank?
Speaker 11: Yes?
Speaker 12: I do.
Speaker 11: I think the change in procedures as far as reporting
Speaker 11: and trading what you're allowed to do from a trading
Speaker 11: perspective has been tightened up considerably in light of what happened,
Speaker 11: And I think.
Speaker 13: That the regime today is far better than what we
Speaker 13: had before.
Speaker 3: Bill, how damaging overall over the last couple of years
Speaker 3: was this to the Federal Reserve, or at least the
Speaker 3: appearance of the Federal Reserve?
Speaker 11: Well, I mean any thing that caused to question the
Speaker 11: impartiality of the FED or the idea that the FED
Speaker 11: was somehow people were trading on information that wasn't public.
Speaker 13: Obviously, that's terrible.
Speaker 11: The good thing is it sounds like this report, which
Speaker 11: I haven't had a chance yet to read, sounds like
Speaker 11: that there were no actual violations of rules and regulations.
Speaker 11: But certainly the appearance of a conflict is a bad
Speaker 11: thing because it can undercut to the credibility in the
Speaker 11: Central Bank bill.
Speaker 10: Mike McKee here, I'm just wondering if you if you
Speaker 10: felt at the time, if anybody felt at the time
Speaker 10: that either President Rosingrad or President Kaplan had done anything wrong.
Speaker 10: The stories we have at the time suggested there was
Speaker 10: no pressure from the Federal Reserve for them to resign,
Speaker 10: but was it the right thing for them to do.
Speaker 13: I'm not going to appine on that.
Speaker 11: What I will appint on is that you need to
Speaker 11: have a regime in place that creates confidence in the
Speaker 11: Federal Reserve system, and.
Speaker 13: That regime needs to be robust.
Speaker 11: I mean, I think the thing that's sort of remarkable
Speaker 11: about this, frankly, is how long it's taken for the
Speaker 11: Expector General to come out with these findings. I mean,
Speaker 11: it seems to me like this was something that could
Speaker 11: have been expedited much more quickly. So I'm not really
Speaker 11: sure why this took so long to become public.
Speaker 2: That's a fair question. I also do wonder is it
Speaker 2: a fair question to say, or a fair kind of
Speaker 2: assessment to say this should never have happened, It should
Speaker 2: have never even been a concern or cause for worry about.
Speaker 11: Well, I think there's always you know, with the manefes hindsight,
Speaker 11: everything you know, you know, it looks, it looks obvious.
Speaker 4: I'll get you an example.
Speaker 11: When I was the president of the Near Fed or
Speaker 11: when I was the heead the Marketsprice Near Fed, there
Speaker 11: were very few restrictions on the trading activities of people
Speaker 11: within it, within the bank, and you know, you couldn't
Speaker 11: do things around FOC meetings. But you know, people were
Speaker 11: in possession of non public information at other times, and
Speaker 11: the regime just wasn't very robust. And so when I
Speaker 11: became president, I changed that. I put it in a
Speaker 11: much to a tougher regime because I didn't think that
Speaker 11: the regime that we had in place was you know,
Speaker 11: robust to you know, you know, people were behaving on
Speaker 11: their own, but you want something, you want governance and
Speaker 11: controls above that.
Speaker 10: I think the key headline here at The bottom line
Speaker 10: is that, according to the Inspector General, Rob Kaplan and
Speaker 10: Eric Rosengren did not do anything legally wrong. So it's
Speaker 10: more of an appearance of a conflict.
Speaker 5: Now.
Speaker 10: We also had issues at the same time with j
Speaker 10: Powell and Richard Clareda. Is that do you think behind
Speaker 10: the FED now? Is this you mentioned how long it
Speaker 10: took to get this report. Is this sort of ancient
Speaker 10: history and the Fed's moved on?
Speaker 13: Well, I think it's ancient history in the sense that
Speaker 13: the FED has changed all their rules. You can't do
Speaker 13: these things now that you could have done before. That's
Speaker 13: the same thing that I did want as a president
Speaker 13: of r FEDI said, this is a regime in place
Speaker 13: that allows too many things that could potentially happen that
Speaker 13: could create create the appearance of conflict. Let's just tighten
Speaker 13: this up a lot.
Speaker 11: So there's no question, there's no question, there's no risk,
Speaker 11: and I think that's what the FED Reserve is done.
Speaker 11: So I don't think there's much risk of anything happening
Speaker 11: in the future.
Speaker 13: But you know, it would be nice if you would
Speaker 13: tighten up the regime before this happened, rather than that.
Speaker 2: All right, we're going to pivot a little bit, because
Speaker 2: the reason we really initially wanted to talk to you
Speaker 2: was about what the FED does next. And we're looking
Speaker 2: at the markets where we had another record on the
Speaker 2: S and P five hundred. Investors continuing to embrace maybe
Speaker 2: this risk on trade on expectations build that we're going
Speaker 2: to have a pretty aggressive FED and they're pricing in
Speaker 2: or it seems to be pricing in a fair amount
Speaker 2: of FED rate cuts this year. What are you seeing
Speaker 2: when you look at the markets and what do you
Speaker 2: think FED officials are thinking and seeing when they see
Speaker 2: the move up, especially on the equity side of things.
Speaker 11: Well, I think the reason why the markets are doing
Speaker 11: well is because the probability of a soft landing has
Speaker 11: gone up. I mean, what basically happened is the comments
Speaker 11: continued to grow.
Speaker 13: And that's kept the labor market type. But the tightness
Speaker 13: of the labor market.
Speaker 11: Is not leading to acceleration and wage inflation or an
Speaker 11: increase in ongoing prices for goods and services. So it's
Speaker 11: sort of like the best of all world. So we've
Speaker 11: had we brought inflation down without much there.
Speaker 2: Are you saying goldilocks? Are you saying definitely a soft
Speaker 2: landing here.
Speaker 13: No, not at all.
Speaker 11: So far so good, So I don't think the story
Speaker 11: has been fully written yet, and we'll have to see
Speaker 11: where we go. I mean, it's very difficult for the
Speaker 11: Fed to generate a soft landing because you basically need
Speaker 11: growth weak enough to keep the comming from overheating, but
Speaker 11: strong enough to keep the commy out of recession.
Speaker 13: And that margin for aerois right now is very very small.
Speaker 11: So I think it's really too soon to conclude that
Speaker 11: we're on this golden path.
Speaker 13: But the chances of a soft landing definitely have gone up,
Speaker 13: and that's what the market's reacting to.
Speaker 3: A month ago, you wrote a colum for Bloomberg Opinion
Speaker 3: that said that the pivot is a pretty big gamble
Speaker 3: and that there's a significant chance there won't be a
Speaker 3: soft landing. Would you say there's still a significant chance
Speaker 3: or if not, what data has come in to show
Speaker 3: you that there is a better a soft landing.
Speaker 13: Well, I think there's risks on both sides.
Speaker 11: Number One, mantary policy might not be as tight as
Speaker 11: the Fed thinks it is. And if that's the case,
Speaker 11: the kim keeps growing, the labor market stays tight, and
Speaker 11: we don't get inflation all the way back to two percent,
Speaker 11: and so the Fed reserve.
Speaker 13: That's that's sort of the no landing scenario.
Speaker 11: The other scenario, course, is that if it keeps manitary
Speaker 11: policy a little too tight for too long, the labor
Speaker 11: market deteriorates. And once the labor market starts to deteriorate,
Speaker 11: that usually tends to be fairly sizable.
Speaker 13: Rather than small.
Speaker 11: The sum rule says, every time the unemploy rate goes
Speaker 11: up by more than a half a percent, you have
Speaker 11: a full blown recession.
Speaker 13: So you know, the Fed is trying to find the
Speaker 13: exactly right guidepath.
Speaker 11: And you know when polls, you know, does this press conference,
Speaker 11: I think everyone's going to ask the questions about what
Speaker 11: are you going.
Speaker 13: To do in March? What are you gonna do to May?
Speaker 13: And the answer is they don't know at this point.
Speaker 11: Because the economic information is going to tell them whether they're.
Speaker 13: In the on the right guidepath or not.
Speaker 11: If the economy is weaker than expected, the labor market
Speaker 11: has more slack than expected than the Federal Reserve will
Speaker 11: cut rates sooner and by more. If the economy is
Speaker 11: stronger than expected and inflation stays a little bit higher
Speaker 11: than expected, then the federally deserve will keep monitary policy
Speaker 11: on hold, and relatively small differences in the growth trajectory
Speaker 11: right now are going to have pretty big implications for
Speaker 11: the interest rate path. That's why the market's very molatile,
Speaker 11: is reacting to each piece of incoming information, because each
Speaker 11: piece of incoming information affects the probability of these three
Speaker 11: different outcomes.
Speaker 10: Well, we're talking a lot about politics these days, with
Speaker 10: the primaries and caucuses underway, and I'm wondering I question.
Speaker 10: I know the answer to your basic answer to if
Speaker 10: I ask you, will politics of the selection your play
Speaker 10: into FED decision making, You're going to tell me no,
Speaker 10: the Fed doesn't let that happen. But we know from
Speaker 10: the transcripts that it gets talked about. And given the
Speaker 10: fact that one of the candidates has said a lot
Speaker 10: of nasty things about the Federal Reserve, would the FED prefer,
Speaker 10: if it knows it's going to be cutting interest rates
Speaker 10: to do it before the September meeting to sort of
Speaker 10: stay out of the headlines and politics.
Speaker 11: I think at the end of the day, the Federal
Speaker 11: Reserve will set monitary policy on what they think is
Speaker 11: right formula to generate the best possible combination of full
Speaker 11: employment and price stability. The FED can't take pay attention
Speaker 11: to politics because if they start to pay attention to politics,
Speaker 11: that politicizes the FED and makes the FED vulnerable to attack.
Speaker 11: This is why Cherpaul, when he's asked about fiscal policy,
Speaker 11: tax cuts, and things of that sort, he never.
Speaker 13: Wants to talk about any of those things because he
Speaker 13: doesn't want the FED involved in the political debate. And
Speaker 13: so I think the FED will stay very apolitical.
Speaker 11: My own experience, I was at the Federal Reserve for
Speaker 11: eleven and a half years around the FMC table. Never
Speaker 11: what did politics come up as a reason to adjust
Speaker 11: manentary policy, either more slowly or more quickly.
Speaker 10: I just as did you ever feel any sort of
Speaker 10: internal pressure as a human being thinking about what your
Speaker 10: decision might mean in the context of how voters react.
Speaker 13: I think at the end of the day, you just
Speaker 13: have to be blind to that.
Speaker 11: I mean, I think the only way it might come
Speaker 11: up is there are there are having cases in the past,
Speaker 11: or the election has been right after the right after
Speaker 11: an FMC meeting.
Speaker 13: So maybe that f C.
Speaker 11: Meeting that's a couple of days before the election. You know,
Speaker 11: maybe that's one that you take a pass on. But
Speaker 11: you know that onlyccurs every once in a while because
Speaker 11: a lot of times the meeting happens after the election.
Speaker 11: You know, election is the first Tuesday in November, and
Speaker 11: FED has an FMC meeting around that time, and where
Speaker 11: that fit FMC meeting falls could maybe have a very
Speaker 11: very very very marginal FED. But I think beyond that,
Speaker 11: I think there's just nothing there because if the FED
Speaker 11: starts going down this path, where.
Speaker 13: Does it end?
Speaker 11: Then the FED gets accused of being political. Then people
Speaker 11: start to talk about, well, maybe we need to rein
Speaker 11: in the Fed's independence. FED loses independence, then it loses
Speaker 11: ability to conduct monetary policy in a way best designed
Speaker 11: to achieve it's two mandate objectives. So it's a slippery slope.
Speaker 11: You don't want to start going down that slippery slope.
Speaker 2: But safe to say Donald Trump, if he is and
Speaker 2: everything is pointing to him being the Republican presidential candidate again,
Speaker 2: if he you know, he has not been shy is feelings,
Speaker 2: certainly about the FED and Jay Palace specifically, should Jay
Speaker 2: powellin FED officials worry though possibly about becoming part of
Speaker 2: the campaign, whether they like it or not.
Speaker 13: Well, wouldn't surprise me at all.
Speaker 11: If you know, the candidate Trump started to you know,
Speaker 11: attack the FED for cutting interest rates, arguing that that
Speaker 11: was somehow eating the Biden, you know, reelection chances, So
Speaker 11: that certainly could come up.
Speaker 13: I mean, that wouldn't surprise me at all.
Speaker 11: But the FED reserve would be No, We're doing what
Speaker 11: we think is appropriate to achieve our dual mandate objectives.
Speaker 2: All right, So your best bet and we totally get
Speaker 2: it data dependent. We're going to move from data point
Speaker 2: to data point. Having said that our investors' markets not
Speaker 2: being smart and not and not including in their thinking
Speaker 2: that the FED could actually raise rates again or how
Speaker 2: how do you think about that?
Speaker 11: Well, I think that the likelihood of the FED raising
Speaker 11: rates from her is very low, and I think the
Speaker 11: reason is that FED already thinks monetary policy is quite restrictive,
Speaker 11: so they would have to be convinced that mantra policy
Speaker 11: is not restrictive. I think if if it turns out
Speaker 11: that the economy is stronger than expected, inflation is higher
Speaker 11: than expected, it's more likely to just just stay at
Speaker 11: the current level for longer as opposed to move to
Speaker 11: actually start to hype rates again, I think the bar
Speaker 11: to raising rates at this point is pretty high.
Speaker 3: Why does it seem to you that the dot plot
Speaker 3: kind of shows that FED officials are all over the
Speaker 3: place over the next couple of years. What kind of
Speaker 3: uncertainty does that suggest? It does suggest that there are
Speaker 3: real camps of doves and hawks.
Speaker 13: I think that this is just a very uncertain outlook.
Speaker 11: I mean, how many times have we had recoveries from
Speaker 11: pandemics and the economy having lots of inflation with the
Speaker 11: Federals are being very slow to tighten mantarc policy and that.
Speaker 11: So that's sort of the bad news, and then the
Speaker 11: good news. It seems like it's working out pretty well
Speaker 11: so far. So the FED is caught up, economy has
Speaker 11: slowed a bit, inflation has come down. So I think
Speaker 11: you know the reason why, you know, it's just a
Speaker 11: very tricky and tricky environment.
Speaker 13: I think that you know, FED officials probably disagree mostly.
Speaker 11: About the economic outlook. You know that it's certain it's
Speaker 11: about the economic outlook. I think in terms of how
Speaker 11: they would respond to the same economic outlook, I probably
Speaker 11: imagine the reaction function how they would respond probably doesn't
Speaker 11: vary as much so I think it's mostly uncertained about
Speaker 11: the economic outlook.
Speaker 2: Hey, Bill, just got about one minute left here. We're
Speaker 2: getting ready for read on GDP here in the United
Speaker 2: States that's later on this week, and then of course
Speaker 2: the FED meeting next week. What do you think is
Speaker 2: the smart conversation, smart thought mark, or smart metric that
Speaker 2: you think investors should be watching ahead of all of
Speaker 2: that to kind of figure out where we go from here?
Speaker 13: Well, I think the GDP news this is sort of
Speaker 13: old news.
Speaker 11: It's like describing what happened in the fourth quarter, and
Speaker 11: that's really not really that important from the FEDS perspective.
Speaker 13: It's really where are we going from here?
Speaker 12: Right?
Speaker 11: So, I don't think the GDP news is going to
Speaker 11: be very very important in terms of influencing the Fed.
Speaker 11: I think what's really going to be important is number one,
Speaker 11: what happens to the labor market, what's having to pay
Speaker 11: all employment, what's having to the unemployer rate, what's having
Speaker 11: to wages? And number two, what's happening to inflation? Is
Speaker 11: the hot final mile on inflation actually going to be
Speaker 11: harder or not so hard? That's really the cool question
Speaker 11: on the table.
Speaker 2: All right, Well, Bill, Dudley, so appreciate your time on
Speaker 2: this Monday with the breaking news and then of course
Speaker 2: getting your outlook and thoughts on the US Central Bank.
Speaker 2: Bill Dudley, of course, former president of the New York Fed,
Speaker 2: Bloomberg opinion columnist, and of course our Michael McKee, who
Speaker 2: covers the Fed and everything going on with interest rates. Bill,
Speaker 2: by the way, will be part of the Bloomberg Radio
Speaker 2: and TV special on the Fed Decides. That's on Wednesday,
Speaker 2: January thirty first, that starts at one thirty pm Wall
Speaker 2: Street Time.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: Live weekday afternoons from two to five pm Eastern Listen
Speaker 1: on Apple car Play and then brought Auto with a
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Speaker 12: Well.
Speaker 2: A billionaire couple is giving one hundred million dollars to
Speaker 2: Atlanta's Spelman College, which the women's school says is the
Speaker 2: largest ever single donation to historically black college or university.
Speaker 2: The donation announced yesterday by Roonda Striker and her husband William.
Speaker 2: She is the billionaire granddaughter of the founder of medical
Speaker 2: device maker Striker Corporation. He is the chairman of money
Speaker 2: management firm green Leaf Trust. They live in Michigan.
Speaker 3: Spelman said it would use seventy five million dollars to
Speaker 3: endowt scholarships. The rest of the money will be used
Speaker 3: for other purposes, including developing an academic focus on public
Speaker 3: policy and democracy and improving student housing, a sore point
Speaker 3: in recent years among Spelman's students.
Speaker 2: We are so delighted to have with us to talk
Speaker 2: about this historic gift in what it is a historic
Speaker 2: here for Spelman. Doctor Helene Gail, she's president of Spelman College.
Speaker 2: She is on Zoom from Atlanta and also with us,
Speaker 2: delighted to have here. Bloomberg News Higher Education Finance reporter
Speaker 2: Janet Lauren in our Bloomberg Interactive Brokers studio, Doctor Gail, congratulations,
Speaker 2: Thank you for giving us some time here. Can you
Speaker 2: talk to us a little bit about how this gift
Speaker 2: came up, how did Rhonda Striker come to be a
Speaker 2: trustee at Spelman, and what's it like to receive the
Speaker 2: news of a gift of this magnitude.
Speaker 7: Well, thank you and thanks for having me on.
Speaker 11: Well.
Speaker 12: Rodes Striker is one of our longest serving trustees. She
Speaker 12: was brought on by one of my predecessors, over.
Speaker 7: Twenty years ago, and over the years, she and her.
Speaker 12: Husband have continued to contribute to Spelman, and you know,
Speaker 12: have been incredibly generous donors, but this is clearly the
Speaker 12: largest single.
Speaker 7: Gift that they have ever given.
Speaker 12: And as you said in the run up to this,
Speaker 12: it's the largest single gift that Spelman has ever received,
Speaker 12: and the largest gift to any HBCU. So it's pretty
Speaker 12: exciting and you know, truly a transformational gift that I
Speaker 12: think can make such a huge difference for Spelman, not
Speaker 12: only now but bar into the future.
Speaker 14: So thank you again for coming. So tell us how
Speaker 14: does this donation impact your endowments long longjectivity, especially when
Speaker 14: it comes to scholarships.
Speaker 12: Yeah, so, you know, we plan to use seventy five
Speaker 12: percent of it or endowing scholarships. We will obviously put
Speaker 12: that money to work immediately, and you know, in a
Speaker 12: year or so there will be returns that we can
Speaker 12: use to start increasing our scholarships already. But you know,
Speaker 12: as you know, endowments really really what you can do
Speaker 12: with an endowment is to think about future generations, and
Speaker 12: so you know, we look at this as the way
Speaker 12: that we can secure the future for right talented young
Speaker 12: women who want to get us an education but oftentimes
Speaker 12: are not able to because of financial barriers. So you know,
Speaker 12: we think this is going to make a difference for
Speaker 12: our students today but also for the students of tomorrow.
Speaker 14: Well, and I was looking at your most recent value
Speaker 14: of June twenty twenty two. It was less than five
Speaker 14: hundred million dollars. And then this gives you a huge
Speaker 14: amount of money more to invest. Can you talk about
Speaker 14: what that means for having you know, having that in
Speaker 14: the fund and to be able to build on it
Speaker 14: and to be able to do things like help students
Speaker 14: graduate and boost those rates and help them return the
Speaker 14: next semester of there's trouble.
Speaker 12: Yeah, no, totally, that's exactly what you know, we hope
Speaker 12: to be able to do. As you stated, you know,
Speaker 12: we have an endowment that's just under five hundred million dollars.
Speaker 12: You know, that's that is large for an age for
Speaker 12: many of our h PCU colleagues. But you know, when
Speaker 12: we compare ourselves to similar schools, similar size, type, and
Speaker 12: similar types of populations, you know, our endowment is trails
Speaker 12: many of our peer institutions. And so you know, we
Speaker 12: think that this which is a huge increase in our
Speaker 12: endowment will be able to provide scholarships for students.
Speaker 7: As you know, we have a high need population.
Speaker 12: We've got brilliant students grade point averages to range three
Speaker 12: point nine and above, but we also have a high
Speaker 12: need population. Forty percent of our students are PAL eligible.
Speaker 12: About eighty percent of our students get some sort of
Speaker 12: need based financial aid.
Speaker 7: So, you know, we want to be able.
Speaker 12: To bridge that gap between the talent that we see
Speaker 12: walking through the door and the you know, real gap.
Speaker 7: In financial resources.
Speaker 12: You know, when you can take this incredible talent pool
Speaker 12: and match it with the resources that allow them to
Speaker 12: have this kind of life changing education, you know, I
Speaker 12: think we can make a huge contribution through this gift,
Speaker 12: and you know, hopefully many more. We hope that this
Speaker 12: is the kind of gift that will inspire others to
Speaker 12: invest not only in Spellman, but other HBCUs.
Speaker 3: So, you know, I want to talk a little bit
Speaker 3: about more about the cost of higher education because because
Speaker 3: we got some news earlier today that the President Biden
Speaker 3: is continuing with his efforts to try to reduce the
Speaker 3: debt load that Americans have. Whether or not that is
Speaker 3: successful remains to be seen. But the cost of higher
Speaker 3: education at your school is forty six thousand dollars a
Speaker 3: year for a student living on campus. I got to
Speaker 3: tell you that's a relative bargain in this day and age.
Speaker 3: We were talking with a colleague recently who about another school,
Speaker 3: not an Ivy League school, a small liberal arts college,
Speaker 3: over ninety thousand dollars a year. Why does the cost
Speaker 3: of higher education continue to be so high, doctor Gale.
Speaker 7: Well, you know, every school is different.
Speaker 12: We've tried very hard to keep our costs as low
Speaker 12: as possible. In fact, we reset our tuition and fees
Speaker 12: a couple of years ago to be able to try
Speaker 12: to make our education as affordable as possible.
Speaker 7: But you know, costs continue to rise. Employment costs continues
Speaker 7: to rise.
Speaker 12: You know, we have to be able to the kind
Speaker 12: of high caliber faculty that attracts, you know, the student
Speaker 12: population that comes to Spellman. We've got to make sure
Speaker 12: that we pay our staff and administrative support the kinds
Speaker 12: of resources and so you know, a lot of the
Speaker 12: cost of a college or university are the personnel costs
Speaker 12: that continue to go up. But we also know the
Speaker 12: construction costs, other supply costs have all continued to go up.
Speaker 12: So you know, we try as hard as we can
Speaker 12: to manage those costs to not have to increase tuition
Speaker 12: and fees. But we also have to be competitive in
Speaker 12: today's market.
Speaker 2: But does it feel a little crazy when it's almost
Speaker 2: one hundred thousand dollars? I'm just you understand this world?
Speaker 7: Well, you know, I think we've got to work on
Speaker 7: both sides.
Speaker 12: We have to work on making education more and more affordable,
Speaker 12: but we also have to look at how are we
Speaker 12: making sure that students do have the kind of resources,
Speaker 12: access to scholarships, access to low cost loans to be
Speaker 12: able to afford education. So we've got you know, we've
Speaker 12: got to work on both ends, and you know, we've got.
Speaker 7: Work to do.
Speaker 14: So I write a lot about fundraising, and I would
Speaker 14: love to hear how does a gift like this come about?
Speaker 14: It must have you must have been working on it
Speaker 14: for years and years. If you could take us through that,
Speaker 14: And also, what's it like to get the nod? Yes,
Speaker 14: we're giving you one hundred million dollars?
Speaker 12: Well, you know, as I mentioned, Ronda Striker has been
Speaker 12: a long serving board member and she has seen the
Speaker 12: transformative nature of a Spellman Education. You know, we we
Speaker 12: have young women who walk through the door, you know
Speaker 12: without you know, as young women, and whose lives are transformed.
Speaker 7: By the education that they get here.
Speaker 12: She has seen the economic value that occurs when a
Speaker 12: young grow comes in the door leaves ready to get
Speaker 12: go out into the workforce. You know, if you look
Speaker 12: at the statistics, HBCUs like Spelman have punched above their
Speaker 12: weight for so many years. And I think she has
Speaker 12: seen that the value of investing can make such a
Speaker 12: huge difference. And so, you know, gifts come because people
Speaker 12: believe in your mission. People who have resources who believe
Speaker 12: in your mission have the opportunity to experience why it's
Speaker 12: so important to invest. So Ronda Striker has had the
Speaker 12: opportunity to see what it means when you can match
Speaker 12: the talent pool that we have with the kind of
Speaker 12: resources that can be transformational and change lives. You know,
Speaker 12: Spelman College has the.
Speaker 7: The product of Spelman College is obvious. You know, we
Speaker 7: can rattle.
Speaker 12: Off the names of the important leaders in business, in
Speaker 12: policy and politics and arts, entertainment, entrepreneurship, and so we
Speaker 12: know that there's a product from Spelman that changes lives.
Speaker 2: Well, thank you so much for finding time for us. Congratulations.
Speaker 2: We know it's also an important anniversary for you guys
Speaker 2: in the official naming of the school, So congratulations on that,
Speaker 2: doctor Helene Gail, President of Spelman College, and of course,
Speaker 2: Bloomberg's own Janet Lawren.
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Speaker 2: Plenty ahead in our second hour of the weekend edition
Speaker 2: of Bloomberg Business Week, including time to get high on
Speaker 2: the cannabis industry. I'm asking, and I'm really sorry.
Speaker 6: I had to go.
Speaker 3: How many of these punts do you have?
Speaker 2: It's the only one I have with cannabisiness.
Speaker 3: What you did one earlier meantime, plain old booze do
Speaker 3: and just fine, it seems, especially if you want to
Speaker 3: delivered right to your doorstep.
Speaker 2: Who doesn't.
Speaker 3: Derek Ray is CEO of Reserve Bar. He'll join us
Speaker 3: with a business update and adapting to changing drinking habits
Speaker 3: as younger generations are drinking less and older ones are
Speaker 3: drinking more, and a lot of people Carol just seem
Speaker 3: to be taking part in dry January.
Speaker 2: I'm amazed that people like who come into our studio
Speaker 2: like it. I'm part of it.
Speaker 3: You offer somebody like, oh, let's go for a drink,
Speaker 3: They're like, no, I'm doing dragging anyway.
Speaker 2: A lot of them work here, By the way, what
Speaker 2: does that say?
Speaker 5: I don't know.
Speaker 2: First up this hour the CEO who meditates before getting
Speaker 2: down to business, and he does have a lot of
Speaker 2: business going on. Brad Jacobs is the founder and chairman
Speaker 2: at freight services provider XPO.
Speaker 3: He's a serial entrepreneur. Brad has started five companies and
Speaker 3: he's the author of a new book just out this week,
Speaker 3: How to Make a few Billion dollars. A lot to
Speaker 3: talk about, and we kicked off Brad being back in
Speaker 3: our studio by getting his take on today's business environment.
Speaker 6: I think we've started to see the economy slowing down
Speaker 6: for sure here and in Europe. I think it's going
Speaker 6: to continue to slow down, and depending on what the
Speaker 6: Fed does, it could start picking up. But and what
Speaker 6: the Fed does is that.
Speaker 2: More an issue of what the FED does versus the
Speaker 2: war's overseas and we're looking at the Red Sea and
Speaker 2: ships not being able to go through. We're worried about
Speaker 2: does a supply chain already you know, have some problems
Speaker 2: in it and maybe it even gets worse. Is the
Speaker 2: FED more important? And really global central banks?
Speaker 6: The FED is more important than what the hoodies are doing.
Speaker 6: The hoodies are driving hooties if you want to look
Speaker 6: at an economic terms or inflationary because they're driving up
Speaker 6: shipping costs which will pass we will be passed along
Speaker 6: to consumers in the end.
Speaker 5: But the FED is.
Speaker 6: The overall stimulator or slower downer of.
Speaker 2: The economy, so that more important.
Speaker 6: Yeah, well there.
Speaker 3: Is a big I mean the big debate that we
Speaker 3: talk about every day is like, will they or won't
Speaker 3: they in March cut rates? You say, the economies depending
Speaker 3: on what the FED does. What do you think the
Speaker 3: Fed should do?
Speaker 6: I think the Fed should keep looking at the data
Speaker 6: and do what ignore everything else and go buy the data.
Speaker 6: If inflation cools down more, yeah, it may make sense
Speaker 6: to start lowering rates. If inflation continues to rear its
Speaker 6: ugly head, then it's not the time to be lowering rates.
Speaker 3: Are you seeing in your various businesses, what you're hearing
Speaker 3: from colleagues, what you're hearing from associates, is inflation wearing
Speaker 3: it's ugly head again or does the Fed have this tamed.
Speaker 6: It's more slowing down and having slowed down than inflation
Speaker 6: coming back. So I look at wages a lot, since
Speaker 6: it's a big part of all of our businesses. Wage
Speaker 6: growth has slowed. Input costs are still going up, but
Speaker 6: they've slowed. Rents at least has gone up, but they're
Speaker 6: going up slower. So it does feel it's slowed down
Speaker 6: quite a bit.
Speaker 2: Brad. Are you holding on to workers?
Speaker 11: Are?
Speaker 6: Yeah? Much more than Well, first of all, we couldn
Speaker 6: even find workers a couple of years.
Speaker 2: Ago, right, But I'm just curious, are you still worried
Speaker 2: about like losing someone and not being able to or
Speaker 2: letting somebody go. If you're starting to see some softness,
Speaker 2: would you rather hold on to a worker at this point?
Speaker 6: Well, you always want to hold on to your talent,
Speaker 6: and in the book I talk to you about that
Speaker 6: at this your number one asset are your people, and
Speaker 6: you've got to make sure you have a plus.
Speaker 2: You know what I'm saying that when you when you
Speaker 2: run a publicly held company, and if you're worried about
Speaker 2: any kind of slow down, you've got to start to
Speaker 2: look at your costs again and work certainly playing.
Speaker 6: And you should be looking at your costs in every
Speaker 6: part of the cycle. Should be managing your costs intelligently.
Speaker 2: All right. So having said that, when you think about
Speaker 2: capital expenditures, you're comfortable to move ahead.
Speaker 6: Yeah. Absolutely, I'm about to start a new company.
Speaker 2: You have started a well almost are almost?
Speaker 10: Well?
Speaker 2: Where are you that? Help us out with that because
Speaker 2: we've talked about it with you last year. We're talking
Speaker 2: about QXO, right, tell us about where you are and
Speaker 2: you're looking to buy businesses. From what I understand, it's
Speaker 2: all about kind of moving businesses and materials around in
Speaker 2: North America. So where are you in the process.
Speaker 6: North America and Europe?
Speaker 2: And Europe?
Speaker 6: So it's exactly I did exactly what I said I
Speaker 6: was going to do when I sell you last time.
Speaker 6: So we've agreed to put a billion dollar pipe equity
Speaker 6: investment into a very small cap company where they going
Speaker 6: to spin that company back to its legacy owners, give
Speaker 6: them a two and a half million dollar dividend, give
Speaker 6: them a small less than one half percent of equity
Speaker 6: ownership in our new company, QXO, and we'll have a
Speaker 6: pure play called QXO, which will consolidate the eight hundred
Speaker 6: billion dollar building products distribution industry.
Speaker 2: So where are you in the process.
Speaker 6: Where a couple months or so away from finishing that. Yeah,
Speaker 6: and depending on various approvals we have to get from
Speaker 6: the SEC and so forth, and then we'll be off
Speaker 6: to the races.
Speaker 2: So you haven't acquired anything yet, correct, But do you
Speaker 2: have like a list that you're ready to go? Oh?
Speaker 6: Yeah, we're talking to lots of companies. Okay, well, we
Speaker 6: have a lot of discussions going on privately held.
Speaker 2: I'm assuming smaller players.
Speaker 6: Right now because our budget is only a billion dollars.
Speaker 6: They're all private.
Speaker 3: How are you going to make one plus one equal
Speaker 3: three with these acquisitions? Like, how will you bring operational efficiency?
Speaker 6: I'm going to follow the same exact playbook that I've
Speaker 6: done for the last few decades. I'm going to buy
Speaker 6: companies that are good companies but can be better. I'm
Speaker 6: going to buy companies. When you put them together, you
Speaker 6: find synergies, particularly in procurement, which is the biggest line
Speaker 6: item in billing products distribution. I'm going to apply technology
Speaker 6: to be the most tech forward building products distributor in
Speaker 6: the world. And I'm going to do all that together
Speaker 6: and get economies of scale as we get bigger and
Speaker 6: bigger and bigger. And now I've put the numbers out there,
Speaker 6: I expect to be at at least a billion dollar
Speaker 6: revenue run rate after year one, at least a five
Speaker 6: billion dollar revenue run rate.
Speaker 2: You're sticking to that.
Speaker 6: Absolutely, and most importantly, tens of billions of dollars of
Speaker 6: revenue over the decade.
Speaker 2: Why is this such a smart bet right now? This
Speaker 2: of distributing building materials in North America and Europe? You
Speaker 2: said specifically, what's the trend that you are seeing? Is
Speaker 2: it infrastructure?
Speaker 6: What is it long term? There is a there's three drivers.
Speaker 6: In residential construction. Houses are old, they are average age
Speaker 6: of a house is over forty years is old. So
Speaker 6: and there's repair remodeling going on, and there's more construction
Speaker 6: that will be driven by that. They're on the non
Speaker 6: residential construction, they're even older. Non residential buildings are over
Speaker 6: fifty years old on average. On the infrastructure, there's about
Speaker 6: two trillion dollars of infrastructure spend that needs to be
Speaker 6: done over the next twenty years. So there's a lot
Speaker 6: of activity that has to happen here.
Speaker 3: Why not just relax?
Speaker 1: Why not?
Speaker 3: I mean, like, what motivates you to keep doing this?
Speaker 3: Like you love to create times over and over again,
Speaker 3: and I mean.
Speaker 6: I love the job. I've been to CEO since I've
Speaker 6: been twenty three years old. It's just a fantastic job.
Speaker 6: You get to be very creative, you get to think big,
Speaker 6: you get to dream these large, large business plans. You
Speaker 6: get to recruit people you love to work with. You
Speaker 6: design compensation program so everybody's in it to win it.
Speaker 6: And you come to work every day and you just
Speaker 6: knock down the list and make it happens, and you
Speaker 6: create huge amount some money, not just for the employees
Speaker 6: but for the shareholders. You know, our companies over the
Speaker 6: years have really excelled at shareholder value creation. If you
Speaker 6: looked at at Expo Logistics, our initial investors made thirty
Speaker 6: two times in the money. If you look at United Rentals,
Speaker 6: United Rentals, we started it was three dollars and fifty
Speaker 6: cents a share. Today it's over five hundred and fifty
Speaker 6: dollars a share. So it's a lot of values to
Speaker 6: be created for a lot of people, and I just
Speaker 6: love that. I take a lot of pride in.
Speaker 2: That this value creation of maybe a billion, you say,
Speaker 2: of annual revenue in the first year and then five
Speaker 2: billion within three years. Can you do that if there's
Speaker 2: any weakness in the global economy or in the US.
Speaker 6: At I can do this business plan regardless of what
Speaker 6: happens in the economy. If it's strong, if it's weak,
Speaker 6: if it's flat, I can still do this business Why
Speaker 6: Because there's seven thousand distributors to buy in the United States.
Speaker 6: In North America in cluding Canada, there's thirteen thousand to buy.
Speaker 6: In Europe, there's a lot of them are owned by
Speaker 6: private equity, and private equity will have a choice. Private
Speaker 6: equity can dribble out over a number of years through
Speaker 6: an IPO and the secondary and so forth at a discount,
Speaker 6: or they can sell to me on a win win
Speaker 6: deal where I pay them a premium.
Speaker 2: So like when you wake up in the morning, what's
Speaker 2: the first thing you think about?
Speaker 6: The first thing I think about is how to get
Speaker 6: my head in a good place. Okay, before I start
Speaker 6: getting into business. How do I center myself?
Speaker 11: Really?
Speaker 6: Yeah, I try. I do a series of meditation exercises
Speaker 6: to expand my mind and to think about very large
Speaker 6: areas of space, and then I try to shrink it
Speaker 6: into very small likeking down into atoms. And I have
Speaker 6: a whole spiritual exercise I do in the morning. I
Speaker 6: get in the zone. I like to get in the zoo.
Speaker 3: Is that different than when you were twenty three and
Speaker 3: you were a CEO or you do.
Speaker 6: Now a little more now I wasn't doing anything.
Speaker 3: Yeah, that's interesting because I do feel like the you know,
Speaker 3: it would these days to hear an executive say that,
Speaker 3: it's not that surprising. It's widely accepted that is a
Speaker 3: way to actually closet from that.
Speaker 6: But but you have the meditation stuff quiet. Yeah, but
Speaker 6: at the beginning of your career.
Speaker 3: Yeah, that's interesting.
Speaker 2: That is interesting. How did you Why did you start then?
Speaker 2: Like what?
Speaker 6: I started transcendental meditation when I was a teenager in
Speaker 6: high school, and then I did that for decades for
Speaker 6: a long time, and then I started experimenting with other
Speaker 6: forms of meditation. I studied Milton Ericsonian neuro hypnotherapy, and
Speaker 6: I studied psychotherapy, the different mindfulness techniques, the cognitive therapy techniques,
Speaker 6: and I kind of blended them all together and picked
Speaker 6: and choosed, and I made my own think, well why
Speaker 6: because I think, as I say in the very first chapter,
Speaker 6: you need to rearrange your brain in order to accomplish
Speaker 6: big stuff.
Speaker 3: But what was the awareness that you had in high
Speaker 3: school to actually do that? I sort meet high school posters.
Speaker 6: Of Maharshi Meshiogi up on a screen. It said something
Speaker 6: like life is bliss. That's interesting. I think I'll go
Speaker 6: to the election.
Speaker 2: Do you do yoga too?
Speaker 6: I do yoga?
Speaker 2: Yea, yeah?
Speaker 12: Yeah?
Speaker 2: Interesting? That is really fascint all right, so I'm like
Speaker 2: getting my head around that love that. So with this book,
Speaker 2: and I know we've talked about it before, I mean,
Speaker 2: what are you trying to inspire another people? Knowing what
Speaker 2: you've done so far and kind of laying this out
Speaker 2: because you make it. The title makes it feel like, hey,
Speaker 2: anybody can do this. I don't know that anybody can
Speaker 2: do it. Are you saying anybody can do this?
Speaker 3: What this is?
Speaker 6: I don't think anybody can make a few billion dollars
Speaker 6: because that's just mathematically, there's only a few people who
Speaker 6: do that, but I think anybody can rearrange their brain
Speaker 6: to think in a different way. That's big, that's confident,
Speaker 6: that's strong, that's very off the beaten track, and accomplish
Speaker 6: great stuff. Now that doesn't have to be making money.
Speaker 6: That can be all kinds of stuff. That could be
Speaker 6: just being a great mom or dad. That can be
Speaker 6: a great artist, That can be a great musician, It
Speaker 6: can be a great anything. But yes, I think what
Speaker 6: I've shared in the book are the techniques that have
Speaker 6: work for me in order to attract great people and
Speaker 6: to organize those people in a way to accomplish big things.
Speaker 6: And I think that can be taught.
Speaker 2: One of the things I think about is to be fair.
Speaker 2: Like a lot we'll have a lot of leaders in
Speaker 2: and talk about great people, But what is it that
Speaker 2: you think? Really people have to understand what does that mean?
Speaker 2: Is it allowing them like we talked about the Smucker
Speaker 2: CEO and that company is allowing people to come to
Speaker 2: work what Tuesday to Thursday every other week?
Speaker 6: Like, that's not my culture at all, But what is it.
Speaker 2: To create great people?
Speaker 4: Like?
Speaker 2: What does that mean? How do you do that?
Speaker 6: You need to think in your mind very clearly who
Speaker 6: you're trying to attract. What are the traits and qualities
Speaker 6: and characteristics that you're looking for. I know what those
Speaker 6: are very clearly.
Speaker 4: For me.
Speaker 6: I look for people who are super smart. They've got
Speaker 6: to be smarter than me. Why do I want to
Speaker 6: depend on people less smart?
Speaker 11: Thing?
Speaker 6: I want to depend on people smarter than me. So
Speaker 6: I always try to get people who are hopefully significantly
Speaker 6: smarter than I am. They may not have this. I
Speaker 6: bring certain business talents and commercial sense to the table,
Speaker 6: leadership talents, But in terms of row IQ, I like
Speaker 6: smart people. I really really enjoy that. I want people
Speaker 6: with grit. I want people want or hungry, who want
Speaker 6: to work really hard, who actually like working with enjoyable.
Speaker 6: And then I want people who are honest as the
Speaker 6: day as long. I definitely want people who I'm trying
Speaker 6: to analyze what they what.
Speaker 5: Do they really mean?
Speaker 12: I want?
Speaker 6: I want people who are collegial and collaborative and team
Speaker 6: players and play well in the sandbox with each other
Speaker 6: so that you can create well. If you're an ant
Speaker 6: or you're a super organism, I talk about that in
Speaker 6: the book. You want to create a culture that's say
Speaker 6: super organism, not just a bunch of people, but a
Speaker 6: collect a highly integrated group of people.
Speaker 2: Is there a leader you admire?
Speaker 6: Oh, lots of people.
Speaker 2: Is there one that you would share?
Speaker 6: I admire Jeff Bezos, I admire. I admire Elon Musk,
Speaker 6: even though you know he has certain traits I don't admire,
Speaker 6: but I do admire his ability to think huge.
Speaker 3: You brought up Elon Musk. So I want to go
Speaker 3: somewhere that Carol and I go each and every day,
Speaker 3: which is some people. Are you the biggest revolution when
Speaker 3: it comes to technology right now? And that's what's happening
Speaker 3: with AI. Certainly a lot has changed when it comes
Speaker 3: to computers and AI over your career. How do you
Speaker 3: think about harnessing AI, using it in your businesses and
Speaker 3: even concerns that you might have about the technology.
Speaker 6: I've always used technology to my advantage. All my companies
Speaker 6: have been TechEd forward right from the very first one.
Speaker 6: So when I was in the oil business, way before
Speaker 6: the Internet, our main edge was to have a rudimentary
Speaker 6: technology system to collect information globally about buyers and sellers
Speaker 6: of crude oil and refined products. When I was in
Speaker 6: the waste management business, we'd be the first ones to
Speaker 6: pioneer very advanced route optimization software, so the trucks weren't
Speaker 6: just randomly driving around. We were efficiently optimized what the
Speaker 6: routes were going to be. When I was in the
Speaker 6: construction equipmental business, one of the first acquisitions we made,
Speaker 6: and we made hundreds of acquisitions was a company called
Speaker 6: wind Systems, which.
Speaker 15: Was a.
Speaker 6: Way to record where all the equipment is and we
Speaker 6: had billions of dollars of equipment where everything was at
Speaker 6: any one point in time, and to predict it and
Speaker 6: monitor its utilization so that we could replenish the fleet
Speaker 6: where we needed it, where there was demand, and we'd
Speaker 6: know where to lower prices or raise prices depending on demand.
Speaker 6: XPO is all about technology. One of the first few
Speaker 6: people I hired was Mario Harrik, now the CEO of XPO,
Speaker 6: who as my CIO because the vision was to automate
Speaker 6: truck brokerage. And fast forward to today, we've spun that
Speaker 6: off as RXO. Drew Wilkinson runs it and ninety eight
Speaker 6: percent of their orders are either sourced or cover electronic,
Speaker 6: and that was zero percent when we started the company.
Speaker 6: So yeah, I've always embraced technology. I think it's really
Speaker 6: important to do that.
Speaker 2: Only have about thirty forty seconds left here, so I'm
Speaker 2: going to ask you, but you say, bigger is better
Speaker 2: in business most of the time, but not always. And
Speaker 2: I think in a world where we're always wanting more,
Speaker 2: we even talk about companies. Look at this market cap,
Speaker 2: they're number one. Why is this an important concept? And
Speaker 2: forgive me abrep because we only have about thirty seconds.
Speaker 6: So over the last year, I've looked at dozens of
Speaker 6: industries and hundreds of companies and I had a checklist
Speaker 6: of everything I wanted, size, growth, fragmentation. One of them
Speaker 6: was Bigger is better. That means there's economies of scale.
Speaker 6: In the case of QXO, the big economy of scale
Speaker 6: is purchasing power procurement because if you buy lots of materials,
Speaker 6: you going to get a cheaper price.
Speaker 2: Promise you'll come back and as you build out your
Speaker 2: new business.
Speaker 6: I always like to come on here because it seems
Speaker 6: like it was one minute.
Speaker 2: I agree, I agree, and we learned something new about
Speaker 2: you which was really fascinating. Project ups, Thank you so much,
Speaker 2: good luck with everything. Founder and chairman of XPO. Of course,
Speaker 2: We've talked about his new book, How to Make a
Speaker 2: Few Billion dollars in looking forward already to the future conversation.
Speaker 6: Feeback, Thank you.
Speaker 2: You are listening and watching Bloomberg Radio.
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Speaker 7: All right, everybody.
Speaker 2: Investors not so key on the cannabis sector. Last year.
Speaker 2: The Advisor Shares Pure US Cannabis ETF little changed in
Speaker 2: twenty twenty three, after dropping seventy three percent in twenty
Speaker 2: twenty two. This year, however, as a whole tim the
Speaker 2: group is up about twenty percent as measured by that ETF.
Speaker 3: We have seen the group pop this year as investors
Speaker 3: seem optimistic about a possible reclassification and potential regulatory changes
Speaker 3: that could benefit the cannabis industry after the Department of
Speaker 3: Health and Human Services released some two hundred and fifty
Speaker 3: two pages of documents asking the DEA and to ease
Speaker 3: its position on cannabis. We're talking, of course, about the
Speaker 3: Drug Enforcement Agency. This according to Bloomberg News over the summer.
Speaker 2: Yeah, a lot of pages. What's key and for the
Speaker 2: first time, the HHS recommending that the DEA reschedule cannabis
Speaker 2: from Schedule one to Schedule three. It gets a little
Speaker 2: wonky under the Controlled Substances Act, but it's significant. To
Speaker 2: do this, HHS had to find that cannabis had acceptable
Speaker 2: medical uses and relatively low potential for abuse and dependence.
Speaker 2: Many people reporting the Wall Street Journal kind of noting
Speaker 2: this out specifically as to why this is so significant.
Speaker 3: Yeah, the AHHS recommending sweeping changes to federal marijuana laws,
Speaker 3: and yet we've seen this industry high before PAPA and
Speaker 3: then societal norms and politics have their say. Politics a
Speaker 3: big part of.
Speaker 2: This, absolutely, So let's get more on the industry. We
Speaker 2: welcome back Boris Jordan. He's executive chairman at cure Leaf
Speaker 2: here with us in our Bloomberg Interactive Brokers studio cure
Speaker 2: Leaf shares. By the way, they're up about seventeen percent
Speaker 2: year to date after three down years with the stock
Speaker 2: losing more than seventy percent. It's a high on February tenth,
Speaker 2: twenty twenty one. We know it's been tough going, but
Speaker 2: much different tone this week and this year. I should
Speaker 2: say boris. First of all, Happy new year. Good to
Speaker 2: have you back in the studio.
Speaker 5: You're right to be back in the studio, walked.
Speaker 2: This is the first time since COVID.
Speaker 5: Right, yep, first time since COVID back in the studio.
Speaker 2: All right, talk to us about the mood this year.
Speaker 2: We got a little wonky in terms of what is
Speaker 2: going on with regulators, the DEA and HHS. But this
Speaker 2: is significant potentially.
Speaker 5: This is literally a game changer. I think that in
Speaker 5: many ways if you read it, and I actually spent
Speaker 5: the all paple of days reading two hundred and fifty pages,
Speaker 5: and the thing that I took out of it the
Speaker 5: most is this was largely an apology almost by the
Speaker 5: federal government about cannabis we for the last fifty years.
Speaker 5: Well because if you look back at it when they rescheduled,
Speaker 5: when they scheduled cannabis to schedule one, you know, there
Speaker 5: was a tremendous amount of papers written on how awful
Speaker 5: it was, how terrible it was for your health, that
Speaker 5: there were no medical benefits, that this was the root
Speaker 5: of all evil. And if you think about it today,
Speaker 5: not even drugs like cocaine or fenton or our scheduled
Speaker 5: one right, things that actually kill people. I mean alcohol
Speaker 5: isn't even scheduled, which has a lot worse effects on
Speaker 5: the human body than cannabis. Books classification right of these,
Speaker 5: it's a classification, and I think in many ways that
Speaker 5: also not only are they following the people in the country,
Speaker 5: you know the fact that you know eighty percent of
Speaker 5: the country now has access to either medical or recreational
Speaker 5: cannabis and is frankly using it, but also you have
Speaker 5: major countries like Canada and Germany. Germany on the twenty
Speaker 5: second of February is going to be voting to take
Speaker 5: cannabis off their narcotics list, not rescheduling from scheduling too
Speaker 5: schedule three, but taking it off completely. So you have
Speaker 5: major countries around the world that are starting to recognize
Speaker 5: the medical benefits of cannabis and are taking it off
Speaker 5: the lists.
Speaker 3: As Germany's approached the right approach in your opinion.
Speaker 5: I personally think, you know, every country has its own approach.
Speaker 5: I think for Germany, they have decided that that's the
Speaker 5: right approach. They want to take it off and what
Speaker 5: that allows them to do in Germany at least is
Speaker 5: that all doctors will now be able to prescribe cannabis.
Speaker 5: And more importantly, today in Germany, under their current law,
Speaker 5: you have to try other drugs before you can try cannabis.
Speaker 5: So now that won't be the case. You can go
Speaker 5: use cannabis as a primary drug and you can have
Speaker 5: any doctor prescribe it under that the new legislation.
Speaker 2: So what about the timing for the potential dea rescheduling
Speaker 2: of marijuana burs How are you thinking about it? And
Speaker 2: so it was a timing, do you have any clarity
Speaker 2: on that because I'm hearing reading upbeat stuff, but they're
Speaker 2: also saying slow it down, everybody.
Speaker 5: Yeah, I think what you said in your introduction was right.
Speaker 5: I think this is very political now we are going
Speaker 5: into political season. This is something particularly with the Democratic
Speaker 5: Party to get out the younger vote, the younger vote.
Speaker 5: It's very much pro cannabis. We all know they're using
Speaker 5: a lot more cannabis than they are alcohol. Alcohol sales
Speaker 5: in all states or cannabis is now legal are downs,
Speaker 5: you know, ten to fifteen percent. So this is a
Speaker 5: real real vote getter potentially, And so I think this
Speaker 5: is going to be tied to politics. If that's the case,
Speaker 5: if we're right on that, then the latest they can
Speaker 5: really come out with this is mid April. And the
Speaker 5: reason for that is you have to have a sixty
Speaker 5: day common period after the recommendation, right, and then you
Speaker 5: have to have sixty day legislative period. Sixty legislative under
Speaker 5: our calculations, about three months before it can be before
Speaker 5: it become active. And so that means if they want
Speaker 5: it active before the election, if this is really political
Speaker 5: in nature, then they really hit The latest they can
Speaker 5: do this is really April. However, if it's not political,
Speaker 5: then they can you know, they can take it out
Speaker 5: nine years. I mean, we've seen that before.
Speaker 3: Which one do you think they'll do?
Speaker 5: I personally think that they wouldn't do all of this
Speaker 5: if this was going to be, you know, a nine
Speaker 5: year thing. I think that they are going to probably
Speaker 5: make the recommendation reschedule sometime in the next three months.
Speaker 2: All right, So if that happens, what does it mean
Speaker 2: for cure specifically?
Speaker 6: What's the securely?
Speaker 5: If it's an absolute game changer for a variety of reasons.
Speaker 5: For instance, on twenty twenty four numbers, we would pay
Speaker 5: an extra two hundred million cash in taxes to the
Speaker 5: federal government over and above our normal corporate tax rate,
Speaker 5: which would be equal to everybody else's, so largely the
Speaker 5: cannabis industry, and one of the reasons that these stocks
Speaker 5: have been down is people have realized that the cannabis
Speaker 5: industry is working for the federal government. Anything we make
Speaker 5: goes gets paid out in taxes to the federal government.
Speaker 5: So we can virtually not produce positive numbers on the
Speaker 5: bottom line. Explain that because we our effective tax rate
Speaker 5: is over seventy percent, and the reason for that is
Speaker 5: we cannot write off any expenses, which is, by the way,
Speaker 5: really bad for benefits for employees. Anything we try to
Speaker 5: do for employees is not we can't have irais we
Speaker 5: can't do anything because of this tax system. And so
Speaker 5: you know today we can't write off any expenses. So
Speaker 5: that brings us to an effective tax rate of seventy
Speaker 5: plus percent is what we're paying.
Speaker 2: How do you run a business like that?
Speaker 5: If that's the case, that shows you how well these
Speaker 5: companies are actually run. The fact that they can actually
Speaker 5: survive in an atmosphere where we're paying seventy plus percent taxes.
Speaker 3: Okay, beyond the tax benefits, which I know you've talked
Speaker 3: about in the past and have been well documented. How
Speaker 3: do you pivot your business into new areas? Do you
Speaker 3: start selling things differently? Do you start doing things differently
Speaker 3: unrelated to tax?
Speaker 5: So a lot will depend and this is the big unknown.
Speaker 5: A lot will depend on what the DOJ says after
Speaker 5: this rescheduling. So we're expecting a DOJ memo. The code
Speaker 5: word for it is called the Garland Memo that's going
Speaker 5: to come out, very similar to the Cole Memo under Obama,
Speaker 5: which will then describe what they mean by this reschedule,
Speaker 5: like what are the rules going to be in the marketplace.
Speaker 5: And there's a lot of unknowns because at the moment,
Speaker 5: the states control the regulation of cannabis. Right it's still
Speaker 5: federally legal. Rescheduling doesn't make it federally legal. It just
Speaker 5: rescheduled from Schedule one to Schedule three. So now we
Speaker 5: need to see what is the DOJ going to say
Speaker 5: on the back of that. We also have safer banking
Speaker 5: that's going through Congress right now. It's now in joint committee.
Speaker 5: Many people don't realize.
Speaker 3: That my entire career, I'm just.
Speaker 2: Going to say, right, but It's been a big since
Speaker 2: we've been talking about this.
Speaker 5: It's literally I've been looking at this for ten years.
Speaker 5: I'm just as frustrated. But I will tell you what
Speaker 5: I learned last Friday. This is absolutely enjoint committee between
Speaker 5: the Senate and the House that's never happened before. Since
Speaker 5: the beginning, they are now negotiating aspects of that bill,
Speaker 5: and they're looking to bring it in March. I believe
Speaker 5: that's also part of the coordination.
Speaker 2: So you're not worried about November elections in terms of
Speaker 2: how that plays out and could affect this, because do
Speaker 2: you think a lot of it's going to be done
Speaker 2: prior to that.
Speaker 5: I think they're going to try to get a lot
Speaker 5: of it done prior to that. I mean, we have
Speaker 5: two candidates right now that are front runners that are
Speaker 5: both anti cannabis. Let's be honest, both Trump and Biden
Speaker 5: are not necessarily pro cannabis, and so a lot of
Speaker 5: this that's happening today is happening by the Biden campaign
Speaker 5: and by pressure because of the political situation. You know,
Speaker 5: even against all the lobbying by pharma and interest groups
Speaker 5: that are against cannabis, this thing is really starting a
Speaker 5: great traction.
Speaker 2: So tell us a little bit about your business and
Speaker 2: what people are buying. You know, are we moving beyond
Speaker 2: flower and buds? Are we moving into vaping product?
Speaker 12: Like?
Speaker 2: What are you selling the most of I have.
Speaker 5: To say, the industry is really matured, you know, if
Speaker 5: you take a look, and it's different in the US
Speaker 5: and Europe. Purely if is the only company that's got
Speaker 5: US company that has a very substantial presence in Europe.
Speaker 5: We're selling cannabis in four different countries in Europe, and
Speaker 5: in Europe it's very medical, it's almost pharmaceutical in nature.
Speaker 5: So we're selling a lot of formulated pills. We're selling
Speaker 5: a lot of products, but also flour and flour is
Speaker 5: very popular with doctors in Europe as well. In the
Speaker 5: United States has a much broader array of products. It's
Speaker 5: much less regulated in Europe, and so we sell a
Speaker 5: whole assortment the product. One product that's really gaining, and
Speaker 5: I said this a year ago, is drinks. Drinks are
Speaker 5: really starting seltzer waters are really starting to gain iced
Speaker 5: teas with cannabis.
Speaker 2: That's where the growth is bores.
Speaker 5: But what is the growth is definitely in products. But
Speaker 5: flour is still the door opener.
Speaker 2: The bulk of your business.
Speaker 5: The fifty percent of our business is flour and for
Speaker 5: all cannabis company. But when I started it was ninety
Speaker 5: percent and today it's fifty. So that forty percent has
Speaker 5: largely been formulated products, so it stayed constant.
Speaker 2: Everything else has grown.
Speaker 6: That's right, or that's gone down.
Speaker 5: I think the whole industry has been expanding, so I
Speaker 5: would say that's right.
Speaker 12: Okay.
Speaker 3: I'm wondering about your thoughts on the rising concerns over
Speaker 3: high potency THHC products, addiction and associated with that psychosis
Speaker 3: associated with that high potency. Is there any sort of
Speaker 3: threat when it comes from a regulatory perspective in certain
Speaker 3: states about potency caps.
Speaker 5: So I'm going to get criticized from the industry by
Speaker 5: my comments. I'm fully in agreement that there needs to
Speaker 5: be regulation around potency. That's my view. I mean, we
Speaker 5: run the largest company in the world in this area.
Speaker 5: We want to be the responsible company to push this.
Speaker 5: I personally think that there should be potency caps. I
Speaker 5: actually think that the THC is not the most important
Speaker 5: part of the product. I think a lot of the
Speaker 5: terpenes on these products are actually more important. Terms of
Speaker 5: entourage effect than THHC.
Speaker 3: Meaning those other things are the things that make people
Speaker 3: have the feelings.
Speaker 5: Of DAH or relaxed or working with anxiety. Like we're
Speaker 5: doing a lot of R and D right now, and
Speaker 5: cannabinoids outside of THHC that are in the cannabis plant.
Speaker 5: I think that. I mean, for the most part, the
Speaker 5: evidence of addiction on THHC is really anecdotal. There's no
Speaker 5: real evidence that THHD is addictive. Psychosis part though, but
Speaker 5: the psychosis part is a problem. And so in my
Speaker 5: personal opinion, as we need to do science and what
Speaker 5: rescheduling will allow. By the way, that's probably the biggest
Speaker 5: benefit of rescheduling. It will allow federal dollars to finally
Speaker 5: flow into R and D around the cannabis plan because
Speaker 5: today there is no federal dollars around R and D.
Speaker 5: This is going to be a game changer because we
Speaker 5: can now openly do R and D working with the
Speaker 5: government on issues like potency.
Speaker 2: I am curious. We've been talking a lot about elections,
Speaker 2: and I want to go back there. I know we
Speaker 2: talked a little bit about it with you already, but
Speaker 2: does the industry like one candidate over another? And let's
Speaker 2: just zoom that it is a repeat of the Trump
Speaker 2: Biden matchup. Is there one candidate that the industry likes.
Speaker 16: Going into this, I'll tell you because the industry, the
Speaker 16: industry is just like all of us were Americans and
Speaker 16: we're all tired of the political part.
Speaker 2: I can tell you we're just getting started. I know
Speaker 2: you ask is there one that is.
Speaker 5: There's no question. Historically the Democrats have been more favorable,
Speaker 5: but for the most part through lip service, not necessarily
Speaker 5: through action, but at least on the political side, the
Speaker 5: Democrats have been more open to try and push through
Speaker 5: regulatory change on cannabis. So yes, I think the industry
Speaker 5: would err on the side of Democrats for the most
Speaker 5: part over the Republican body.
Speaker 3: I always like to ask about actually using the product.
Speaker 3: CEOs and executives of companies, how do you use cannabis?
Speaker 3: What products do you use?
Speaker 5: So I'm a user every day. I use it for sleep,
Speaker 5: So I travel a lot, I've got a lot of
Speaker 5: jet lag, a lot of stress, anxiety. Being in the
Speaker 5: cannabis industry and having five children definitely adds that. I
Speaker 5: use it every single evening for sleep, and it has
Speaker 5: changed my life.
Speaker 3: Okay, I don't want to blow up your spot or anything,
Speaker 3: but how do you travel with it?
Speaker 5: You know, I just put it in my necessary and
Speaker 5: I travel with it.
Speaker 3: Okay, Sorry, sorry for blowing up your spot.
Speaker 5: You know. In the United States, the worst thing that
Speaker 5: the TSX will do to you, is TSA will do
Speaker 5: to you is actually have you throw it out. That's
Speaker 5: what they'll do, right And for the most part though,
Speaker 5: when it comes to edibles, they are our problem. If
Speaker 5: you're traveling with flour or something like that, they may
Speaker 5: have an issue with it. I have found that edibles
Speaker 5: are not something that they really have an issue with.
Speaker 2: Really interesting, very quickly, what's the one risk to all
Speaker 2: of this since we have been here before, we've had
Speaker 2: a lot of optimism only to kind of have the
Speaker 2: rug pulled.
Speaker 5: Out for There's two things that I would say at
Speaker 5: risk because first of all, political will will they actually
Speaker 5: is this again lip service for politics, But they won't
Speaker 5: take it to the finish line. Because what this industry
Speaker 5: is all about now is show me. It's about show me.
Speaker 5: I mean, if you look at Cure Leaf when public
Speaker 5: in twenty eighteen at a four billion dollar market cap
Speaker 5: at that time, we were doing seventy million dollars in revenue.
Speaker 5: We're going to do over one point five billion this
Speaker 5: year and we're trading at a market cap of three
Speaker 5: point six billion, so we're actually down on our IPO
Speaker 5: five years ago, even though we've grown the business fifteen times,
Speaker 5: all right, right, so it's an amazing thing.
Speaker 2: Is there any other risks or did you get them
Speaker 2: all in?
Speaker 5: I think that the main risk is a political one
Speaker 5: as well, they'll do it. And two is you know
Speaker 5: the lobbying, you know by the pharmaceutical industry that doesn't
Speaker 5: want to see cannabis because it is a replacement product
Speaker 5: for a lot of the pain medicines. We're doing a
Speaker 5: lot of R and D in that area in Europe,
Speaker 5: and I can tell you we're about to launch a
Speaker 5: drug that will address pain medication out of it. We're
Speaker 5: working together with the Imperial College of London on this
Speaker 5: and it's a game changer and that will be a
Speaker 5: big competitor to opiates.
Speaker 2: We'll come back and talk more about that. With that
Speaker 2: and love to hear more about what's to come on
Speaker 2: Boris Jordan, thank you so much. Happy new year to
Speaker 2: have you back, ready.
Speaker 5: To be and it's good to be back in the studio.
Speaker 2: Good to get to know, like the personal loadown on
Speaker 2: how you use your products. He's founder an executive chairman
Speaker 2: of Curely. Joining us here in our interactive Brokers studio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from two to five pm Eastern Listen
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Speaker 2: I don't know if you saw this news earlier this week,
Speaker 2: did you, Tim?
Speaker 3: I did, yeah, axios recording that Uber was shutting down Drizzly.
Speaker 3: You remember Drizzly. It's the alcohol delivery service it shelled
Speaker 3: out more than a billion dollars for back in twenty
Speaker 3: twenty one. You can still order alcohol using the Uber app,
Speaker 3: but Drizzly will stop taking orders in March.
Speaker 2: Ah done, that's it all right, well, dob despair. There
Speaker 2: are other ways to get alcohol deliveredy if you're over
Speaker 2: twenty one. Of course. One of those ways is using
Speaker 2: Reserve Bars Minibar Delivery, which has been delivering booze for
Speaker 2: more than a decade.
Speaker 3: We've got Derek Correa on with us. He's CEO of
Speaker 3: Reserve Bar. It's an e commerce company specializing in rare
Speaker 3: and high end spirits and also of course the company
Speaker 3: that runs mini bar delivery. Derek joins us on Zoom
Speaker 3: from Bedford, New York. Derek, good to have you with
Speaker 3: us this afternoon. We made a joke earlier in the
Speaker 3: day about dry January and giving up your phone for January,
Speaker 3: but of course, drive January is when people tend.
Speaker 6: To give up booze. How is business?
Speaker 3: Do you notice a drop off when it comes to
Speaker 3: January as a result of dry January?
Speaker 12: Hi?
Speaker 15: Tim? Yeah, thanks for having me on. Yeah, definitely. In fact,
Speaker 15: starting about five or six years ago, it started to
Speaker 15: be a noticeable thing. And I would actually say that
Speaker 15: it seems that dry January is becoming more popular, which
Speaker 15: is a great thing. There's a lot more beverages available
Speaker 15: to satisfy, you know, a not drinking situation where you
Speaker 15: can still drink a quality non alcohol beer or a mocktail.
Speaker 15: So there's a lot better options in the market now.
Speaker 2: So how much of that you're Tim? You're into mocktails.
Speaker 3: Oh yeah, and I'm all about that alcoholoholic beer. The mocktails.
Speaker 3: It's like, yeah, it's kind of funny. I mean I
Speaker 3: drink more of that than the actual real stuff.
Speaker 2: So Derek, you tell that as well.
Speaker 15: Correct, Yeah, we do, and increasingly so. So we have
Speaker 15: those products on our platform as well. And in fact,
Speaker 15: you know, even on an everyday basis, if you're using
Speaker 15: our platform to provision because you're having a party or
Speaker 15: you're getting stuff for your own home, we always encourage
Speaker 15: people to buy non alcohol product as well. If you're
Speaker 15: a host, that's the way to be a good host
Speaker 15: is to serve a great variety of beer, wine, and
Speaker 15: spirits and cocktails, but also have non olt drinks available
Speaker 15: for your guests, many of them who don't drink even
Speaker 15: when it's not January.
Speaker 3: I see this at restaurants all over the city. Kill
Speaker 3: Do you see this where you look at the wine
Speaker 3: list or you look at the beer list and it
Speaker 3: always includes in this in twenty twenty three, twenty twenty four,
Speaker 3: a list of mocktails or non alcoholic options.
Speaker 2: Totally see.
Speaker 3: It hasn't always been like that.
Speaker 2: No, it hasn't. So this is where I want to go. Derek.
Speaker 2: You guys correct me if I'm wrong. I think you
Speaker 2: started back in twenty thirty, is that correct?
Speaker 15: Yeah? Pretty much right around the same time as Drizzly.
Speaker 2: All right, all right, so tell us about that. That's
Speaker 2: a good look at kind of this market. So a
Speaker 2: decade in, how has the market changed and what are
Speaker 2: the trends that we were seeing today when it comes
Speaker 2: to ordering this way.
Speaker 15: Yeah, so the market grew pretty steadily and you know,
Speaker 15: relatively conservative conservatively for a lot of that time. Then,
Speaker 15: of course COVID came along and shut down bars and
Speaker 15: restaurants and to a certain extent even shut down retail
Speaker 15: because people weren't out, and that really accelerated the e
Speaker 15: commerce adoption rate. When you know, for the most part,
Speaker 15: it was the only way to get beveridge alcohol, So
Speaker 15: that accelerated all the businesses, including Reserve Bar and Drizzly
Speaker 15: and Mini Bar at the time was not owned by us,
Speaker 15: and we acquired Mini Bar Delivery during the midst of
Speaker 15: the pandemic. And since then, you know, now the restaurants
Speaker 15: and bars are open, there's been a little bit of
Speaker 15: a cooling off. People are going back out and enjoying
Speaker 15: restaurants and bars and their favorite cocktails and drinks out.
Speaker 15: But e commerce, in addition to the platforms, is happening
Speaker 15: in a lot of new ways. So when we saw
Speaker 15: that Uber acquired Drizzley, we fully expected them at some
Speaker 15: point to ingest it into the Uber Eats platform. That
Speaker 15: makes sense, But people are buying on platforms like Mini
Speaker 15: Bar Delivery, which can get you most products you could
Speaker 15: ever want in an hour. On Reserve Bar, where we
Speaker 15: offer a little bit more curated, higher end, information rich experience,
Speaker 15: that's better for people who are enthusiasts and want to
Speaker 15: explore new bourbons and scotches and so forth. But increasingly
Speaker 15: people are buying. They're not just shopping intentionally. That only
Speaker 15: happens about fifteen or twenty minutes a day. That's when
Speaker 15: you end up on a platform like Reserve Bar and
Speaker 15: Mini Bar Delivery. But when you're reading an article about
Speaker 15: great spirits, or you're out and you're watching a video
Speaker 15: and it includes a great cocktail. We're creating shoppable moments
Speaker 15: in all of those instances, because even though you weren't shopping,
Speaker 15: if you're exposed to the right product at the right
Speaker 15: moment and you can buy it right, then people are
Speaker 15: and that's really the future of e commerce.
Speaker 3: Hey, Derek, So I want to go back to this
Speaker 3: idea of what Carol was talking about in the trend
Speaker 3: of what you're just seeing on the platform. I was
Speaker 3: doing some research ahead of this, and it turns out
Speaker 3: that I'm not alone, Carol when it comes to, you know,
Speaker 3: not drinking alcohol anymore. So Gallup says that younger adults
Speaker 3: these days, oh, I don't know if I'm considered younger
Speaker 3: adult anymore anyway, are less likely to drink than those
Speaker 3: of the same age two decades ago. So that's happening. However,
Speaker 3: older adults are drinking more. So is there this shift
Speaker 3: happening where young people aren't drinking as much and they're
Speaker 3: going to continue not drinking as much, or they're going
Speaker 3: to actually start to drink more as they get older.
Speaker 15: You know, that's a really interesting question. What we're seeing
Speaker 15: is people are drinking differently. I think the older people
Speaker 15: have more disposed income are drinking better. And especially during
Speaker 15: the pandemic, we saw a lot of premiumization of you know,
Speaker 15: people weren't spending money at restaurants or bars, they were
Speaker 15: not going on vacation. They had more money, so they
Speaker 15: started to explore higher end marks. If they liked scotch,
Speaker 15: they started drinking nicer scotches. Drank gin, they drank nicer ones.
Speaker 15: The younger people, I think when I say they're drinking differently,
Speaker 15: they're drinking more mindfully, They're thinking more about how and
Speaker 15: when they drink. They're more dialed into calories and wellness
Speaker 15: in general. They actually drink cocktails more frequently than younger
Speaker 15: people did, even as recently as four or five years ago,
Speaker 15: when young people mostly drank beer and wine. So the
Speaker 15: things are changing, and you know, the nice thing about
Speaker 15: our platforms is we have an immediate view, literally day
Speaker 15: by day, minute by minute, as to what the consumer
Speaker 15: is doing, and can constantly adapt our product assortment and
Speaker 15: our tactics to those changes.
Speaker 2: You know, we do a beach house typically we have
Speaker 2: with kind of our family and extended family, so it's
Speaker 2: you know, the kids have grown up. They're all teenagers
Speaker 2: or in their twenties and thirties, and it's just interesting.
Speaker 2: It's not beer. It's a lot of wine, but it's
Speaker 2: also a lot of cocktails that we increasingly are making
Speaker 2: and that's what they want to make as well. Having
Speaker 2: said that, is there a core consumer that is doing
Speaker 2: the most business on your platform?
Speaker 15: Derek, Yeah, So you know, we have different platforms and
Speaker 15: different people use them for different occasions and for different things. Right,
Speaker 15: Mini bar delivery is perfect for provisioning your everyday products.
Speaker 15: You have some friends coming over, you realize you're out
Speaker 15: of beer, or you need some vodka. You can get
Speaker 15: that brought to your house in an hour. Reserve bar
Speaker 15: is more. You know, you're maybe sort of just kind
Speaker 15: of flexing yourself into knowing about bourbon, and so you're
Speaker 15: coming because you can learn more about bourbon. You can
Speaker 15: you know, immerse yourself in deep information about distillation methods
Speaker 15: and ingredients, and that becomes, especially for the younger consumer,
Speaker 15: not only valuable on that path to purchase and that
Speaker 15: customer journey and providing that, but increasingly, you know, beverage
Speaker 15: ago is a very social thing and there's kind of
Speaker 15: social currency and knowing about tequila and knowing about bourbon
Speaker 15: and knowing how to make a great Manhattan or boulevardier.
Speaker 15: So younger people are often coming to our platform not
Speaker 15: just to buy, but also because it has the content
Speaker 15: they need to continue their journey of education and knowledge.
Speaker 3: Hey, Derek, we only have thirty seconds left and then
Speaker 3: we're going to come back. We'll do some news and
Speaker 3: come back with you, but are you seeing more growth
Speaker 3: on Mini Bar Delivery or on Reserve Bar.
Speaker 15: You know, they both again because they serve as different customers,
Speaker 15: they grow differently at different times. Reserve Bar does a
Speaker 15: lot of gifting business and corporate gifting, so it has
Speaker 15: a tremendous you know, October, November, December. Mini Bar actually
Speaker 15: pops other times a lot of times for parties like
Speaker 15: Halloween for instance. Is not a big deal for Reserve Bar,
Speaker 15: but it is a big deal for many bar. So
Speaker 15: they both grow, and they grow in different ways at
Speaker 15: different times for different occasions and needs.
Speaker 2: That's going to be a good for you though, Like
Speaker 2: you're kind of covering, you know, if you can cover
Speaker 2: most of the year with these two different businesses. But
Speaker 2: I want to get to some of the brands because
Speaker 2: Tim and I have been kind of all over your platforms,
Speaker 2: both minibar and Reserve Bar, and it's really quite a
Speaker 2: range and quite a variety. So talk to us about
Speaker 2: some of what you want to make sure is out
Speaker 2: there for customers.
Speaker 15: Yeah. So the great thing about these two platforms is
Speaker 15: another difference as Mini Bar Delivery as over thirty five
Speaker 15: hundred retailers and you can buy essentially all of the
Speaker 15: products that are available from those retailers, so that's kind
Speaker 15: of a max assortment, which is great. You can search
Speaker 15: for and find anything. Products are merchandised within categories. The
Speaker 15: shopping journeys are easy. All of your favorite brands are
Speaker 15: going to be there, whether it's Tito's vodka or Bullet Bourbon,
Speaker 15: and you can find some unique stuff to Reserve Bar
Speaker 15: is more curated, so we've actually spent the time with
Speaker 15: our experts to find really the best stuff to have
Speaker 15: a lot more information and education and intrigue in those
Speaker 15: shopping journeys for people who are more passionate to find
Speaker 15: rare and limited products. We are the main platform in
Speaker 15: this industry for launching new products, which includes new products
Speaker 15: from all of the brands and the companies that create
Speaker 15: new brands, as well as a lot of celebrity. We
Speaker 15: just launched The Rolling Stones have a new rum called
Speaker 15: Crossfire Hurricane Cool and that was just launched on our platform.
Speaker 15: So oftentimes you can get products on Reserve Bar that
Speaker 15: really aren't available anywhere else, and including our own cask selections.
Speaker 15: For those of you who are really into bourbon and tequila,
Speaker 15: we go to distilleries and pick tasks specifically for us
Speaker 15: that we bottle off and have very limited quantity.
Speaker 3: Derek, how does fulfillment work with Reserve Bar? Do you
Speaker 3: actually have the inventory and you guys are responsible for
Speaker 3: shipping it out or do you do you outsource that
Speaker 3: like you do with Mini bar delivery?
Speaker 15: Yeah, that's a good question. Tim. None of our platforms
Speaker 15: and we as a company do not hold a license,
Speaker 15: so we never touch any bottles of alcohol. We don't
Speaker 15: have any inventory. We're really a technology company wow, that
Speaker 15: has very deep technology to comply with beverage alcohol laws
Speaker 15: and to connect with our network of retailers to match
Speaker 15: you as a as a customer who's interested in buying
Speaker 15: something with a retailer that so as that product that
Speaker 15: a good price.
Speaker 10: So if that.
Speaker 6: Overhead, yeah, so if you.
Speaker 3: But if you want to buy something that is exclusively
Speaker 3: available on your platform, who then ends up fulfilling that order?
Speaker 15: Yeah, there's certain retailers in our network that benefit from
Speaker 15: being associated with us and our relationships with the distributors
Speaker 15: and the brands, so we know that they're going to
Speaker 15: be the ones that are getting that product, and we're
Speaker 15: then able to route the orders.
Speaker 3: Or these, But are these retailers like mom and pop
Speaker 3: liquor stores. I mean, I remember ordering a bottle of
Speaker 3: bourbon from my mom that she liked, and the closest
Speaker 3: place it was available was somewhere in Long Island.
Speaker 2: Nice missus Stentevik.
Speaker 6: Yeah, yes, she.
Speaker 3: Liked it, but it was it was something that was
Speaker 3: kind of hard to find, but it came from essentially
Speaker 3: a local store on Long Island that just had it.
Speaker 1: I don't even know.
Speaker 3: Maybe I used reserve bar, I don't remember. But is
Speaker 3: that how it works? Like they're the ones who then
Speaker 3: ship it and you guys don't you guys don't ever
Speaker 3: touch it.
Speaker 15: Yeah. Right, So, for widely available products that were available
Speaker 15: near you, if you were wanting it for yourself or
Speaker 15: near your mom, it would come from that local retailer
Speaker 15: and be delivered locally, but you'd get to shop a
Speaker 15: more interesting assortment that might not be available near you
Speaker 15: or a gift recipient, and we'll then ship that product
Speaker 15: to them in a compliant fashion, very packaged, very nicely
Speaker 15: and safely. So that's how you can access a more
Speaker 15: compelling product assortment that you might otherwise be able to
Speaker 15: get locally.
Speaker 2: So then for as the business model. We're Bloomberg and
Speaker 2: we're always interested in this kind of stuff, so kind
Speaker 2: of getting in the weeds. So do you guys just
Speaker 2: get a percentage of the order or do you just
Speaker 2: get a set fee on every order that's made? How
Speaker 2: does it work?
Speaker 15: Yeah, that's exactly right. So we're basically a marketing service
Speaker 15: for the retailers in our network, and the reason they
Speaker 15: sign up with us is because we're sending them incremental orders.
Speaker 15: So in exchange for that, they give us a small
Speaker 15: fee associated with sourcing that order because it's incremental to
Speaker 15: their business and they wouldn't have otherwise. Got it, all right?
Speaker 2: Tell us two about pricing strategy, and I'm going to
Speaker 2: pour a little bit of wine. You guys have been
Speaker 2: kind enough to send.
Speaker 15: Which God knew I would have had my own wine
Speaker 15: as well.
Speaker 2: I wish you had.
Speaker 14: I feel terrible.
Speaker 2: I'm not quite drinking alone, but it would be nice
Speaker 2: to have you as a part of this. You shared
Speaker 2: with us a bottle of Josh Seller's legacy Red Bland
Speaker 2: Red Bland. Excuse me looking on the website Mini bar delivery,
Speaker 2: it's about fourteen dollars a bottle. But you guys have
Speaker 2: quite a range of stuff that's out there. How do
Speaker 2: you think about price point in terms of I'm going
Speaker 2: to share it.
Speaker 6: Like this, I'm going to share this one is a meme?
Speaker 14: Now did you know that?
Speaker 6: I know it is a meme?
Speaker 2: Our producer was talking about one of our producers. How
Speaker 2: do you think about price point? Is there any strategy
Speaker 2: behind that?
Speaker 5: Yeah?
Speaker 15: So, you know, one of the hardest things about operating
Speaker 15: in this industry is the regulations federal, state, county, city,
Speaker 15: and one of those that's very clear is that retailers
Speaker 15: have to be the ones that sell you beverage alcohol, wine, spirits, beer,
Speaker 15: and they have to set the price for it. That
Speaker 15: is a universal regulatory situation. So the prices that you
Speaker 15: see on our platforms are actually the prices from the
Speaker 15: retailers in our network, and so our technology is seeing
Speaker 15: is the product you want available, which retailer has the
Speaker 15: best price, which one is closest to you, and kind
Speaker 15: of doing all of that hard work for you as
Speaker 15: a shopper to match you with a retailer and a
Speaker 15: product that can get to you quickly at a good price.
Speaker 3: Derek, what was the strategy of getting all these retailers
Speaker 3: on the platform. Was it old fashioned shoe leather? Was
Speaker 3: it picking up the phones like it's a one off thing?
Speaker 3: I mean, this is tough to do.
Speaker 15: Yeah, it's all of those things. And in the early days,
Speaker 15: it was a slog you know, when you were calling
Speaker 15: you were telling me you were calling from reserve bar,
Speaker 15: and they'd say who what and you'd have to explain
Speaker 15: the entire concept of e commerce. Nowadays, I think it's
Speaker 15: pretty universally understood. And the retailers. We are still you know,
Speaker 15: reaching out to retailers, but many are coming to us
Speaker 15: curious about the benefits to them and the commercial terms
Speaker 15: of joining our platform. And it is open to you know, expansion,
Speaker 15: and we are still in the process of adding more
Speaker 15: throughout the country.
Speaker 2: Hey, Derek just got about twenty seconds left here, twenty
Speaker 2: five seconds. What's next for you guys, as we are
Speaker 2: going to sample the wine and because it is Josha
Speaker 2: clock somewhere, but what's next for you guys?
Speaker 15: Well, what's next is what's right now actually, which is
Speaker 15: because we don't hold license a license, we're able to
Speaker 15: syndicate our technology and all kinds of interesting places, like
Speaker 15: if you were to read an article on Whiskey Advocate
Speaker 15: about the twenty best Scotches. You could buy any of
Speaker 15: those gotches right there without leaving Whiskey Advocate and continue
Speaker 15: consuming that content and also buy whatever you wanted. And
Speaker 15: we're also powering the websites of brands because lots of
Speaker 15: people go to visit sites like Hennessee dot com or
Speaker 15: the McAllen dot com and they can't sell you about
Speaker 15: of alcohol directly because of the three tier system. But
Speaker 15: our technology enables you to shop and buy because you
Speaker 15: actually are buying from a license retailers, You're going to
Speaker 15: take a lot more innovation at that time.
Speaker 2: Yeah, it's interesting you guys are doing. Hey listen, come
Speaker 2: back soon and hopefully then we can share a drink together.
Speaker 2: But I'd love to kind of hear as you continue
Speaker 2: on in this business. Derek Correa, who's CEO Reserve Bar
Speaker 2: and also of course to the company that runs Manibar Delivery.
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Speaker 15: MHM