WEBVTT - Investing In The Cannabis Market 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.439 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.520 at Bloomberg dot com slash podcast. Let's talk right now 0:00:23.120 --> 0:00:27.600 about what's going on in the world of cannabis. Alex 0:00:27.640 --> 0:00:31.560 Pasternak joins us. He's the executive vice president of BINSK 0:00:31.840 --> 0:00:34.280 and he can talk to us about um, the market 0:00:34.479 --> 0:00:37.800 and the future. It's it's interesting out because I was 0:00:37.840 --> 0:00:40.040 just in New York City for a few weeks and 0:00:40.080 --> 0:00:43.400 I started to see these cannabis stores popping up. They 0:00:43.400 --> 0:00:47.200 weren't selling real weed yet. It was like Delta eight 0:00:47.440 --> 0:00:52.200 th HC, which I guess is kind of a knockoff, 0:00:52.680 --> 0:00:57.080 slightly legal version of legit th HC. But it'll come. 0:00:57.560 --> 0:01:01.360 And I wonder how you expect this market to develop? 0:01:01.440 --> 0:01:05.880 Is it going to be like the liquor market developed? Hey, 0:01:05.920 --> 0:01:08.200 how you doing? Thanks for first and foremost thanks for 0:01:08.240 --> 0:01:11.240 having me today. UM, I would say that the liquor 0:01:11.280 --> 0:01:14.440 market is going to be uh, you know, a little 0:01:14.440 --> 0:01:16.720 bit of provides a little bit of insight for us 0:01:16.720 --> 0:01:19.480 in terms of as legalization continues to roll out and 0:01:19.800 --> 0:01:23.080 how they do it. You'll see differences in terms of 0:01:23.080 --> 0:01:27.160 the distribution models in particular in some states that that are, 0:01:27.760 --> 0:01:29.880 you know, share some of the characteristics that you see 0:01:29.880 --> 0:01:33.920 on the liquor side. But altogether, no, I think cannabis 0:01:34.200 --> 0:01:37.480 is going to prove to continue to be its own, um, 0:01:37.520 --> 0:01:41.040 its own product category that takes a few few things 0:01:41.040 --> 0:01:44.120 in particular from the liquor segment, but no, on its own, 0:01:44.120 --> 0:01:45.960 I think it's going to be completely different. To be ho. 0:01:46.920 --> 0:01:50.480 Of course, the liquor market has been legal for so long, um, 0:01:50.520 --> 0:01:53.120 I guess the cannabis. Cannabis was legal for a long 0:01:53.160 --> 0:01:55.400 time before anyone figured out what it really was. But 0:01:55.480 --> 0:01:59.760 it's been uh, fairly well demonized in the US. How 0:02:00.120 --> 0:02:03.040 you go about now in this kind of quasi legal 0:02:03.120 --> 0:02:06.960 state sourcing and selling weed? Is it? Are you looking 0:02:06.960 --> 0:02:09.000 over your shoulder all the time depending on which state 0:02:09.040 --> 0:02:13.320 you're in? Great question? No, Actually, we were able to 0:02:13.320 --> 0:02:16.280 sleep pretty well at night over here. Everything we do 0:02:16.600 --> 0:02:19.960 is fully legal. We only operate in legal territories. So 0:02:20.080 --> 0:02:24.200 even though it's federally still illegal. Um. As you all know, 0:02:24.280 --> 0:02:27.760 it was deemed an essential business during the pandemics. So 0:02:28.000 --> 0:02:31.040 the the idea of having concerns at this point, UM, 0:02:31.240 --> 0:02:34.840 are are long gone. And it's proven by the fact 0:02:34.880 --> 0:02:37.760 that you see more and more investors entering the space 0:02:37.800 --> 0:02:40.600 on a daily basis. So the risk factor is almost 0:02:40.639 --> 0:02:43.720 fully mitigated at this point. And no, we are only 0:02:43.760 --> 0:02:47.480 operating in legal territories. On the liquor comparison, as you 0:02:47.520 --> 0:02:50.320 compare it to there, there are some things to look at. 0:02:50.400 --> 0:02:52.520 For example, I could go into a liquor store today 0:02:52.560 --> 0:02:55.680 and buy fifty handles of vodka and in six kegs 0:02:55.680 --> 0:02:57.840 and no one says a word to me. But in 0:02:57.880 --> 0:03:00.840 most legal territories, I can only buy a edibles or 0:03:00.880 --> 0:03:05.960 announcer to a flower. So there's major compliance and regulatory 0:03:06.000 --> 0:03:09.000 issues that we're still battling through here. Alex, you mentioned 0:03:09.000 --> 0:03:13.120 the federal legislation, your federal approval. Give us a sense 0:03:13.120 --> 0:03:17.600 of where you think that is and how that may fall. Yeah, 0:03:17.800 --> 0:03:21.200 great question. Um. Look, I'm a big numbers guy, engineering 0:03:21.200 --> 0:03:24.359 background geek out on data and science in particular, there's 0:03:24.480 --> 0:03:29.600 nineteen recreational states in thirty six medical nineteen and thirty six. 0:03:30.200 --> 0:03:32.480 It doesn't take an engineer to understand that there's really 0:03:32.560 --> 0:03:35.920 no turning back at this point. Full legalization is imminent 0:03:36.320 --> 0:03:38.720 at the federal level. Look at the latest proposals by 0:03:38.760 --> 0:03:41.240 the Schumer Bill and progress on the Stafe Act and 0:03:41.640 --> 0:03:44.040 in Congress. I mean, there's just too much money on 0:03:44.080 --> 0:03:47.520 the table for the private and public sectors, particularly the government. 0:03:48.040 --> 0:03:50.880 Putting aside the money, there's two other major factors that 0:03:50.920 --> 0:03:54.040 I want to address. Number one, the opioid crisis and 0:03:54.200 --> 0:03:57.480 number two the criminal justice system. Last year alone, we 0:03:57.600 --> 0:04:00.600 lost about a hundreds thousand people to an overdo us 0:04:00.600 --> 0:04:04.680 on opioids or another synthetic drug. The legalization of cannabis 0:04:04.680 --> 0:04:09.720 can immediately help this horrible, horrible opioid epidemic. Lastly, the 0:04:09.760 --> 0:04:13.520 war on drugs needs to end with sensible criminal justice reform. 0:04:13.720 --> 0:04:16.640 We need to address the fact the imprisonment of more 0:04:16.680 --> 0:04:21.320 than forty thousand Americans incarcerated still for activities that are 0:04:21.320 --> 0:04:25.680 now legal in a significant portion of the country. Well, 0:04:26.000 --> 0:04:27.440 I wonder what kind of people do you have to 0:04:27.440 --> 0:04:29.440 deal with then? I mean, when I was a kid, 0:04:29.480 --> 0:04:32.080 we drive down to Athens County in Ohio, or at 0:04:32.080 --> 0:04:36.040 the Humble County in California, and there was a pretty 0:04:36.120 --> 0:04:39.919 shady group of grow ops. Um in those places, you 0:04:39.960 --> 0:04:43.320 did not want to tread on someone else's farm. Has 0:04:43.360 --> 0:04:47.840 that changed significantly? You know, there is a ton of 0:04:47.880 --> 0:04:51.919 black market still going on today. They're estimating in California 0:04:51.920 --> 0:04:54.560 alone that the black market is somewhere between two to 0:04:54.680 --> 0:04:58.279 five the legal market. That range of two to five 0:04:58.640 --> 0:05:02.240 is just so mad, considering the legal market in California 0:05:02.320 --> 0:05:05.080 is tracking to be four billion. So you really just 0:05:05.200 --> 0:05:09.640 have endless black market cultivators and endless black market producers 0:05:09.680 --> 0:05:12.880 at this point. Um, what's going on back there of 0:05:13.600 --> 0:05:17.360 theft and stealing from farms and security is uh, it's 0:05:17.400 --> 0:05:21.280 definitely a slippery slope. And again we're pretty grateful that 0:05:21.320 --> 0:05:24.479 we are nowhere near what's going on in some of 0:05:24.520 --> 0:05:27.120 those parts of the country. In particular, what about the 0:05:28.120 --> 0:05:30.520 quality and the strength alex of the of the weed 0:05:30.640 --> 0:05:34.800 that you guys are getting today, I mean, it has 0:05:34.920 --> 0:05:39.240 steadily increased to a point where, um, you've got to 0:05:39.279 --> 0:05:43.040 be careful if you want to smoke a joint, especially 0:05:43.040 --> 0:05:45.800 if you're an older person. Is that going to be 0:05:45.839 --> 0:05:50.400 easier to measure and easier to decipher? Yeah, So think 0:05:50.440 --> 0:05:53.800 about like alcohol again to compare as you get as 0:05:53.839 --> 0:05:56.440 we grow older, you go into some of these superstores, 0:05:56.480 --> 0:06:00.360 these mega stores, in the product variety just ranges from 0:06:00.400 --> 0:06:03.599 from lower and lower quality and two dollar bottles of 0:06:03.600 --> 0:06:06.760 wines that select stores to thousands and thousands of bottles 0:06:06.800 --> 0:06:09.120 of wines in some stores. So I think the same 0:06:09.120 --> 0:06:12.359 thing is gonna happen with cannabis. Over time, We're gonna see, uh, 0:06:12.400 --> 0:06:15.279 we're gonna see products going again a little bit towards 0:06:15.279 --> 0:06:17.880 the race to the bottom on on the value products, 0:06:17.960 --> 0:06:20.640 and then we're gonna have continuously higher and higher end 0:06:20.720 --> 0:06:23.960 products what you see on the what the first part 0:06:23.960 --> 0:06:26.039 of your question what's happening right now is one of 0:06:26.080 --> 0:06:29.400 the only data points associated to cannabis is the THC 0:06:29.600 --> 0:06:34.320 percentage that's the consumer sees when you go by cannabis 0:06:34.400 --> 0:06:36.880 or flower as we call it in the industry. There's 0:06:36.880 --> 0:06:40.760 a numerical value associated to that test that strain from 0:06:40.800 --> 0:06:44.599 that batch. They usually range between let's say fifteen and thirty. 0:06:45.480 --> 0:06:48.440 But if you watch what happens in a given dispensary 0:06:48.440 --> 0:06:51.440 on a given day, these these uh, these people come 0:06:51.480 --> 0:06:56.279 in these a construction worker after work or um a 0:06:56.279 --> 0:06:58.600 an electrician after work and they have a twenty dollar 0:06:58.640 --> 0:07:01.240 bill in their hand, and they say, how far can 0:07:01.279 --> 0:07:03.839 I take this twenty dollar bill? What is the highest 0:07:03.920 --> 0:07:07.400 high I can get from this twenty in in comparison 0:07:07.440 --> 0:07:11.480 again to alcohol, what's happening is ever Clear is being 0:07:11.600 --> 0:07:14.280 valued at a higher quality product. And let's say a 0:07:14.280 --> 0:07:17.920 blue label. Just because ever Clear has a higher alcohol content, 0:07:17.960 --> 0:07:20.119 it doesn't mean it's a better product than blue label. 0:07:20.240 --> 0:07:23.720 And unfortunately in the cannabis market, it's just not as 0:07:23.880 --> 0:07:26.840 educated and it's not as sophisticated yet, and so the 0:07:26.840 --> 0:07:29.600 blue label is literally selling for less money than the 0:07:29.680 --> 0:07:31.800 ever Clear. And that's part of what I'm trying to 0:07:31.800 --> 0:07:36.200 do every day is help educate and help everyone understands all. 0:07:36.760 --> 0:07:39.680 Alex Pastron act there from Bens, Thanks very much. This 0:07:39.920 --> 0:07:46.760 is Bloomberg Now. We got earnings out today UM from 0:07:46.760 --> 0:07:49.080 a number of retailers, and we're going to continue to 0:07:49.120 --> 0:07:52.360 get them out over the next couple of sessions from 0:07:52.440 --> 0:07:58.040 more Walmart UM coming out this morning, and UM giving 0:07:58.640 --> 0:08:02.640 a beat in term of its UM in terms of 0:08:02.640 --> 0:08:07.480 its previous earnings and and raising its UM outlook in 0:08:07.560 --> 0:08:10.200 terms of its forward earnings. And then we at home Depot, 0:08:10.240 --> 0:08:13.679 which disappointed. How to bring Katie Thomas, she is leading 0:08:14.360 --> 0:08:17.480 the Kearney Consumer Institute out of Pittsburgh to talk about 0:08:18.120 --> 0:08:19.920 retail because it's going to be such a huge theme 0:08:20.040 --> 0:08:22.440 this week. Katie, First off, what's your reaction to what 0:08:22.480 --> 0:08:26.360 we saw already? You know, honestly, I would say I'm 0:08:26.400 --> 0:08:28.920 not that surprise that Walmart and some of the big 0:08:28.960 --> 0:08:32.600 box retailers that really stand to benefit from some of 0:08:32.640 --> 0:08:35.040 the trends we've been seeing with consumers, so they're set 0:08:35.120 --> 0:08:37.640 up to benefit in all the right ways. And to two, 0:08:37.640 --> 0:08:40.040 we were seeing them return to stores. The store is 0:08:40.160 --> 0:08:42.360 king as much as we hear about convenience. When we 0:08:42.400 --> 0:08:45.560 talked to consumers where do you prefer to shop, especially 0:08:45.559 --> 0:08:48.640 for groceries, they still still tell us they love this store. 0:08:49.120 --> 0:08:51.520 And on top of that, in general getting as much 0:08:51.559 --> 0:08:54.640 done in one trip as possible, it's still you know, 0:08:54.880 --> 0:08:57.880 relatively attractive to consumers. They're not doing as many of 0:08:57.880 --> 0:09:00.679 those quick runs to local grocery store is but instead 0:09:00.760 --> 0:09:03.120 really focusing on the big box how much can I 0:09:03.160 --> 0:09:06.920 get in one trip? Um the it's competitive pricing, giving 0:09:07.000 --> 0:09:09.960 some of the inflationary concerns and so a lot of 0:09:10.000 --> 0:09:13.200 positive tail wins for Walmart that I'm not surprised you 0:09:13.240 --> 0:09:18.480 saw flow through in those comp uh store sales. So, uh, Katie, 0:09:19.400 --> 0:09:23.199 the omni channel strategy where I can maybe order online 0:09:23.240 --> 0:09:26.520 pick up at the store, that seems to maybe have 0:09:26.600 --> 0:09:30.120 been a pretty good strategy for retail. Is that something 0:09:30.160 --> 0:09:35.240 that can boost this industry going forward. Absolutely, So when 0:09:35.280 --> 0:09:37.320 we talk to consumers, they really love that as an 0:09:37.320 --> 0:09:41.080 additional option because it's really that perfect hybrid approach. So 0:09:41.160 --> 0:09:44.280 you're still physically going to the store you forgot something 0:09:44.320 --> 0:09:46.800 you can run in, but especially at the store the 0:09:46.840 --> 0:09:50.040 size of a big box retailer, whether it's Walmart and 0:09:50.080 --> 0:09:52.000 Target or Best Buy, you don't have to wander through 0:09:52.040 --> 0:09:55.720 the whole store either. So it's really like those those 0:09:55.760 --> 0:09:59.320 different options, the optionality that we didn't have before that 0:09:59.400 --> 0:10:02.040 consumer really are excited to take advantage of, and I 0:10:02.080 --> 0:10:04.360 think you'll continue to see it not just in those 0:10:04.400 --> 0:10:06.360 types of swords, but as we're seeing it with small 0:10:06.400 --> 0:10:10.360 retailers and just across the industry in general. What happened 0:10:10.360 --> 0:10:16.719 at um Home Depot there their sales forecast is kind 0:10:16.720 --> 0:10:20.000 of hinting at a slow down in the boom that 0:10:20.040 --> 0:10:24.280 we had seen is that just to be expected. I think, yeah, 0:10:24.320 --> 0:10:26.280 I mean a lot of people we've made the investments 0:10:26.320 --> 0:10:28.440 we were going to make in our house. Um, and 0:10:28.480 --> 0:10:32.119 you know, Walmart really stands to benefit from that everyday consumption, 0:10:32.240 --> 0:10:35.840 whereas the delta variant is driving just enough concern in 0:10:35.840 --> 0:10:38.880 the eyes of consumers. Now where what we really thought 0:10:38.920 --> 0:10:41.760 over the pandemic is people held off on buying things 0:10:41.800 --> 0:10:44.559 until they really felt like they wanted it or needed it. 0:10:44.880 --> 0:10:47.040 And so with some of those home improvement I think 0:10:47.080 --> 0:10:49.400 it's you know, pressing pause for right now. You're not 0:10:49.400 --> 0:10:51.800 going to see the impact of the child tax credit 0:10:52.120 --> 0:10:55.079 flow through to home improvement as much either. So it's 0:10:55.120 --> 0:10:57.560 just kind of a combination of factors that I think 0:10:57.760 --> 0:11:01.240 is having home depots often a little bit Katie, one 0:11:01.240 --> 0:11:04.199 of the themes of retail in America over the last 0:11:04.280 --> 0:11:07.120 decade or so is there's just too many stores were 0:11:07.160 --> 0:11:11.960 overstored here. Um, where are we in terms of that metric? 0:11:12.080 --> 0:11:15.200 You think we still need to reduce the footprint of 0:11:15.559 --> 0:11:20.120 the stores across the U S Well, it's an interesting question. 0:11:20.200 --> 0:11:22.880 I think you're seeing a lot of you know, uh 0:11:23.120 --> 0:11:26.840 press around that, a lot of shift to online businesses, 0:11:26.880 --> 0:11:29.080 all of that but the challenge there is direct to 0:11:29.120 --> 0:11:32.480 consumer businesses that are online only really have a challenge 0:11:32.480 --> 0:11:35.440 with eyeballs and footprints. So you know, in fact, you're 0:11:35.480 --> 0:11:38.280 seeing some of these big box retailers make those strategic 0:11:38.360 --> 0:11:42.800 partnerships target with Alta Coals, with the Flora and with 0:11:42.880 --> 0:11:46.439 the DNC smaller brand. So it's hard to say consumers 0:11:46.480 --> 0:11:49.000 really like to get out there and shop. Um. I 0:11:49.000 --> 0:11:51.480 think it's really what we called at the beginning of 0:11:51.520 --> 0:11:54.280 the Pennant pandemic, what you saw was the death of 0:11:54.360 --> 0:11:56.440 the middle So it's really some of those middle of 0:11:56.480 --> 0:12:00.199 the road retailers that lost their value to consumers. Then, 0:12:00.400 --> 0:12:03.120 you know, consumers do have so many options nowadays, you're 0:12:03.160 --> 0:12:05.640 just not ultimately going to be successful unless you have 0:12:05.720 --> 0:12:10.400 a real value offering in differentiation. Does the Delta virus 0:12:10.640 --> 0:12:13.680 Does at Delta Delta variant of the virus offer any 0:12:13.840 --> 0:12:18.280 severe headwinds? I don't think so no. If anything, I'm 0:12:18.320 --> 0:12:20.320 I'm more concerned about some of the ships we're going 0:12:20.360 --> 0:12:22.319 to see in the labor market to flow through of 0:12:22.360 --> 0:12:24.960 the supply chain. Right now, you're seeing a little bit 0:12:25.000 --> 0:12:28.520 of an uptick in avoidance of stores, But ultimately, consumers 0:12:28.559 --> 0:12:31.200 have money to spend, and they do want to spend it, 0:12:31.200 --> 0:12:33.880 it's just gonna be a little bit of bumpy um 0:12:33.920 --> 0:12:35.840 in terms of spending when they know they'll need it. 0:12:36.040 --> 0:12:38.160 I think to slow down in the return to work 0:12:38.280 --> 0:12:40.880 is slowing that down a little bit again. Even apparel, 0:12:41.080 --> 0:12:44.600 non back to school apparel, apparel for adults is slowing 0:12:44.640 --> 0:12:46.640 down a little bit in the retail numbers today. And 0:12:46.679 --> 0:12:48.679 that's just I'm going to hold off and see how 0:12:48.720 --> 0:12:51.679 things play out. Katie, real quickly thirty seconds, talk to 0:12:51.720 --> 0:12:53.640 us about the supply chain. Is stuff gonna be on 0:12:53.720 --> 0:12:58.120 the shelves back to schooling holidays. There are a certain 0:12:58.120 --> 0:13:00.920 categories where there are some challenge and it's definitely on 0:13:00.960 --> 0:13:03.640 consumer's radar. We're hearing from them directly, I should buy 0:13:03.679 --> 0:13:06.320 student then later. But at the same time, it's it's 0:13:06.360 --> 0:13:08.640 coming through in pocket. So it's really hard to say 0:13:09.080 --> 0:13:11.360 exactly what that's gonna look like. And I think some 0:13:11.520 --> 0:13:15.319 of these bigger retailers are actually the most protected because 0:13:15.360 --> 0:13:18.760 they have so much strength in the market. So if anything, unfortunately, 0:13:18.760 --> 0:13:20.480 it's going to be some of the smaller retailers that 0:13:20.520 --> 0:13:23.319 I think are going to feel more of the impact. Katie, 0:13:23.360 --> 0:13:25.320 thank you, so much. We really appreciate it getting your 0:13:25.320 --> 0:13:27.640 thoughts here is we're in the midst of these retail 0:13:27.760 --> 0:13:30.440 or earnings Katie Thomas, she's a lead at the Currently 0:13:30.800 --> 0:13:34.840 Consumer Institute based in Pittsburgh, PA. And again, you know, 0:13:34.880 --> 0:13:37.080 I think what a lot of investors are are focusing 0:13:37.120 --> 0:13:40.120 on this quarter as the retailer's report is kind of 0:13:40.200 --> 0:13:43.959 how is the consumer doing? Is the delta variant causing, 0:13:44.080 --> 0:13:47.199 as Matt suggests, perhaps some headwinds for some consumers and 0:13:47.240 --> 0:13:49.480 consumers spending, and so that goes to not only the 0:13:49.520 --> 0:13:52.440 results that they report, but maybe more importantly to the 0:13:52.480 --> 0:13:56.160 guidance they provide. So some good numbers out of Walmart 0:13:56.360 --> 0:14:01.880 certainly a good indicator of the consumer. There gotta sell 0:14:01.920 --> 0:14:04.080 off in this market. As Greg was just reporting, what 0:14:04.160 --> 0:14:06.720 really jumps out of me is the Russell Uh. It 0:14:06.840 --> 0:14:09.040 is off one point five percent. So the small caps 0:14:09.040 --> 0:14:12.040 are really underperforming. UH. And it's a good time to 0:14:12.120 --> 0:14:15.840 speak to our next guest, Brian Small, principal portfolio manager 0:14:15.840 --> 0:14:18.840 at hood River Capital Management. UH. They are located in 0:14:18.880 --> 0:14:22.920 Florida like everybody else these days and money management business. Brian, 0:14:22.920 --> 0:14:24.880 thanks so much for joining us here. Give us your 0:14:24.960 --> 0:14:28.360 thoughts based upon your experience of kind of where you 0:14:28.440 --> 0:14:32.160 envisioned small cap stocks here again under performing today, but 0:14:32.240 --> 0:14:36.040 in the reopening, a lot of people like the small cappers. Yeah, 0:14:36.040 --> 0:14:40.080 we're constructive from here the markets. The biggest concern I 0:14:40.120 --> 0:14:43.960 think is the impact on the delta variant on the economy, 0:14:44.040 --> 0:14:48.600 consumer behavior, business behavior. And we're constructive as we look 0:14:48.600 --> 0:14:53.080 out too small caps that significantly lab lag this year 0:14:53.120 --> 0:14:56.760 there about flat versus the FMP up. So it's been 0:14:56.800 --> 0:15:01.600 a lot of multiple compression in these names. And I 0:15:01.640 --> 0:15:04.080 think as as we kind of go through the peaking 0:15:04.120 --> 0:15:06.960 phase here of the delta varian, people get their booster shots, 0:15:07.560 --> 0:15:11.080 case decline and people come to grips that earnings need 0:15:11.120 --> 0:15:14.400 to go up next sharing earnings estimates than we think 0:15:14.680 --> 0:15:17.320 small caps will tend to outperform. But we're constructive on 0:15:17.360 --> 0:15:20.360 the market in general. So small camps is a big universe. 0:15:21.120 --> 0:15:23.960 Is there are there specific places that you like best? 0:15:25.600 --> 0:15:29.240 So at Hood River were bombs of stock pickers. So 0:15:29.280 --> 0:15:33.320 we like to see inefficiencies and stocks that that we're buying. 0:15:34.200 --> 0:15:38.040 We aren't really making industry top down calls bottom bombs. 0:15:38.040 --> 0:15:42.200 That basis right now where overweight consumers, loutical financial and 0:15:42.200 --> 0:15:46.400 industrial stocks in general, those valuations are better. They're tied 0:15:46.440 --> 0:15:50.680 to more of reopening in the economy, and I think 0:15:50.720 --> 0:15:53.600 ear introvisions are gonna be good and valuations are attractive, 0:15:54.200 --> 0:15:56.440 and I'd love to get your thoughts. I'm a former 0:15:56.720 --> 0:15:59.080 sell side equity research channels, and I know what I've 0:15:59.080 --> 0:16:01.680 been hearing a lot over the last you know, decade 0:16:01.680 --> 0:16:04.480 in particular sense of financial crisis, is that the equity 0:16:04.520 --> 0:16:07.640 research from Wall Street on small and mid cap stocks 0:16:07.720 --> 0:16:11.280 is as really declined in terms of how many names 0:16:11.680 --> 0:16:14.680 are in fact covered. How does that impact your job 0:16:14.800 --> 0:16:16.760 on the bi side as you think about, you know, 0:16:16.800 --> 0:16:20.800 doing research analysis on the names of you guys invest in. Yeah, 0:16:20.840 --> 0:16:25.480 that's a great question. So, as you mentioned, there's been 0:16:25.520 --> 0:16:29.400 a big dislocation on the cell side covering our stocks, 0:16:29.400 --> 0:16:32.840 which has made those stocks a lot more inefficient. So 0:16:33.640 --> 0:16:36.040 it's made our job easier, which is why it's been 0:16:36.080 --> 0:16:38.760 easier in general for active management to our perform in 0:16:38.800 --> 0:16:42.920 particular product. We see that as being the case going forward. 0:16:43.640 --> 0:16:45.960 There are a lot of reasons why why that's the case. 0:16:46.000 --> 0:16:49.840 Commissions have been tougher to come by in general, Compensation 0:16:49.920 --> 0:16:54.520 for sething Elysis dropped significantly, and so it's just given 0:16:54.560 --> 0:16:57.280 us more of an opportunity to find stocks where the 0:16:57.360 --> 0:17:01.840 earnings estimates are inaccurate. Looking out well eighteen twenty four months, 0:17:04.119 --> 0:17:08.280 so you're looking at Western Alliance, Chart Industries, Coulica, and Cepha, 0:17:09.000 --> 0:17:11.719 what what what do you like specifically? Are those are 0:17:11.720 --> 0:17:14.399 some of the names that we like. We like Western Alliance. 0:17:15.680 --> 0:17:18.640 It's a regional bank that trades it around twelve times earnings. 0:17:18.680 --> 0:17:21.879 The street has about nine dollars and worty cents for 0:17:21.960 --> 0:17:23.840 next year. We think that's really low as they continue 0:17:23.880 --> 0:17:29.160 to grow loans and the north of twelve range. Uh. 0:17:29.280 --> 0:17:34.000 We like Chart Industries, as you mentioned, it's an infrastructure 0:17:34.040 --> 0:17:37.600 provider for all sorts of chemicals and gases. And what's 0:17:37.600 --> 0:17:41.120 growing the fastest there is hydrogen and there's big demand 0:17:41.200 --> 0:17:44.480 for green hydrogen. Is is the economy more moves to 0:17:44.520 --> 0:17:50.520 more sustainable energy and it's relatively inexpensive, especially in comparison 0:17:50.560 --> 0:17:53.760 to other hydrogen plays like plug power and Coolic and 0:17:53.840 --> 0:17:58.000 Sofa is a semiconductor capital equipment company. Specifically, they make 0:17:58.040 --> 0:18:01.960 wire bonding equipment and that that's as you've seen the 0:18:02.000 --> 0:18:03.800 news all over the place, there's been a big shortage 0:18:03.880 --> 0:18:07.720 there they had great earnings, uh, and they guided to 0:18:08.000 --> 0:18:11.280 a little north of two dollars per share next quarter, 0:18:11.640 --> 0:18:14.320 and the street was at a dollar. So obviously that 0:18:14.400 --> 0:18:17.200 stock has been acting well and it's still cheap around 0:18:17.200 --> 0:18:20.359 twelve times earnings there as well. Broadly speaking, when you 0:18:20.359 --> 0:18:23.760 look at the small cap universe, is give us a 0:18:23.760 --> 0:18:25.119 sense of kind of where we are in terms of 0:18:25.200 --> 0:18:29.199 historical valuations because ones a lot of fun managers will 0:18:29.240 --> 0:18:31.199 come on here and say, boy, it's a twenty times 0:18:31.320 --> 0:18:34.840 forward earnings. That's yes, that's high, but interest rates are 0:18:34.880 --> 0:18:38.040 so low, so you know, it's not that big an issue. 0:18:38.040 --> 0:18:41.320 How do you think about evaluations in small cap land? Yeah, so, 0:18:41.359 --> 0:18:47.000 as I mentioned earlier, relatives multiples have compressed significantly. So 0:18:47.040 --> 0:18:52.200 what I tend to look at is the the earnings, 0:18:52.440 --> 0:18:55.800 the positive earnings companies in the index, and what the 0:18:55.880 --> 0:18:59.000 valuation is there versus the benchmark. And right now that's 0:18:59.040 --> 0:19:02.280 at parody with the some ps about twenty times next 0:19:02.320 --> 0:19:05.520 year's earnings. And there's always this large swath of non 0:19:05.560 --> 0:19:08.680 earnings companies like biotech, and it's a little bit harder 0:19:08.680 --> 0:19:11.479 to take a swag at that, but we usually are 0:19:11.600 --> 0:19:14.560 underweight that area. So that's one of the reasons why 0:19:14.560 --> 0:19:17.240 I like small cap is that when you look at 0:19:17.280 --> 0:19:20.359 the relative valuation versus the SMP and the higher growth 0:19:21.160 --> 0:19:25.840 and the higher concentration of domestic focus here in the US, 0:19:26.280 --> 0:19:29.399 I think it can outperform. What's your screening technique? What 0:19:29.400 --> 0:19:32.760 do you do uh to start looking at these companies 0:19:32.800 --> 0:19:37.440 bottoms up? So most of it is just organically talking 0:19:37.480 --> 0:19:39.800 to a ton of companies. We talked around for Warner. 0:19:39.920 --> 0:19:44.399 Companies popetrated every single quarter. So really it's just putting 0:19:44.400 --> 0:19:47.080 together mosaic in terms of how the business is doing 0:19:47.160 --> 0:19:50.159 and comparing that versus where the streets doing. And obviously 0:19:50.440 --> 0:19:52.240 those are businesses that we want to be a part 0:19:52.280 --> 0:19:55.600 of long term. We're looking for companies that are growing 0:19:55.720 --> 0:20:00.240 north of that have leading market share the in an 0:20:00.240 --> 0:20:03.080 industry that's growing, and most importantly, have a management team 0:20:03.080 --> 0:20:06.280 that's going to deliver. We do have some screens that 0:20:06.320 --> 0:20:10.440 look at the fundamental data and the odds of them 0:20:10.480 --> 0:20:14.320 exceeding analy assessments over the next twelve and twenty four months. 0:20:14.320 --> 0:20:16.600 That's but that's really more to stop gap. Again, it 0:20:16.680 --> 0:20:19.119 just comes down to just having a lot of conversations 0:20:19.119 --> 0:20:21.399 and talk to a ton of people. Brian, thanks so 0:20:21.480 --> 0:20:24.360 much for joining us. Brian Smallock, there is the principal 0:20:24.400 --> 0:20:27.800 and portfolio manager at hood River Capital Management, coming to 0:20:27.880 --> 0:20:30.280 us out of Florida. Of course, he's a long career 0:20:30.359 --> 0:20:38.840 in banking. Started it, Sally, this is Bloomberg. Now let's 0:20:38.880 --> 0:20:42.760 get back to r T oh. We haven't talked about 0:20:42.840 --> 0:20:46.760 returning to the workplace over the past couple of sessions. Here, 0:20:46.800 --> 0:20:49.600 let's bring in Shawn Lyons, Global Chief executive Officer at 0:20:49.680 --> 0:20:53.840 r G A Sean are we are we looking at 0:20:53.840 --> 0:20:56.840 a future where it basically goes back to the past. 0:20:56.920 --> 0:21:01.240 Are we going to all eventually go back to our offices, 0:21:01.440 --> 0:21:04.679 get back on plane, start our long commutes and just 0:21:04.760 --> 0:21:07.919 forget about the hybrid work that we did over the 0:21:07.960 --> 0:21:11.320 last couple of years. Well, hi, Paul, I thank you 0:21:11.320 --> 0:21:13.720 for having me on. I hope not. I really hope not. 0:21:13.880 --> 0:21:16.320 I think there's too much binary thinking right now in 0:21:16.440 --> 0:21:19.320 terms of back to office all remote. I think there's 0:21:19.320 --> 0:21:22.399 a real benefit of of how we've all worked in 0:21:22.440 --> 0:21:24.160 the past year and a half. I think the tremendous 0:21:24.160 --> 0:21:27.520 benefit to the technology we've we've used, the diversity of 0:21:27.520 --> 0:21:29.639 talent we've been able to pull into the company. So 0:21:29.640 --> 0:21:31.680 I'm we're we're all in on hybrid and I'm all 0:21:31.720 --> 0:21:34.359 in on the actual long term benefits of a hybrid model, 0:21:34.680 --> 0:21:38.040 which I think, you know, while maybe require a lot 0:21:38.040 --> 0:21:41.359 of thought and and burden on management to manage, I 0:21:41.359 --> 0:21:42.960 think the benefits and the long term we're just gonna 0:21:42.960 --> 0:21:46.760 be tremendous. So we're fully embracing it. Yeah, it's interesting 0:21:47.720 --> 0:21:50.160 here in New York City, and obviously Bloomberg we focus 0:21:50.240 --> 0:21:54.280 a lot on the big financial institutions. Uh, they were talking, 0:21:54.320 --> 0:21:56.399 some of them were talking a big game about getting 0:21:56.440 --> 0:22:00.160 people back in full time all the time, and they 0:22:00.160 --> 0:22:03.600 since push back some of those dates. What are you 0:22:03.680 --> 0:22:07.040 seeing at there from some of the leading companies about 0:22:07.080 --> 0:22:10.639 how they're thinking about their back to work. Yeah, I 0:22:10.640 --> 0:22:13.000 mean I think we I think generally there's a like 0:22:13.040 --> 0:22:15.159 I mentioned, there's some short term thinking happening right now. 0:22:15.240 --> 0:22:18.080 There's there's some fear involved in this, which is, how 0:22:18.119 --> 0:22:20.600 do I make sure I can monitor the proctivity of 0:22:20.640 --> 0:22:23.679 my employees, how do I make sure that everybody can 0:22:23.720 --> 0:22:26.520