Why Weed Stocks Are So High & Betting at Dave & Busters?

This episode explores the impact of potential cannabis legalization and introduces a new betting feature at Dave & Buster's.

1. The DEA's proposal could shift cannabis from a Schedule I to a Schedule III drug, reducing tax burdens for cannabis companies.
2. This reclassification is expected to boost cannabis stock prices and could also impact the black market.
3. Dave & Buster's is introducing a betting feature on arcade games, potentially transforming its business model and customer experience.
4. The episode addresses broader economic impacts, like UnitedHealth's role in the healthcare system following a massive hack.
5. Discussions also touch on new consumer products and corporate strategies, reflecting broader market trends.

1. Cannabis Reclassification

Discusses the DEA's move to reclassify cannabis and its potential effects on the market and tax implications for cannabis companies. Neil Freiman: "It's going to make these marijuana cannabis companies a lot more profitable."

2. Corporate Moves and New Products

Explains Walmart's launch of a new brand and UnitedHealth's testimony about a significant hack. Neil Freiman: "Walmart is launching a yasified store label food brand for the youth."

3. Betting at Dave & Buster's

Explores Dave & Buster's new betting feature on arcade games, aiming to increase engagement and loyalty. Toby Howell: "Dave and Buster's adding gambling could be a game changer for their business model."

1. Monitor Cannabis Stocks: With changing regulations, keep an eye on cannabis stocks for investment opportunities.
2. Explore New Consumer Trends: Companies are continuously innovating; stay informed about new products and services.
3. Evaluate Corporate Health and Security: Following significant hacks, assess how companies handle data security and consumer trust.
4. Consider Social Gaming Ventures: The blending of gaming and betting could open new avenues in entertainment businesses.
5. Stay Updated on Legislative Changes: Changes in laws can significantly affect various sectors, staying informed helps in making better business or investment decisions.

Episode 313: Neal and Toby talk about the US government’s move to reclassify Marijuana as a lower-risk drug and what it means for the cannabis industry. Then, the UnitedHealth hack has opened up fresh scrutiny on whether the big health insurer should be broken up. Also, Walmart wants to lure a new type of customer with their premium private label brand. Next, Dave & Buster’s will allow customers to bet against each other while playing games. Meanwhile, another AI wearable device gets the attention of MKBHD. Lastly, a man in Mexico scores $13,000 Cartier earrings for $13.

People

Neil Freiman, Toby Howell

Companies

DEA, Walmart, UnitedHealth, Dave & Buster's

Books

None

Guest Name(s):

None

Content Warnings:

None

Neil Freiman
Good morning, brew daily show. I'm Neil Freiman. And I'm Toby Howell. Today, the DEA is moving to reclassified cannabis as a less dangerous drug. Then Walmart is launching a new store brand to woo the youth with items like pistachio nut butter.

Toby Howell
It's Wednesday, May 1. Let's ride.

It's May, which also means it's morning Brew daily mug season. Starting today. You can go on the morning Brew store and find an MBD mug to enjoy your morning beverage out of. While you listen to Neil and me. You can definitely tell who had a hand in designing this one because a certain phrase also found its way onto the mug.

Listen, let's ride. It gets the people going. Okay? But yes, this is our second merch shop after we rolled out the hoodies last year. It is so fun designing this stuff.

I cannot wait to see this mug in your guys hands, Neal. Where can they go to order? If you want a morning Brew daily mug, and you definitely do, head to shop dot morningbrew.com. You'll see us there front and center. We'll also be posting it all over our social media today on Twitter and Instagram if you want to see us in our mug modeling era.

New month, new sponsor. And today we are talking about the new wendy's cinnabon pull apart. I vibe with the cinnabon pull apart because it's a collab between two iconic brands, Cinnabon and Wendy's. You have the Toby of the collab, which is definitely Wendy's. Then you have the Neil, which is clearly the cinnabon part.

Wait, wait, wait. Why do you get to be the cinnabon? Warm, sweet, cinnamon, sugar rolled dough. Perfect ooey gooey texture that gives off Toby vibes. Fine, fine.

Neil Freiman
You can be cinnabun. Just don't describe yourself as ooey gooey again, please, ever. Let's go. But yes, we have had a chance to try this indulgent little treat, and it is delicious. Great way to make your mornings just a little bit sweeter.

So head to a Wendy's near you or head to Wendy's dot Morningbrew to try the new Cinnabun pull apart. Yesterday, a litany of government agencies teamed up to take another step towards moving marijuana down the totem pole when it comes to drug classifications. Currently, marijuana is a schedule one drug alongside the likes of heroin and LSD, as determined by their potential for abuse, legal status, and medicinal uses. But yesterday, the attorney general recommended loosening those restrictions following a DEA push to reclassify marijuana as a less dangerous drug. It would be a major shift in federal drug policy.

Toby Howell
So the proposal succeed. Cannabis would instead be rubbing shoulders with schedule three substances like anabolic steroids, tylenol with codeine and ketamine. It still needs to be approved by a White House agency before it goes into effect, and it would not legalize marijuana outright for recreational use. But still, it's a major shift that already sent weed stocks soaring. Two separate cannabis focused ETF's jumped 19 and 20%, showing investors are loving the sound of a more relaxed federal approach to the substance.

Neil, this is a historic step. What are some of the implications? Yeah, the main move to go from a schedule one to a schedule three is tax related. So make. It's going to make the these marijuana cannabis companies a lot more profitable, because right now, as a schedule one drug, they cannot write off certain normal tax deductions that a normal business can do, like rent or their employees wages.

Neil Freiman
Now, if this happens and they move to a schedule three, then they're going to be able to do that, which is going to juice the profits of these cannabis companies. Yeah. There is a specific section of the IR's called section 280, which prohibits cannabis companies from deducting what would otherwise be ordinary business expensive. So removing that tax burden is just a massive, massive boost. And why these cannabis stocks arguably jumped so much.

Toby Howell
It could also shrink the black market, too, because, remember, the black market has thrived despite marijuana being legal in places like New York, California, and in some places, it's actually undercut the legal market, because, remember, the legal market has to deal with those higher regulations, that higher tax burden. So hopefully, or maybe in the administration's eyes, they're thinking this is another chance to deal a blow to the black market. I mean, you just walk around New York City and you see a bodega selling weed right next to a legal dispensary. So these black market, gray, gray markets, uh, cannabis dispensaries, are operating just as much as the legal market here in New York. Some advocacy, advocacy groups are not happy, though, because they think the only real winner is the cannabis industries, who will get that new tax break, and thus they'll boost their profit margins.

Meanwhile, they think it's going to hurt Americans, especially kids, who are now probably going to face a lot more advertising, a lot more promotion of weed products from these companies, who now are enjoying this more relaxed environment. So it's not all hunky dory, because some researchers still have health concerns, high potency marijuana, and also cannabis induced psychiatric disorders. Are still out there, and some researchers are pointing to that. So even though that we are moving towards a fully legalized landscape for marijuana, there still is some people saying maybe we should pump the brakes a little bit. Yeah.

Neil Freiman
But just to be clear, like, this is not legalizing marijuana at the federal level. A number of states have done, I think 24 states have legalized it for recreational use in adults, and then 38 have legalized it for, um, for medical uses. But this is, this is a step in that direction, but is not directly linked to federal legalization. But just looking at the public opinion polling on this and how. How this has changed over the past decades is actually insanely dramatic.

I mean, in 2030% of people, uh, backed federal legalization of cannabis, and now 70% do. So this has been a sea change in public opinion over the past few decades. Today, healthcare giant Unitedhealth will face the music when its CEO testifies before Congress about a hack that froze the US health system for months. This dates back to February, when a UnitedHealth subsidiary that processes more than 40% of the nation's medical claims was hit with a cyber attack. The breach froze transactions and prevented many hospitals, doctors, and other providers from getting paid.

Analysts estimated the entire health network was losing $1 billion per day. It was a colossal disaster. And the fact that so much of us healthcare could be knocked offline by a single hack of a payments processor made everyone go, wait a second. Like, what exactly is going on here? And what is going on is that UnitedHealth is bigger and more influential than you could ever imagine.

The company handles health data for 50% of all Americans. It is the country's fourth largest company by revenue, bringing in more sales than Alphabet and Microsoft. An estimated 5% of us gross domestic product flows through its systems every single day. So, on the surface, today's hearing will be about the hack and its fallout. But you can bet lawmakers will also be asking tough questions about United Health's market power, how it got so big in the first place, and whether its size presents serious risks to our health care system.

Toby Howell
Yeah, this hack paralyzed so much of the US healthcare system. And so obviously, a bunch of lawmakers looked at and said, listen, uhd, you are probably a little too big, you're a little too important to too many, uh, parts of the healthcare system. CEO Andrew Witte is looking at it differently, saying that the company's size actually helped insulate it from the attack. If they weren't so incredibly big, then it probably would have been even worse for the healthcare system. So I think that's some of the lines of reasoning that both sides are going to adopt in this hearing here.

And it was one of the costliest hacks ever. They think that the February 21 attack could reduce profit by as much as $1.6 billion this year, which on the surface, I was like, wow, that's a big hack. But then you realize that UnitedHealth made $99 billion in the first three months of last year. It is just an insanely, insanely large company. The revenue numbers, I cannot quite wrap my head around.

Neil Freiman
And profit numbers, I mean, did $22 billion in profit. I mean, many people listening to this are interacting with UnitedHealth every single day. You may not even realize it just going to run down some of its few business units. I mentioned that they have 2200 subsidiaries. The big one is its insurance.

It provides health coverage to about 50 million patients through United Healthcare insurance division. It operates a pharmacy benefit manager with negotiates drug prices. And, you know, this is what you pay for prescription drugs. It has this processing claims network that this is the one that got hacked. It's, its small, it's one of its smallest divisions, but one of its most profitable.

And then it has this 227 billion optum division that is an employer of 90,000 physicians. So it's got its tentacles in literally every single part of the health care system. The phrase you hear brought up in terms of antitrust and regulation with the law, what these lawmakers are going to bring up today is single point of failure. It is so concentrated, it is so interconnected. United healthcare controls so much that as evidenced from this hack, one vulnerability, it's like the Death Star.

It's got one vulnerability. You can go in and it kind of disrupts the entire system. And so lawmakers will be looking at, wait, how did Unitedhealth get so big in the first place? Is it controlling too much? And is there a single point of failure that not only brings risk to the healthcare system, but national security, too?

Toby Howell
And it's also usually the smaller clinics downstream of Unitedhealth that suffer the most when a hack like this happens. Because again, UHD is so big, it can weather this storm. But when you have some clinics relying on patients to pay in advance, in cash in order to just stay afloat while this hack happens. So it's always, it turns out the little guys that, that suffer here while UHG is going to soldier along just fine. And UHG has not been before Congress in 15 years.

Neil Freiman
This is the first time the CEO is testifying in 15 years. I mean, Zuck has been there, and you can say it was justified. Zuck has been there, like, three times a month for the past three years, and this company has just kind of skated by. So he'll face some tough questions. Today, Walmart is launching a yasified store label food brand for the use.

Toby Howell
It's the chain's biggest in house brand launch in 20 years as it hopes to ride the affordable private label wave that you may have heard us talk about on yesterday's show. The brand is called Better Goods, and Walmart says it'll have 300 products in the line by the fall, ranging from Cardamom Rose Raspberry jam and curry chicken empanadas to gluten free muffin mix and oat milk ice cream. Even though the packaging and items feel upscale, the prices are not. Most products typically range from two to $15, with most coming in under $5. The launch comes at an especially tenuous time for shoppers, as food costs are eating up the highest percentage of household spending in years.

It also places Walmart squarely among competitors like Costco, Trader Joe's, and Whole Foods, who all have strong and lucrative store branded items. Neil, private label brands accounted for over a quarter of overall food and beverage units sold last year. Feels like this is the right time for Walmart to roll out something like this. Walmart wants to capitalize on two trends that are going on right now. One is inflation and people seeking out lower cost food.

Neil Freiman
That's obviously been a big one. The other is that during COVID people spent a lot of time in their kitchens, and they. They actually made more ambitious meals at home. And you might say, oh, that's not really anything. Yeah, sure, I tried, like, a little more like a souffle or risotto, but that is actually a big trend that's been making waves across the food industry.

And you can't just offer people Mac and cheese or something super simple anymore. They want to go more ambitious and adventurous in the kitchen. And so Walmart, with all these products that you were mentioning, is rolling out a private label that seeks to capitalize on people seeking for low cost goods, but also just not the standard, basic stuff that people may have tried to cook before COVID but now after. After COVID and during COVID they got all their new kitchen implements and want to be a little more experimental. Yeah, they definitely wanted to offer new food items, not just copycats of existing stuff out there.

Toby Howell
And also reading through how kind of the Walmart food development team went about creating this new line. They said they were sometimes going on these food trips where they'd go to restaurants, because restaurants are usually on the forefront of developing new items, and they're saying, it sounds fun to go try all these new places, but sometimes they're eating eight meals a day and it gets to be a slog just looking for something new that can capture people's imaginations without going too far down the line of experimental food items. They're also just look at Kirkland. Look at these brands that have developed such a cult following over the years. If you can build a reputation for having really high quality stuff at really low prices, you are going to build this fanatical following.

So I bet you Walmart execs say they're. They're looking at Kirkland, they're looking at Trader Joe's and saying, we need to do something like that. And it looks like this new range is. Is that for them? Yeah.

Neil Freiman
And meanwhile, Walmart's just going up market in general. It wants those more affluent shoppers, which it's historically struggled with. And it looks like it's doing that pretty well. Households making a hundred people from households making 100,000 to 150,000 a year, with a second large cohort of shoppers in 2023 at Walmart. So as it yossifies its score, which I don't even know what that means, but it sounds good.

What does Yasify mean? It just means to, like, millennialize it. Yeah, no, it's not a little bit. It's more just, like, paint a nice little layer of branding over maybe some not so sexy branding in the past. All right, so as Walmart yosifies its stores, it's remodeling its stores, it's trying to get in more luxury goods to its web offerings and its brick and mortar mortar stores.

And this is part of that, that transition where it's saying, we have the low end of the market pretty locked down, but we want those more affluent people as well. Up next, you won't believe which company is offering gambling now.

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Toby Howell
Start@massmutual.com. Planning. That's massmutual.com planning.

Dave and Buster's a safe haven for children to play games and parents to indulge in some beverages while they watch. Is adding gambling into the mix. Loyalty members will have the ability to bet on games of skeeball or street Fighter. Yes, as long as you're aged 18 or older, you can wager real money on arcade games with friends. The chain is using tech from a gamification company called Lucra, and it gives you the ability to formalize those handshake wagers so many of us do between friends.

So I'd say to Neil, I bet you $5 that I can beat you in Papa shot. We'd open the contest in the app, play our game, and Neil would probably end up paying me $5. Now you're probably thinking, is this legal? The answer is yes, because skill based games like air hockey or skeeball are not subject to the same regulations as games of chance, like craps or roulette. And Lucra is very careful to not use the term bet or wager to describe its games.

They say contests or challenges. Neil, this is part of a burgeoning social gambling industry, and this feels like a smart move from Dave and bussers, right? Yeah. For many, though, this feels like the degradation of our society into a bunch of gambling addicts. There were jokes made about a dad coming home to his family and being like, sorry, sorry, folks, I just lost $90,000 in skeeball at Dave and Buster's.

Neil Freiman
You know, but, and, like, the fact that we can't just go out and have wholesome fun anymore. We need to wager on everything. But yes, this is smart by David Busters because it wants to increase membership in its loyalty program. It wants to bring more people in to spend more money, spend more time at Dave and busters. And they think that moving a lot of those in real life experiences to a digital gamification offering where you're actually recording stuff on an app, and that app would be its loyalty program.

You'll spend more, you'll stay longer, and you'll want to come back because you had a good time. I want to dive into Lucra a little bit. They just signed a deal with Duper, which is the pickleball rating system, tennis one, which is a tennis app to kind of formalize those competitions between friends. Like, if we went out to go play tennis or pickleball. We could put our game within the app and do a payout there.

Toby Howell
But I was thinking a little bit, is it really, do we really need an app for this, though? Because we can just go out and say, let's put $10 on this game, and then there's plenty of ways to facilitate payments, like Venmo. Like, I mean, some people still use cash, believe it or not. So I don't know if there is a huge need for mid. I like directionally where Lucra is editing, but we can just do that.

A handshake agreement without an app getting involved. Yeah, but there are apps for a lot of things that people like using and not pen and paper or relying on their brain. This also ties into the larger social betting industry, which has kind of exploded in recent years after the Supreme Court allowed legal wagering on sports. And they're not technically sportsbooks. They're in a regulatory gray area, and that lets them slide by because they rely on virtual money and virtual currency.

Neil Freiman
They're not pay to play. So they say they're sweepstakes apps and they escape regulations. So they can be in all 50 states and they're just immensely popular. Eight out of the top ten sports apps right now are gambling related. Some of the most famous ones are prize picks, which is the top downloaded free sports app in Apple's App Store.

So this is, you go on, you play a little virtual currency on and you bet as you normally would, and you just maybe, cat, you can actually cash out in, in, in real money. But, you know, critics are warning that this is literally a pipeline to the actual sports folks like Fanduel, Caesars, and we should regulate these more, but they are just proliferating like crazy. I do just want to give one final shout out to Dave and Busters. We talked about how big Unitedhealth group is. Dave and Buster's is a lot bigger than I thought as well.

Toby Howell
It says it has 5 million loyalty members, 30 million unique visitors to his location each year. That was bigger than I expected. And his stock is up more than 50% over the past year. So David Busters is doing all right. It's becoming as routine as Tyrese.

Neil Freiman
Maxi Brilliance, a buzzy startup, releases an AI gadget. The popular reviewer Marquez Brownlee, bashes the device, and an existential debate ensues over the state of the tech industry. Last month, Marquez called the Dollar 700 humane AI pin the worst product he's ever reviewed, causing all kinds of controversy about his power to tank a promising young company. This week, Marquez released a video about the new Rabbit R1, which, like the humane pin, is a gadget powered by AI that ultimately aims to replace your smartphone. Think about this as a hyper personalized assistant that does a lot of your tasks without you having to stare at a screen.

While humane's is a pin you wear, the rabbit is a bright orange box you carry around with you. But Marquez did not like the rabbit either, and his main critique of the device hit a nerve. He said the gadget, as is, was barely reviewable because it did not have most of the features that were promised. And that critique hit a nerve because this has become a major trend. Tech companies are increasingly releasing products that they acknowledge are the bare minimum of what will eventually be offered, and yet they're still asking you to pay full price.

Toby, does Marquez have a point with this? Yeah, he absolutely has a point. And you are so right. Like clockwork, this. The discourse.

Toby Howell
The discourse, man, it just breaks out every time he posts one of these videos. And I actually think the disconnect is one between customers and venture capitalists. Jason Levin, this writer I follow on Twitter, he said that MKBHD understands one key thing. Customers are not VC's. Customers pay for finished products, not ideas of products like VC's.

So you can't sell customers unfinished products that are advertised as finished and expect the same optimism as selling the ideas to VC's. That is why we see this discourse breakout between the tech elite on Twitter, saying like, can you imagine if someone had come along to the iPhone when it first rolled out and started critiquing all the things and mocking it and saying like, this is barely reviewable. Would we have the iPhone that we have today? Because I do think people have a little bit of amnesia about that first iPhone. Remember when it came out, didn't have copy paste, it was so brittle it basically explode every time you dropped it, didn't have video recording, you couldn't send or receive pictures, all these basic things that other smartphones of that era had.

The list just goes on. So what if a reviewer of the same size and influence, like MKBHD came along and said the iPhone is trash? Would we have the iPhone today? It's tough to say, but I see where the heart of that debate comes from. Yeah, I think this touched a nerve because it's not just happening in tech, it's happening across the ecosystem where companies are releasing the bare minimum of a product and hoping to get a lot of data on how users are using it.

Neil Freiman
And then they're going to do that to what's called iterate in the tech world and make improvements and then release a better product. But the problem is they're still asking for full price. And luckily for consumers, the Rabbit R1 is only worth 100. It's only cost $199. So it's a little more palatable compared to the humane AI pin, which is dollar 700.

But this is happening in gaming. The studio Bethesda is known for rushing games out with a bunch of bugs, and then users will find the bugs and then they'll make the changes and then release a better version of the game. It's also was happening in the auto industry with Fisker's truck that also, uh, that also involved Marquez Brownlee as well. Uh, he reviewed the truck and said, this is so bad. And then the company went on a wild goose chase to call him up, find him, and tell him that there is a new update for the truck.

And he was like, I don't want that. I want what you're selling right now to consumers, what they're buying for full price because you're this update that you're saying is coming in the future, it's not what people are buying now. So I refuse this offer. So let's just go back to the rabbit for our final point here. How was the rabbit?

Toby Howell
I was poking kind of through the subreddit where some people had also interacted with the device, and they basically said this should just be an app on a smartphone. Like all the things that they're saying the rabbit does, it would just be better. With the greater computing power, the better camera, the better speaker that your iPhone already has, there's no real reason to have this very nifty hardware aspect of it, like people did praise the actual design of it, like the retro kind of futuristic design language to it. But again, sometimes you don't need to reinvent the wheel when you already have a pretty good wheel already in your pocket. Finally, you've got to hear about the saga of the $13 Cartier earrings.

Neil Freiman
This story begins last December when mexican surgery resident Rogelio Villarreal was doing something very familiar to anyone. He was mindlessly scrolling on Instagram. While doing that, he was hit with an ad for Cartier and looked through the fancy bling handbags, watches, and necklaces on the website, each listed for thousands of dollars. Then he noticed something odd. One pair of earrings, studded 18 karat rose gold cuffs lined with diamonds was priced at 237 mexican pesos, or about $13.

Couldn't believing his luck, he snagged two pairs. Of course, this was a glitch. A pair of these earrings typically cost more than $13,000. So he got them at a 99.9% discount. Realizing their mistake, Cartier tried to cancel the order numerous times and kicked off a months long back and forth with Villarreal, who held his ground and picked up a big following on social media as he documented his fight with a luxury jeweler.

Ultimately, Cartier relented. And last Friday, Villarreal said he received the earrings in the mail and he's going to give them to his mom. War is over. He tweeted. There is this very interesting consumer protection law in Mexico that actually does give consumers a fair amount of leeway and if a company is not respecting the terms and conditions under which a product or service is purchased.

Toby Howell
So he found a form to contact Cartier on their website, did his due diligence, and kind of went down this legal path. The ironic thing, though, is that mexican law does not extend protections to consumers. If a price listed was clearly a mistake, which was obviously the case in this example, like, you're not Cardi is not going to put up the rings for a 99.9% discount. So that is kind of the ironic pot, is that if this case had gone to the court of law, it probably would have worked out in favor for Cartier. So it caused a ton of discourse, especially in Mexico, where some senators were, were weighing in and saying, listen, don't do what this guy did.

Don't abuse the law in this sense. This is clearly a case where this consumer protection law has been abused. It's not a great moral look for him, right? While other people are like, hey, he's the underdog here. Let's root him on.

So it was an interesting kind of two sides, uh, broke out in this, in this, uh, earing debacle, right? It is, it is a moral question. It's kind of like, if you find a wallet or some money on the ground, what do you do with it? I think a lot of people were siding with him because it's not really, you know, it's. It's kind of a David versus Goliath story with this luxury jeweler versus this one random guy who happened to find a loophole.

Neil Freiman
And so this mexican senator might have been a little too harsh. I think, for broader public opinion, you probably sided with him. Let's leave it at that today. Thanks for listening and happy first day of May. You know the drill.

Send an email to morningbrewdailyorningbrew.com. For any feedback on the show really helps us get better. One quick correction to yesterday's show, Robinhood's 1% account transfer promo ends June 28, not June 30. As stated in the episode. Let's roll the credits.

Emily Milliron is our executive producer. Raymond Liu is our producer. Olivia Graham is our associate producer. Yujenoa Ogu is our technical director. Billy Menino is on audio.

It's gonna be may cup and hair. Devin Emery is our chief content officer, and our show is a production of Morning brew. Great show today, Neil. Let's run it back tomorrow.

Toby Howell
Let's run it back tomorrow.