Morning Brew Daily - Why Weed Stocks Are So High & Betting at Dave & Busters?

Episode Date: May 1, 2024

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.  Visit https://www.wendys.com/morningbrew for more! Get your Morning Brew Daily Mugs Here: https://shop.morningbrew.com/products/morning-brew-daily-mug?utm_medium=megaphone&utm_source=mbd&utm_campaign=mug Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howe. Today, the DEA is moving to reclassified cannabis as a less dangerous drug. Then Walmart is launching a new store brand

to woo the youths with items like pistachio nut butter. It's Wednesday, May 1st. Let's ride. It's May, which also means it's morning brew daily mug season. Starting today, you can go on 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 gets the people going, okay? But yes, this is our second merch drop 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. Neil, where can they go to order? If you want a morning brew daily mug and you definitely do, head to shop.mourningbrew.com. You'll see us there front and center. We'll also be posting it all over our social media today at MB Daily Show 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 Cinebun pull apart. I vibe with the Cinebun pull apart because it's a collab between two iconic brands, Cineabon and Wendy's. You have the Toby of the collab, which is definitely Wendy's. Then you have the Neal, which is clearly the Cineubon part. Wait, wait. Why do you get to be the Cinebun? Warm, sweet, cinnamon sugar-rolled dough, perfect ooey-gooey texture. That gives off Toby vibes.

Fine, fine. You can be Cinnabund. Just don't describe yourself as Ui-Gui 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 wendies.com slash morning brew to try the new Cineabund pull apart. It's time to refresh your yard during spring backyard days at the Home Depot.

Get low prices guaranteed on propane grills starting at $179, like the next grill three-burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th, Exclusion supplies to homedipo.com slash price match for details. 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 1 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. Should the proposal succeed, cannabis would instead be rubbing shoulders with Schedule 3 substances like anabolic steroids, Tylenol with coating, 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 ETS jump 19 and 20 percent, 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 implication. Yeah, the main move to go from a Schedule 1 to a Schedule 3 is tax-related. So it's going to make 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. Now, if this happens and they move to a Schedule 3, 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 IRS called Section 280E, 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. 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 is 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 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 market cannabis dispensaries are operating just as much as the legal market here in New York. Some 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. 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 medical uses. But 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 this has changed over the past decades is actually insanely dramatic.

I mean, in 2000, 30 percent of people backed federal legalization of cannabis and now 70 percent do. So this has been a sea change in public opinion over the past two decades. Today, health care giant United Health will face the music when its CEO testifies before Congress about a hack that froze the U.S. health system for months. This dates back to February when a United Health subsidiary that processes more than 40 percent 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 U.S. health care 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 United Health 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 U.S. 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. Yeah, this hack paralyzed so much of the U.S. healthcare system. And so obviously a bunch of lawmakers looked at and said, listen, U.HD, you are probably a little too big. You're a little too important to too many parts of the health care system. CEO Andrew Whitty 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 health care 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 United Health 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. And profit numbers. I mean, it's $22 billion in profit. I mean, many people listening to this are interacting with United Health every single day. You may not even realize it.

I'm just going to run down some of its few business units. I mentioned that they have 2,200 subsidiaries. The big one is it's insurance. It provides health coverage to about 50 million patients through United Health Care 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 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 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 evidence 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? How did United Health 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 health care system, but national security too? And it's also usually the smaller clinics downstream of United Health that suffer the most

when a hack like this happens because, again, UHG 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 suffer here while UHG is going to soldier along just fine. And UHG has not been before Congress in 15 years. 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 is just kind of skated by. So you'll face some tough questions today. Walmart is launching a Yassified

store label food brand for the youth. It's the chain's biggest in-house brand launch in 20 years as it hopes arrived the affordable private label wave that you may have heard us talk about on yesterday, 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 $2 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. It 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. That's obviously been a big one. The other is that during COVID, people spent a lot of time in their kitchens and 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 a 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 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. 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 looking at Kirkland. They're looking at Trader Joe's and saying, we need to do something like that. It looks like this new range is that for them. Yeah. 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 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 Yossify 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 yossifies its stores, it's remodeling its stores.

It's trying to get in more luxury goods to its to its web offerings and its brick and mortar, mortar stores. and this is part of that transition where it's saying we have the low end of the market pretty lockdown, but we want those more affluent people as well. Up next, you won't believe which company is offering gambling now. Kayak gets my flight, hotel, and rental car right, so I can tune out travel advice that's just plain wrong. Bro, Skycoin, way better than points. Never fly during a Scorpio full moon. Just tell the manager you'll sue.

Instant room upgrade. Stop taking bad travel advice. Start comparing hundreds of sites with kayak and get your trip right. Kayak, got that right. Exema is unpredictable. But you can flare less with ebbglis. A once-monthly treatment for moderate to severe eczema.

After an initial four-month-month-longer dosing phase, about four and ten people taking ebbglis achieved itch relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin that's still more clear at one year with monthly dosing. Ebbglis, Lbrichizumab LBKZ, a 250 milligram per 2 milliliter injection is a prescription medicine used to treat adults in children 12 years of age and older who weigh at least 88 pounds or 40 kilograms with moderate to severe eczema. Also called atopic dermatitis that is not well controlled with prescription therapies used on the skin or topicals or who cannot use topical therapies. Ebglis can be used with or without topical corticosteroids. Don't use if you're allergic to ebbglis.

Allergic reactions can occur that can be severe. Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with Ebbglis. Before starting Ebbglis, tell your doctor if you have a parasitic infection. Ask your doctor about Ebbglis.com or call 1800 lilyrx or 1-800-545-9-9. Dave and Busters, 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 ski ball or street fighter. Yes, as long as you're aged 18 or older, you can wage. real money on arcade games with friends. The chain is using tech from a gameification 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 five bucks that I can beat you in Pop a 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 illegal? The answer is yes, because skill-based games like air hockey or ski ball 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 David Busters, 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 ski ball at Dave and Busters. you know, 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 Dave and 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 he had a good time. I want to dive into Lucre a little bit. They just signed a deal with Dooper, 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. 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 bucks on this game. And then there's plenty of ways to facilitate payments like Venmo, like, I mean, some people, People still use cash, believe it or not. So I don't know if there is a huge need from it. I like directionally where Lucra is heading, 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 is kind of exploded in recent years after the Supreme Court allowed legal wagering on sports. and they're not technically sports books. They're in a regulatory gray area, and that lets them slide by because they rely on virtual money and virtual currency. 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 10 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 any bet as you normally would and you just maybe you can actually cash out in in real money but critics are warning that this is literally a pipeline to

the actual sports folks like Fanduil, 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 United Health Group is. David Busters is a lot bigger than I thought as well. 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 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 $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, the discourse, 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 MKBHC understands one key thing. Customers are not VCs, customers pay for finished products, not ideas of products like VCs. So you can't sell customers unfinished products that are advertised as finished and expect the same optimism as selling the ideas to VCs. 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 same?

size, influence like MKBHC, 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 the 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. 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 palable compared to the Humane AI pin, which is $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 happening in the auto industry with Fiskers truck. that also involved Marquez Brownlee as well. 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 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? I was poking kind of through the subreddit where some people had to also interact 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 cardier earrings. This story begins last December when Mexican surgery resident Roheilo Villareal 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 look through the fancy bling, handbags, watches, and necklaces on the website, each list.

for thousands of dollars. Then he noticed something odd. One pair of earrings studded 18-carat rose-gold cuffs lined with diamonds was priced at 237 Mexican pesos, or about $13. Couldn't believe in his luck, he snagged two pairs. Of course, this was a glitch. A pair of these earrings typically cost more than $13,000, so we got them at a 99.9% discount. realizing their mistake, Cardi had tried to cancel the order numerous times and kicked off a month 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. 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 core of law,

it probably would have worked out in favor for Cardier. So it caused a ton of discourse, especially in Mexico, where some senators 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 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 broke out in this earring debacle.

Right. It is a moral question. It's kind of like if you find a wallet or someone. 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 kind of a David versus Berks-Gelius story with this luxury jeweler versus this one random guy who happened to find a loophole. 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 Morningbrewdaily at morningbrew.com for any feedback on the show really helps us get better. One quick correction to yesterday's show, Robin Hood's 1% account transfer promo ends June 28th, not June 30th, 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. Yucenoa Ogu is our technical director. Billy Minino is on audio. It's going to 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. All. Pay off your home, travel for life, drive a Ferrari. In celebration of the

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