The Best One Yet - Amazon’s freaky drone patent, Earth’s biggest cannabis company (Canopy) falls 8%, and Walmart’s $288M “Sorcerer” bribe

Episode Date: June 24, 2019

Canada’s Canopy Growth is the biggest cannabis producer in the world, but its latest numbers reveal it may have a pot demand problem. Walmart paid up a $288M bribery fine, but the management team has a reason to not be upset. And Amazon whipped up a new surveillance drone that fits smoothly into a trend we’re noticing from the ecommerce icon.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is Snacks Daily. Welcome back from the weekend. It's Monday, June 24th. And we got the best one yet for you. I'm telling you this time. This is a straight up T-B-O-Y. This is an exciting week. Last week, markets touched right upon the record high before dipping slightly on Friday. Very nice. Right before the weekend, they had to come down. And now this week, we got the G-20 conference in Japan, where President Trump might meet up with President G. You got the first Democratic presidential debates, which will be not too savvy. And then you got the Sweet 16 of the Women's World Cup. But Jack, what three stories did we work on all weekend for all of us? We're kicking things off with Walmart. It just pled guilty to bribery in Brazil and has to pay $288 million as a penalty.

Details sound like a spy story, but Walmart probably doesn't mind the whole thing. We'll get into that in a second. Yeah, we're going to talk about the return on unethics in that story. You don't see that on a typical income statement. The second story is canopy growth. That's the world's largest public cannabis company. the stock fell 8% after a disappointing earnings report. This is the perfect example of a great term.

We're going to jump into the whole thing. Third and final story is Amazon. It just patented this new surveillance thing with a new drone, and we had to jump into this one, and we're going to make a big, bold claim. It's because we noticed a trend, and this one is not about drones. Speaking of trends and maybe drones, were there drones?

No, no drones on this one. Thanks for asking. Jack has no footage shared, except we will share with you. that he was just fulfilling his duties as future groom for a bridesmaid lunch. I just had my fiance's bridal shower. It was on Strong Island, and I made a 15-second cameo at the end. And Nick, I'm telling you, it was intense.

We wanted to share this because a lot of people get marriage advice out there, but you don't get bridal shower advice. Yeah. The bridal shower advice you need to be prepared for, if you have any good bridesmaids in the room or a maid of honor who knows what she's doing, she's going to set up the newlyweds game, which is a fantastic old school, old-fashioned party game. You're going to have a clipboard. You're going to have to answer questions, write them simultaneously without looking at each other, and then share your answers. And that's a lot of pressure because people are looking into this and judging you.

So here's my problem. I kind of expected this game to be played, and I prepared by thinking about all the things about my fiancee. The problem was I needed to think about myself. Communication. It is a two-way street. And you get the question, what is Jack's favorite movie? Guess what? You have to write that down, not just your fiancé. Jack doesn't even know. I don't even know. That's why we want to give the advice.

You got to prep for every part of a future wedding. Now let's hit our three stories. You're tuned in the snacks daily. We spoke to the lawyers and we got to get something illegal out the way. It snacks about the hair ain't food. It's air candy. They don't reflect the views of the robberhood family. It's all informational just so.

You know, we're not recommending any securities. Nope. It's not a research report or investment advice. Not an offer or sale of a security. Snacks is digestible. Business news for you. Robberhood Financial, LLC, member FINRA slash SIPC. For our first story, Canadian pot company Canopy Growth just fell 8% basically because they're up to a ridiculous amount of things.

And we found an interesting trend. Yeah, we've got to tell our audience, though, the important ticker symbol this company has. Oh, this is key. W-E-E-D. We're talking creativity from the legal team, which is not the kind of thing you typically see. So this is the world's largest pot company, and the stock dropped because of the earnings from last quarter. Basically, sales only grew 13%, which is like fine if you're selling cereal, not as fine if you're selling a hot commodity like marijuana. This is supposed to be a fast-growing industry, and 13% just didn't cut it.

It totally missed expectations. On top of that, you got the fact that weed was just legalizing Canada last fall, and so there are a lot of extra compliance costs that this company has got to pay just to stay legally relevant. Yeah, the great thing about legalized weed is it's legal now. but the bad thing is there's regulation, and they have to comply with the Health Canada regulatory things. Now, we jumped in snacks now and noticed a few things. The first is you got to get out your like metrics to foot, you know, calculator. Sorry for the American audience that's waiting to hear pounds here, but they shipped 9,326 kilos of weed last quarter. And get this.

This quarter, they expect to harvest 34,000 kilos of weed. You got to multiply by like 2.2 or something. Now, the other key we notice is that they've got 70. million of quote unquote biological assets. Yeah, that's just a fancy way of saying weed inventory that is sitting on the shelves. It's been grown. It's been cultivated. It's been picked. And it's waiting for a home. Now, there's an interesting worry here, which is partially while the stock dropped. And it has to do with the fact that canopy may be producing more pot than it's actually selling. And that means there could be demand problems. It's literally producing more pot than it's on.

We just mentioned that it shipped 9,000 kilos of weed last quarter and it's producing 34,000. thousand per quarter. So there's clearly a mismatch. If you look at the price of weed at which can it be selling, it's down 11% from last year to $7.49 a gram. Yeah, that's a great thing about cannabis companies. They say how much their average selling prices, and that's down. Now, part of that is they're waiting on demand in the United States to actually happen, but there's a slight problem here. It's not fully legal in the United States yet. So the demand can't be there. Meanwhile, they're just relying completely on Canadian demand. It got legalized in October, but there's this sense now that for Canadian demand for weed were just too high, and so they've got an oversupply problem.

So if you're a cannabis investor, you're also looking to see if there are other interesting news stories elsewhere that could indicate if there's too little demand or too much supply. In Oregon, that's what investors might be looking at. There's like code red situation over there. Oregon was an early adopter of legalized cannabis in the United States, and they have so much oversupply, prices are so low that the government has stopped giving out weed permits to grow the stuff. So Jack, what's the takeaway for our buddies? up north over a canopy growth. Canopy is vertical integration in action. Exactly. Vertical integration, the idea of owning the entire production and supply chain. They're doing it by acquiring other companies.

Canopy can plant the stuff, grow the stuff, pack the stuff, ship the stuff, and sell the stuff. And when you control the entire supply chain, you can keep more of the profits for yourself. Great examples of here of who it's acquired to make that possible. It just bought The Works, a British Natural Beauty Company, because it wants to start selling CBD, wellness, creams in stores for retail. This was a big one. It also acquired Acreage Holdings, which has former Speaker of the House John Boehner on the board, and that deal is just pending legalization in the U.S. They also acquired Storitz and Bickle, which is a medical device maker that also makes the volcano vaporizer because they want to get into the medical space and maybe kind of dorm space.

You can use volcano vaporizers for essential oils or for CBD apparently. And finally, it bought licenses to produce in Africa, Europe, and Latin America. Canopies. goal is to own the entire process from the production all the way to retail. They're ready to own the world, but just waiting for legalization. That is vertical integration from the cannabis seed to the CBD gummy. For our second story, Walmart just got hit with a $288 million bribery fine with like a little bit of kind of spy details in there. Nick, you know I love a good ROI, but the ROU on this bribery deal was very high for Walmart. Right. We're not talking return on investment. We're talking the return on unethics. Walmart nailed it. So Walmart pleaded

did guilty on Friday to paying bribes in Brazil. But we look deeper into it with the New York Times help. And they've actually have quite a track record of India, Mexico, China, some dirty deeds from 2000 to 2011. Yeah, nice little period there. They used basically well-connected middlemen to get government approvals, you know, classic bribe move. Classic. That's like a bribe 101. So they pulled out their checkbook on Friday. They're paying a $288 million fine to the government. And they were happy. Yeah, they were. happy. They were expecting a $600 million fine. When this investigation was first raised in 2016 under Obama, they set aside and they told investors, yo, we're being investigated for bribery.

We're ready to pay $600 million. Not to bring back the bridal game here, but life is all about expectations, as I believe they told you. They had already set the money aside, completely different expectations. So investors were expecting a completely different liability. Friday was actually good news. The stock rose 1%. Now, if you were, a manager. Let's like get into the shoes here of like a Walmart Brazil manager. You basically had two options over the last like 11 year period that this was going on. Yeah, you had two options. Bribes and like things will happen quick or wait and maybe they'll never happen. Yeah, probably not going to happen. In Brazil, this was getting like secret incognito James Bondish kind of. So government documents from

the investigation showed that the people at Walmart Brazil had someone named sorceress. It was a contact who was probably in the Brazilian government, and any time they needed, like, a new store opening to get approved, they call that contact, they wire some money, and it gets done. VIP man or woman in this case, they were paid $400,000 for these critical middleman, middlewoman services. And then in Mexico, this wasn't part of the guilty plea, but in Mexico, there was a clear pattern of like a town in Mexico getting new cars and new computer equipment paid for by Walmart. And then what do you know?

A year later, a new Walmart is open. grand opening. Basically, in these countries with corruption, bribery happens to be part of, you know, the cost of doing business in a lot of cases. Yeah, but if you're an American company like Walmart is, you have to follow the Foreign Corrupt Practices Act, which makes it illegal for American corporations to bribe foreign officials. So, Jack, what's the takeaway for our buddies over Walmart who aren't really that upset about this big fee? Yeah, seriously, Walmart got caught, but we bet that they probably don't even regret this whole thing. Now, Walmart's management over an HQ1 up in Arkansas had learned about this and basically did nothing while the bribery was going on with sorceress. Right. And because they did nothing, today, Walmart has 500 stores in Brazil, over 2,000 stores in Mexico. They have more international stores than they have ones in the United States.

So let's talk about this return on unethicalness that they got going on. International operating profits for Walmart were $5 billion just last year. Yeah, it was actually like $5 billion. for several years in a row. Now, let's think back. What did they pay as a result of this bribery? $282 million for 11 years of bribe and sorceress. And in one year, they make like 50 times that in profits.

And that, unfortunately, is Walmart's return on unethics. For our third and final story, this one is wild. Amazon just came out with like an insane new patent, and we're going to come out with a bold claim about what they're going to do with this thing. The scoop comes from our buddies at the information, which is a news website. Nice info. And according to them, Amazon's new patent is for drones. They're going to attach little cameras, video cameras on drones.

Already scaring me. And let customers subscribe to that video feed so they can see what's going on in their neighborhood. I'm born and raised in New York City, unfamiliar with the concept of a yard, but I've heard it involves birds. I imagine this is like birds with cameras in the trees. Yeah. You have a bird's eye view literally, and it makes us think about a service that might be called Prime Big Brother or Prime Doorman. Right. You've heard of software as a service, SAAAS, SaaS, this is surveillance as a service.

So we're seeing a trend from Amazon from its recent patents and its recent new products that's unveiled. We're talking video surveillance. It's all across this trend. It all starts with ring, which is the awesome like doorbell video camera security thing that lets you set up a doorbell next to your door that you can see the video feed through the app. By the way, fun fact, the ring was acquired in 2018 by Amazon. They were on Shark Tank a couple years earlier and were rejected. by all five sharks. And then they sold to Amazon for a billion dollars. Not too shabby. Okay. Second trend, Amazon key. This is a smart lock technology that lets you use your smartphone from work and unlock your front door at your house. And we all know any kind of a thesis has got

to have three supporting body paragraphs as we learned in middle school. And that's why recognition with a K is the third key to this trend. Recognition is Amazon's facial recognition software. and this is a controversial thing. It's being used by certain law enforcement and intelligence agencies to identify, like, people on the street through video cameras. When you're seeing three data points like this, ring, Amazon key, and recognition, that seems more like a pattern than just a coincidence. Yeah, and the fourth data point is this new drone thing, which we'll talk about in a second.

So, Jack, what's the takeaway, because we've got to cut to this takeaway, for our buddies over at Amazon and this trend. When you see a pattern, think about that pattern and take it one step further. Right. The pattern here being video surveillance, we've got a bold claim on it for Amazon. Amazon Prime e-commerce delivery that we all know and love could merge with Ring, with the facial technology, with the Amazon key, and with this drone thing. We're not even going to bother calling the marketing department on this one. We're just going to call it over at Snack Daily, prime doorman, sealed up, delivered, and hand it off to Amazon to run with. Nick, I mean, think about this. The biggest issue with Amazon's e-commerce delivery is the delivery. Like, sometimes you're not there. If you live in a city, they can't leave it on the front stoop. You get that little UPS tag that you don't know if you have to sign or go to the post office. Adorable that you called this a front stoop. I haven't heard that in like a decade and a half.

That's not even a real thing. I heard the city's damn thing is called stoop's. Well, that's exactly why we're calling it Prime Dorman, because this combines the ring's ability to see who's actually there, the Amazon Key's ability to let them in, recognition's ability to recognize who it actually is. And then the drone powering the entire operation. Yeah, let's walk through the use case. So say you're procrastinating it at work, Nick, and you order groceries, from Whole Foods through Amazon and push deliver. I was wondering what you were going to order there. Okay.

So then you get a notification from your phone that it's approaching your neighborhood. And then you see from the drone surveillance the bus approaching your front stoop. And then the feed switches to the ring doorbell and you see an Amazon approved delivery guy because of the facial recognition approaching the door. Boom. It's coming together. I feel like we're at like a harmony like top of the world moment right now. Oh, we're not done. And then you tell Amazon key to unlock the door, come on in, put the groceries right in the fridge.

Boom, done. Prime doorman, Amazon, bringing the synergies together of the trend. Jack, can you whip up the takeaways for us to start the week? Canopy growth is building a supply chain from plant to pipe through vertical integration. Creative ticker symbols are in right now with W-E-E-D and Slack was work. And Walmart paid $282 million in fines and just pled guilty for bribery. We're anti-bribery, by the way, but we do think. find it amusing that the middleman went by the name sorcerer. That's just clever.

Third and final story, Amazon's got something up its sleeve with this video surveillance, doors and lock stuff. So if you see a pattern, just think to yourself, how can I prime doorman this thing? Now, time for our snack fact of the day, sent in from Grima Singh, a great snacker who wanted to like bring a little context to us here for what you're wearing. All right. I just learned from Grima's fact of the day that cotton is water intensive. Yes. About 1,800 gallons of water. needed to produce the cotton in a pair of jeans, and 400 gallons are needed to produce the cotton in a t-shirt. Never worn a pair of jeans, so I don't feel guilty on this one. But it's a little bit of

context. Producing your average Sunday newspaper requires about like 150 gallons of water. Okay, if you're going to grow things with plants, it requires water. That's clear. I'm impressed, though, that Levi's is working on ways to reduce the water intensity of its jeans by encouraging customers to stop cleaning them so often. You just don't wash the jeans or you don't wear jeans at all because they give you the chills. All right, quick correction from Friday's pot. We mentioned that Ford is expanding Buick production in China. What we meant was Lincoln. We missed that one, but we got your guys back, and we can't wait to snack with you all week long. All right. We will be back with you again tomorrow. Thank you for snack with us.

And this is Nick, just letting you guys know that Jack Own shares of Amazon. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Market It's Inc. or any of its subsidiaries or affiliates. The podcast is for informational purposes only and is not intended to serve as a recommendation to buy or sell any security and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any investment decision.

Robin Hood Financial LLC, member FINRA, SIPC.