The Canadian Investor - Is US Expansion Realistic for Canadian Cannabis Companies?

Episode Date: October 23, 2023

In this episode, Braden goes over his framework for selling while Simon explains how the US Federal Reserve System works. We finish the episode by looking at some recent developments in the US Cannabis space and what it means for Canadian Cannabis Companies. Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the refined Simon Belanger. Today, we have a great episode. Simon's going to go history lesson, full history lesson,

full break it down on how the Fed actually works. I wouldn't say it's a history lesson, but definitely a little bit of a historical background. Yeah. Whatever you want to call it, brother. I'm totally good with that. I'm excited for this because this is buzzword central. Everyone's a macro expert in the past two years. And so just break it down into simple terms. And then I'm going to talk about my six-point simple framework for selling. I hate selling stocks. It makes me feel uncomfortable. It's like a dirty word.

But sometimes it is necessary. And I'm going to go through my six point framework of things I think about. And then you're going to talk about the weed, US cannabis, stay off the weed. All right. But before we do that, Simone, I wanted to jump in quick and do a very short segment called, what game are you playing? I made a content piece last night on how I track positions in my portfolio. I own 20 stocks. It's more like 15 because I don't plan on selling the spinoff shares. So they're like, I think of them as one position.

I think of them as one position. For some people, this is far too few in their view, according to some nice little comments left on my content piece. And for me, I tell them, that's just quite all right. I am very sufficiently diversified. And in fact, I'd be comfortable with owning far less because I am in the business of owning businesses, both publicly and privately owned. I own three businesses and then I own a small sliver of 20 of them that are listed publicly. I'm in the business of owning businesses and not trading them. And a guy wrote me a nice article and you know, very thoughtful. I love, I love when people push back on my ideas. It's actually quite healthy. Saying I'm taking excess risk on by only owning 20 individual stocks.

And the article points to huge volatility as you own less stocks. I mean, it makes more sense, right? If you own 500 stocks, you're going to have a lot less portfolio volatility than 10. But this is a key difference in the way that I think versus how people are taught investing in academia. And that is that volatility, which is the range on how much a stock swings and how volatile the price is going to be, is equal to risk. And I do not believe that that is true, at least not in the game that I'm playing. For me, risk is one of my businesses gets materially worse. I'm caught holding the bag as competition eats

its lunch. And so I'm going to get into this. This is a good setup for the segment I'm doing here on today's show on why I think selling is hard, how to think about it, why I try to never sell, but it's impossible, and how selling is to do with risk for me of loss of capital, not volatility. Volatility equals opportunity. Volatility not equals sign risk. And so when you hear ideas on how you should invest from your peers, YouTube videos, this podcast, the internet, whoever, family, friends. Ask yourself, what game am I playing? Am I playing the same game as them?

And then play the game accordingly. So that's my opener for today. Yeah. And I mean, it also comes back to what you're comfortable personally in your temperament. I think, you know, volatility can be dangerous for someone who panics. So if you have some people that will see their portfolio being very volatile, they may end up doing some pretty poor decisions because of that. I know you're not like that, but I think it's really important in the psychological element of investing. But I think it's really important in the psychological element of investing.

I think it's a lot of people that post on either it's Fintwit or a lot of articles. I find they forget about that because you'll see a lot of people saying like, oh, a dividend only strategy. It's not optimal and so on. And the numbers may totally support their thesis. But if, and I've said that before, if owning pretty much only dividend paying stocks prevents you from panicking and selling when there is a massive market drawdown because you tell yourself, well, at least I'm getting that dividend. So it's keeping me in the stock. Well, that might be the best strategy for you, because even if you went for the optimal strategy from a pure mathematical basis, it would not be optimal for you because your behavior would go against that. And I think that's one of the fighting your own behavioral bias. Exactly. I think that's one of the biggest blind sides I've seen. people, they look at the numbers, but they forget the psychological aspect and how person A versus person B will behave very differently in the face of volatility. So, I mean, I'm sure I'll say it

again, but I see this so often, these very smart people, and I always have that same pushback. I say, look, you know, it's all nice and dandy but if from a temperament perspective that the person ends up making the wrong move because they panic you know it's worth nothing that's right yeah so know what game you're playing right like yeah if that's i i totally agree i mean that I mean, you can't disregard behavioral psychology when it comes to investing because it's going to matter more in returns than probably any other factor

in terms of like what makes a good investor. What is it? Peter Lynch who says, you know, investing is the most important organ is your stomach, not your brain. It's like kind of your stomach, not your brain. Yeah. It's like kind of your gut and how you react to these kinds of things. And so for me, I know volatility, not equal sign, business, fundamental risk.

And so I'm cool with volatility. In fact, bring it on. But if I'm like what you're talking about, and that's going to make me have silly decisions by only owning a few names, then that's not the game you want to play. Know the game you're playing, know how you're going to play the game, and then play it accordingly and stick to it. Yeah. That's what I think about this. Yeah. And the investing strategy you have, you know, will be a big deciding factor in terms of what you know the returns and the ups and down you'll see in your portfolio and if you're really

convicted in your approach you should be able to weather those uh much better and i mean you know you're the only one that knows what works best based on your temperament um you know we can talk about it you can listen to the smartest people. That's fine. But at the end of the day, you have to know yourself. And I've said that time and time again. I mean, I use a hybrid strategy. People enjoy TCI, but I've said it here before. I think I must be around like 35, 40% now of my portfolio in index funds. And then the rest is between, you know, Bitcoin and individual companies. I'm fine with that. But for a lot of people that may not be suitable for various reasons. But for me, you know, I believe in that strategy. I have conviction and that's why it

works for me. You have a different strategy than mine and that's fine. I mean, it works for you. So I don't think there's a, you know, a lot of the times there's not really a right or wrong i think it's really based on on a personal basis that's right uh you know you and i have very different portfolios uh we have some some overlapping names i can think of a few um but we have very different portfolios and we've both beat the market on a trailing 10 years cagger. So here I am pumping us up here, but it is the truth. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy

all North American ETFs, not just a few select ones, all commission free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best

products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. All right, let's talk about the Fed.

Yeah, let's do it. You got a little segment here. Let's get into it. The US Fed. And I'll definitely try to do something on the Bank of Canada because I've seen a lot of people wondering, even had the question like, oh, what if the Bank of Canada starts like having losses? What the impact is? So I'll definitely do a segment on that because I think, you know, it can get quite complex. I'll try my best to simplify it as much as possible.

But, you know, I think it's really important. Obviously, the Fed is the Federal Reserve in the U.S. It was established by the Federal Reserve Act in 1913 and signed by President Woodrow Wilson. This was done in response of the financial panic of 1907. And the Fed is primarily a regulator of banks that are part of the federal reserve system. And it's the lender of last resort. They have two primary objectives, but also some kind of, you know, some other key functions. So the two primary objectives, most people must have heard this before, stable prices, obviously relating to inflation and maximum sustainable employment. And then the five key

function, you have U.S. monetary policy, stability in the financial system, regulating financial institution, payment system, settlement, safety and efficiency, and then consumer protection and community development. So it's definitely, you know, there's these two main mandates, but it's overall a big kind of, you know, there's a lot of responsibilities on the Federal Reserve System. And the way it works, there are seven members of the Board of Governor, with the chair being, of course, Jerome Powell. And they are nominated, the chairs are nominated by the U.S. President and approved by the Senate. Each governor can serve a maximum of 14 years. They are nominated. The chairs are nominated by the U.S. president and approved by the Senate. Each governor can serve a maximum of 14 years. Each appointment is staggered every two years to limit the political influence.

Really, the Fed is supposed to be independent. So that's why, you know, in the past, for example, we've seen Donald Trump trying to like when Powell was in place to basically say like he should be lowering rates and stuff like that but really you know in our democracies it's really important for these central banks to be independent because you can look no further than Turkey for example where Erdogan has really been pushing for you know his policy onto the central banks. And that's been definitely a disaster over there. They've seen really high inflation. Now, in terms of what we all know as the U.S. Federal Reserve, it's actually composed of 12 regional Federal Reserve banks that are each responsible for a geographic region in the U.S. So you have San Francisco, Minneapolis, Cleveland, Boston, New York, and I'll put an asterisk on the New York one because I'll come

back to that in a little bit, Philadelphia, Richmond, Atlanta, St. Louis, Dallas, and Kansas City. Each regional bank also has a president. And like I I said it's supposed to be independent, the US Federal Reserve System and the Federal Reserve System is made of the Board of Governors, Federal Reserve Banks and the Federal Open Market Committee, is the Federal Reserve Monetary Policy Making Body. So it's composed of the Board of Governors, so those seven members that I talked about, the President of the New York Fed. So when I was talking about the New York Fed, I mean, you can tell the importance of the New York Fed here by the fact that they're part of the FOMC and four other presidents of these 12 banks that I talked about that serve on a rotating basis. So the only

permanent president is the New York Fed president. And this is the body that sets the U.S. interest rate. So you'll probably see when on CNBC or any financial site, whether it's BNN Bloomberg, whatever it is, they'll often talk about, you know, in the news, they'll say, oh, the FOMC minutes are coming out, or if they just come out following a raid decision. Well, the FOMC is, you know, that body that I just talked about. It just have a small number of fed officials that are part of that committee and really they make some important decisions at the end of the day though obviously the chair joan powell is the ultimate decision maker i mean you'll see sometimes in minutes there'll be dissidents so there'll be uh you'll see some that are more hawkish more dov AUK-ish would be more aggressive on the interest rate hikes or higher interest rate.

More dovish would be like maybe easing, potentially lowering rates. So, that's how that will work in terms of raising rates. So, presidents of each region and this board, would they report directly to the chair then? They would report directly to Jerome? How does that hierarchy work? Yeah, that I'm not sure. Are they equals or are they like? Yeah, that's a good.

Well, I think, yeah. So Jerome Powell, I mean, he's the chair of the board over there. I'm not sure in terms how it works for like the president's reporting to him. That's a good question. Maybe I'll look a bit more into that. But definitely one thing that's interesting for the different, you know, regions that I talked about, so the 12 regional federal reserve banks, is that they will often focus also on different kinds of data. So you'll see sometimes like the St. Louis Fed will be focusing on certain types of data. The Dallas Fed will be focusing on other types of data. So one thing that's really interesting with the US is they come out with a lot of economic data,

way more than we have in Canada. power relationship I believe you know I would assume that there's constant discussion between the various presidents and the and Jerome Powell for example and the board and the fact that they also serve on the rotating bases you know I don't know whether they report to him directly or not but there is definitely obviously a power structure where the chair is, you know, the ultimate decider when it comes to the FOMC, the Federal Open Market Committee. But, you know, hopefully, you know, it makes a little more sense. I'll do a bit more digging to see how the reporting structure works. If there is one, maybe they're all independent bodies and they kind of you know

work under the same framework but they make their own decisions but uh just wanted to demystify some of the terms there no this is super helpful and like i i don't really know who all the key players are here so i'm learning a lot about this on the fly here and you know it i don't you don't have to go super into detail here off the off the dome here but this is the u.s uh in canada here the equivalent is the bank of canada um what are there any kind of major differences that stick out uh i i assume i know there's a lot less people involved like this is a huge uh number of people in different reporting structures and kind of a complex hierarchy. Are there any other kind of key differences other than, you know, size and scale and importance on a global scale here from the Bank of Canada and how they operate compared to the Fed Reserve in the US? Yeah, I think just the history of it.

I'm not super familiar with the history of the bank of canada but um i know in the u.s it was you know it was before being you know the federal reserve act in 1913 it was actually um you know the the federal reserve if you want or the banks were actually it was all privately run so the reason where it became the federal reserve was to have that kind of government body that would be the lender of last resort i don't believe canada was like that i think i don't know when the bank of canada was put in place may have been when canada became independent which i'm kind of forgetting right now is it like 1929 or something like that 152 no that's that's confederation we became federation yeah we became independent later

yeah there you go so i don't feel too bad for not knowing it now this is the canadian investor podcast folks i think it was yeah i think it was in the 1920s. I think it followed the First World War, if my history is good. But maybe I can surge that. Any good book recommendations if I was to get into here and nerd out on macro? Yeah, one that I'm actually currently reading, kind of a quarter of the way through, but it's fantastic. kind of a quarter of the way through, but it's fantastic. It's the history of money, but all the way to today talks about, you know, the reasons why we have money, you know, from little tribes up to today talks a little bit about Bitcoin as well. So it's broken money by Lynn Holden. It's excellent book, tons of, you know, annotationations so if you want to verify what she's saying so

all these uh quotes these references uh fantastic book so far like a quarter of the way in but it's a very good macro book and obviously i think it it tells a bit where she stands with the title but uh it's not like for those not interested in Bitcoin, it's not just a Bitcoin book. It talks about Bitcoin a little bit, but it's really kind of an overall history of money. But it's a brick. It's definitely a pretty, yeah, it's a big book. Yeah, it's thick. Thick with three Cs. Love it.

Okay, well, thank you for that. So that is, how does the Fed work? That's the title of your book. How Does the Fed Work by Simone Bélinger. Framework for selling. All right. So I hinted at this as my six point framework. I'm going to give kind of an intro into how I get there and why first. So first of all, none of this is investment advice. I started the show today with know what game you're playing and play accordingly. This is my framework. I encourage you to develop your own framework. The same way you cannot borrow conviction on a stock from anyone else, you can certainly use their idea generation, facts, information they present to build your own conviction. And in this case, build your own ideas on what to do and what you're thinking about doing with buying and selling and portfolio management

and play your own game. Now, I've talked extensively about how my selling framework has been made easier by documenting the process of my investment thesis during the purchasing of the stock. I went into a lot of detail about this two Monday releases ago on selling became a lot easier when you go into the approach of buying correctly, writing down a few KPIs and competitive advantages for to track by right, sit tight and monitor. The goal is to do nothing. The goal is to do nothing in terms of transactions. That doesn't mean do no research, you know, go to Bali and throw out your phone and computer for 10 years. It means the goal is to do nothing in terms of transactions. I spoke with Chris Meyer on the pod there, Simone, when you took two weeks off on the pod. I don't know if you listened to the episode, but he's great.

He's so great. And he opened the show by saying my ideal portfolio turnover is zero. That means not turning over, not exiting any names is the ideal portfolio turnover. Of course, in a vacuum, this is nearly impossible, but this is the goal. The goal is to do nothing. vacuum, this is nearly impossible. But this is the goal. The goal is to do nothing. Because of my stage in wealth accumulation and not decumulation or drawing down, I don't sell winners. I don't trim winners. So since at all costs, I'm trying not to sell, my framework leads to selling when there is something fundamentally wrong with the business. Something has broken. Something has not played out the way that I've hoped. And I sound like a broken record. You get a quarter every time I talk about the time I sold Spotify here on the podcast. This is compounding. That is the audio company, not Shopify, the

e-commerce company. Many of you have heard this so many times, but it's a good example. The thesis was gross margins and unit economics will expand as they scale, get more pricing power with the labels, and mix in other forms of audio in revenue mix other than just music, layer on ticketing, all all this like optionality. Guess what? It didn't happen.

Ghost margins hung flat at 25% for eight straight quarters after purchasing the stock. And management made excuses every single conference call. So nothing critically wrong with the business, but I've said, okay, you know, this is not, regardless of the stock price, this is not what I, my investment thesis is not played out. No hard feelings, no emotions, just investing based on facts. So here it is. This is the six points, Simone. Number one, the market dynamics

have dramatically changed. Now this is very broad on purpose. It has the obvious competitive advantages eroded. We can think of kind of examples. I'm just looking here like super wide moat business that I have here. Let's call it Visa or MasterCard, the payment rails. if the Fed now payment rails seriously displaces them, or a decentralized currency like Bitcoin really displaces the transactions, or something I don't foresee, is something very obvious about their competitive advantage eroding? Today, I say probably not to know. And so that's me monitoring it. But has the business dramatically changed? And is there a metric I can point to that spells that out? Like total transaction volume, cards issued, payments facilitated, that they break all those out. Cross-border volume, all that stuff. They break all of that stuff out. And so that's number one. Any comment there? No. No, no comment so far. So I'll probably chime in at the end a little bit.

All right. Number two, the business is no longer growing. That seems so elementary, but it's true. Revenue growth is required for long-term returns. I know people who sound really smart will try to tell you that that's not true. Yeah. Maybe I'll just add for revenue growth is, you know, use common sense there. You know, if you use a hard rule, you know, you may have sold some pretty good businesses during, you know, the 2020. Tougher times.

So you have to, you know, I think you have to be a little bit flexible and use common sense. Every metric that I track, every KPI I track, I use a three-year CAGR. I don't go anything more recent than that. And I mean, never say never, but that's just what I track. The math shows that long-term return to decomposition links to revenue growth

about 80% weighting. So more than any other factor by a lot, look this up, research it. I'm happy to go through it one day. I've talked a lot about return decomposition over a long period. There is no more leading indicator than sales growth you know the business selling more products and services than they were before you know it doesn't take uh you know a mastermind uh of of investor to to think about that just a quick thing i've you should mention that to uh john chen and blackberry sorry it was easy. I'll give him a shout. I'll BBM him though. I'll send him a Blackberry Messenger.

No, I have no idea. I want to say no. Yeah. I'll send him a BBM. Yeah, you know, you got to have sales growth. You got to have revenue growth. And so if the business is no longer growing, I'm not looking to suck on the cigar butt for one last puff. Turn 50 cents on book value into

80 cents on book value and hit for the exit style. That's not the game I'm playing. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable

and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than

ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, number three, the management team has demonstrated poor capital allocation. I have sold two stocks in the past five years-ish that fit this criteria. The first one is Unity. Unity is the gaming engine business. The CEO is finally out the door. Time to get interested in the stock again. John Cittarello, I forgot to say his name was the previous ea ceo uh so he's been a gaming executive for a long time video game executive for a long time you know some days he

just want to wake up and light money on fire and he wanted to do that every day it's like you know like here's my morning coffee and here is a four billion dollar acquisition poor poor poor capital allocation a little too too sign of the timesy yeah i think for me teledoc was definitely in that category um yeah poor decision to buy livongo and then not you know achieving the synergies or you know, achieving the synergies or, you know, the growth based on that acquisition, kind of a double whammy, I would say. Yeah. Yes. Poor capital allocation decisions incinerate returns. And Algonquin Power have been very critical on this podcast. Again, another management team out the door that I was critical of before out the door um just no understanding of how to build a utilities balance sheet just no understanding of how to build a utilities

balance sheet mind-blowing and that's okay when rates are zero but they're not anymore uh good news with algonquin it's almost yielding eight percent again which yeah i'm not i know some people own it um that essentially it was yielding they cut the dividend then obviously the the price drop and it was you know yielding over 10 i think before they cut it then the yield drop around four or five percent maybe and now it's back up because the price has obviously post cut yeah so now it's back up because the price of the company has been uh not going in the right direction obviously you know most uh you know we talked about recently uh higher interest rates are not helping but that's a company that wasn't doing well even with lower rates so that's right yeah the like you

know people realize that the mask they were wearing whenever you know everything's gone out with the bath water here when it comes to high uh highly leveraged utilities we talked about that a couple episodes ago uh there's just no spark right now for for this company right now in terms of a catalyst for for a turnaround it's it's i don't think it's it's left for dead or anything they still have tons of good assets but the management team wakes up they find their morning coffee they grab five bucks they light it on fire that's not gonna work very few zeros there and you're right yeah yeah yeah exactly that's just for you and me, five bucks for them, 5 billion. The core KPIs stall out. Now, I don't own this business, but I think it's a perfect one that comes to mind on how I would think about it. every 10Q. And one of them is gross booking value. Gross booking value is just all of the volume on the platform. So if I go stay at a place for three nights, that's 200 bucks a night, that would be 600 bucks in gross booking value. So that's not revenue booked by the company. It's just the

amount of volume moving on the platform. And if I see that that is flat, but revenue and profits are explosive, I'm not saying this has happened. This is an example. What does that mean? That means that they have higher take rates and ultimately a worse deal for customers. Now, the market may not be realizing

that there's a problem with the business because revenue and profits are going up and up and up and to the right. But structurally, their value proposition, the business fundamental value proposition there's a structural problem. And sometimes this is possible. The market's really, really smart. But sometimes this is possible if you follow the actual business drivers and not just things you find on an income statement. And so this is why I say the value of a Stratosphere Pro subscription is worth the $79 a month right there, because this can probably save you thousands of dollars on a stock

in some of these situations. So I track core KPIs for every single business. And if any of them stall out, even revenues going up, it could lead to number two, where the business is no longer growing. And I don't want to be in that situation. Business is no longer growing and I don't want to be in that situation. All right. Number five, very rare, very, very rare. A second, this is the second most rare sales situation. The last one's even more rare, but this is pretty rare. Better returns from here somewhere else.

And now you might think, how's that so rare? Because it's hard. It's really, really hard to be in and out of names because B is better than C and A is better than B and D is better than F and F is better than X. This is really hard in practice with portfolio allocation. It sounds smart. It sounds easy. This just leads to more transactions and i'm trying to do no transactions my ideal portfolio turnover is zero uh so this is very i think this one i did do it this one is probably important for people get to that price kind of anchor where they yeah i think this is one

that really people should have a good hard look if they bought a stock at you know twenty dollars now it's ten dollars and they say well you know i'll just wait till it backs up to twenty dollars you know obviously depends on the business depends on the company but oftentimes if you look at that um you probably will see better returns elsewhere because when you hear people saying that and that's the main reason why they're holding on to the company, in my view, it's not a great reason. Yeah, it's a terrible reason. If it can just get back to $10, I return my money and then I'll sell it.

Terrible behavioral mistake. I did do this this year with Moody's and S&P. They're the two credit rating agencies. I think S&P is the better business moving forward, X credit rating agency. I thought about it for two years-ish and I made the move. But that's more so like I had a duopoly position and I'm just going full concentration in one horse versus picking two. And so this is pretty rare. I would say in your situation that you're talking about, like, yeah, if there's a other descriptive word other than full meme. You know what I'm talking about. You know the meme valuations that we saw. That's the only case I'll

sell on valuation is if it's gone full meme. If it's run up, I've benefited from the world of multiple expansion. Only if it expands to full meme am I going to sell because it's gotten too rich. I know that is going to hurt some value investor brains. I get it. I understand. I only sell if the valuation has gone full meme. look at all the great winners of the 20 last 15 years they have looked stupidly priced at several times during that time and the valuation caught up because the forward the forward multiples are not that crazy uh amazon looked nuts yeah but there's also like there's amazon nuts but there's also like Amazon nuts, but there's also like, you know, 2021 at the height, like nuts. Yeah, exactly. Like, I mean, I'm guilty of it. Like I trimmed toe dock when it was at the peak. I mean, in hindsight, clearly I should have just liquidated when it was at the peak.

But that's that's a mistake I won't make again, even if I do like the business. When things just get crazy, I mean, I think you just have to, you know, take the profits and sell it, and maybe you decide to buy back later. Obviously, it's not something I do very often, but you see stuff selling at, you know, 30, 35 times, 50 times sales. I mean, I don't know. It would take a very long time if things were going perfectly for them to grow into that valuation. That's right. And so, you know, what's to say you'd ever go broke taking a profit. But the flip side to that coin is if the business is executing, don't be, you know,

trimming the flowers and watering the weeds. That's a, that's a sure way to, to limit long-term compounding. What is the quote from Charlie Munger? Never. The first rule of compounding is to never interrupt it unnecessarily. And that's why for me,

only full, only full meme. meme yeah we're talking extremes here yeah like uh but no i agree with that um so no not much out i think that was a pretty good list um obviously i added a few things while you were talking and i also had a look at the new york fed before i go on to the the cannabis so how it works. So the president of the various feds, circling back to that segment, they would be named by their board of director and then would be approved by the board of governor as well from the Federal Reserve. So clearly, you know, Jerome and the rest of the board of governor would have something to say. But it's really it's run almost like a business, right? Where you have the president that reports to the board of director. So that's how the power dynamic, and it's really just the board of governor that is named by the president or nominated by the president and that has to be approved by the

Senate. Wow. There you go. Got it. I'm trying to wrap my hands around everything i think i'm with you it's just my personality is when like when i you know i'm asked a question i don't know i have to like i have to find out like i need to know how it works so uh yeah hey man that's what makes you a good thinker i think that that's a that's a good trait to have yeah i don't know i like it's weird i've always been like that it could be um before i move on a little funny story you know how wasps are also like always like super intense and like late like august september like outside like they tend to be much more present yeah so anyways next year i just hate wasps i see them yeah so just just have a look next year on people listening.

Beginning of the season, you'll see them, but they never bug you if you're having food on a patio or anything like that. And then as you get through the summer, August, September, they start coming out. And I did some research as to why. I won't go into detail, but that's kind of the kind of stuff I want to understand how things work. So I'll just like random things are all why do wasps get more aggressive well they don't get aggressive it's just their nests are shrinking there's less larva and larva actually secretes sugar when the working wasps go back to their nest so they get a sugar fix and then as the nest shrinks over the season they can't get that sugar

fix anymore so that's why you see them on the patio table when you're having a drink or whatnot because they just need that fix they're not being aggressive they're just being nosy so once you kind of understand that you i found like i used to not like them now i'm just like yeah they're just after you know they just need a sugar fix it's fine i was just trying to get there i get it did i send you the photo of when i got stung this uh it was in july when i got stung by a wasp in the in the bottom of my oh no no you'll have to send that to me i'm gonna send you i'm gonna send it looks like i have a botched lip job uh i i gotta i gotta text you it after um hit us up in our email if you want this for a good laugh dude the i because i was drinking a sweet like uh seltzery okay yeah

they were just trying to get their nut as you're talking about get that get that sugar uh i drank it and it was in there huh yeah right there and uh i had like a botched lip job basically for the for like four or five hours and uh my buddy's got a real good kick out i'm glad i could be uh the yeah happened to my dad when i was a kid but he's allergic so we had to get him to the hospital yeah yeah same kind of thing people were asking me if i was allergic but it just swelled up it's all yeah exactly so anyways so uh you, we'll move on from the nature. The Canadian science investor. Yeah, the nature update or whatever.

So, yeah, so U.S. cannabis update, like we alluded to. So, in late August, the Department of Health and Human Services, HHS, as the DEA, which is the drug enforcement agency, to consider reclassifying marijuana from a Schedule 1 drug to a Schedule 3 drug. So, this is actually following a review that was requested by the White House last year. And for those not aware, the U.S. classifies marijuana as a Schedule 1 drug, which is in the same category as heroin, for example, which is pretty wild. But, you know, it's yeah, it's so broken, you know, and they are considered drugs with no medical use and high potential for abuse and or addiction.

It classifies cocaine and fentanyl as Schedule 2 drugs. So less, you know than schedule one so you know if people obviously the opioid crisis fentanyl has played a big part just the drug killing like thousands of exactly so they're you know less serious according to this classification and the the reason is they are support supposed to have some medical application but there's still a high risk of addiction. And fentanyl is used for medical uses. I have a family that are in medicine, and especially in palliative care, fentanyl can be used when things like morphine is not strong enough for coping with pain, for example. So it does have some medical uses. And then Schedule 3 are things like steroids,

which would fall in Schedule 3. They're considered to have low physical and psychological addiction, according to the DEA in the US. So that's kind of how they classified them. And in the past, the DEA has never gone against recommendation from the HHS. the decision is most likely to come in 2024 and although this is important it does not mean that it is will be legal or decriminalized just yet on the federal level and that's really important because a lot of people may have gone to colorado and i think new york state has also made it legal they're in the rollout i have some family over there. But it's still a – I think Washington State maybe. Yeah, there's 23 states actually where recreational use that is –

Oh, I was at that one. Yeah, legal on the state level, but it's still illegal on the federal level, which is just really weird. And then there's even more states if it's legal on a medicinal basis. And I think – Got it. basis. And I think, you know, this is pretty important, I think, because they are trending slowly, and I think in the decriminalization and legalization eventually. But there's another piece of really important U.S. regulatory news when it comes to this space, and especially for investors. Now, the Senate is currently considering the safer banking bill that would allow cannabis company in the U.S. to access traditional banking if they are operating legally under state or tribal law.

And that's big because right now you can have these businesses, but they can't open checking account. And I know you know this, Brayden, and I'm sure we have a lot of listeners that own businesses. You know, try running a business without a checking account it's not easy um yeah it would be pretty hard so that's actually a quite a big deal hasn't got a lot of press uh but you know if you own a business i mean it is crucial so i think to me this is signs that they're slowly moving towards decriminalization and maybe eventually legalization. Obviously, that's just an educated guess on my part. We'll have to see what it means in the next few years.

Obviously, the 2024 presidential election will play a big role. There's also going to be, I can't remember the amount or the percentage of senator and congressmen and congresswomen that are reelected or are up to for reelection at that point. It's usually, I think, maybe a third or something, something like that. Right. There is usually with the presidential election, there's always, you know, a portion of them that come up for reelection. So it'll be interesting to keep an eye on that. But from an investing standpoint, I know we have some people that invested in cannabis companies that are in Canada. It's hard to say whether it's going to be a tailwind or not. Obviously, the US would be a huge market if it's eventually legalized on the federal level. But I think one thing we have to learn is

from the Canadian experience is you have to really be careful, even if legalization is announced on the federal level, let's say a couple of years, five years, 10 years down the line. One thing that's really hard to establish, and we talked about it on the podcast, is the total addressable market. Because it is, you know, in the U.S., it's kind of, you know, definitely, you know, fragmented in terms of legality when you look on a state basis. It's really hard to get data on the consumption overall from the U.S. population. Same thing happened in Canada. So it'll be really, I mean, it's hard to understand what the total market would be. And what we've seen in Canada as well is I think if you're investing in that space, let's say it has been legalized, you have to be

really careful. I think my perspective would be if I wanted to invest in that space when there's U.S. legalization on federal level would be to take a step back and invest in the companies that are doing it on a very conservative and prudent basis. I think that's probably going to be the best approach like we've seen in Canada. You know, just expanding to grab market share. It's probably going to blow up in your face. So you have to keep that in mind. There's no reason to believe that, you know, the economics of it will be any difference than what it is in Canada. Yeah, good point. It's like, you know, I've seen this.

I've seen this movie before. Yeah. You know, so not to say it's going to rhyme the exact same way, but I guess we'll have to see. It blows my mind, that first part you made, on just kind of how archaic the classification system is and how the DEA and the laws comply to that based on, I guess, what you're saying is the department of

health and human services yeah you have all these people jailed for for having yeah possession i believe uh biden announced last year that he was pushing to get them all pardoned um which you know i think it probably makes a whole lot of sense uh know, I've yet to see a bar fight with two people that smoked weed. Usually it's alcohol. So, you know, I think most people aren't too, especially if it's smaller amounts, right? I mean, obviously, you see organized crime that's still in the cannabis kind of business, especially in the U.S. Because it's not legal in all the states and on the federal level right so you know there is maybe a bit of a distinction there but for small amounts

i mean you kind of feel for people that got caught with probably a you know a few grams of marijuana ended up in jail for that yeah and then like six months later the state made it legal yeah that would be uh i mean yeah because the entire we're just looking at a map like the entire basically midwest west coast is and then all the northeast states it's basically just like all the blue states texas tennessee down to florida okay yeah or like not it says medicinally uh legal only compared to recreationally yeah and fast extra revenue right i'm sure they'll try to find a way to get that tax um who knows how much you betcha yeah who knows if it'll move the needle or not but uh definitely i think the safer banking

act um that's being looked at by the senate i think that's pretty big because just allowing companies to bank and potentially have you know different stores in various states even if it's not legal on the federal level i'm not quite sure how difficult that would still be but i think just um you know that banking act if it goes through i think will make a big difference because if you really want to shut down an industry, shut down its ability to bank. And you don't even need to make the industry illegal. If you can't let them bank, I mean, they're going to have a real hard time surviving. You should have a couple millions in the mattress.

Yeah. Very astute plan. Am I reading this right? Cocaine is a Sched schedule two with medical applications that's what they classify it uh has has cocaine ever been used i think that really dates back to the early 1900s i think back then there was some thoughts that there might be some medicine gives you an idea of how outdated it is yeah I think most of the classification date back from like the early 19th century. Yeah.

The medical uses of cocaine. Yeah, this looks like... It's like a newspaper article from 1922. Yeah, it's like, sir, you need to... It's like a PDF, like someone scanned it from a museum, an old museum. This is crazy. This is nuts to me that this is possible. leaves you like you put them in your mouth and suck on them like uh almost like uh i don't even know you put them in your lip almost like people would put uh like nicotine patches in their lip like zins um because it helps with altitude sickness all the like it dude you need it or else when you're at uh like 15 000 feet elevation in the mountains of Peru like I was,

you're sick as a dog if you're not huffing on those things. Everyone is. Yeah. So maybe that's what it is. That's its schedule too. And the last thing I'll say, remember, Canada became independent. So I was way off. It's 1982. So officially, obviously, in practice, we were independent.

I'm pretty sure there was something in the 1920s as well, following the first old one. The Canada Act. Yeah, yeah. So, anyways, so for those saying we don't know history of Canada, I knew it was in 1867. I knew that was Confederation, but I couldn't. My God, my history classes are, you you know 20 years ago pretty much so that was the breakup of the British Parliament being able to like

amend Canada's constitution but officially that's what yeah we're yeah because we don't celebrate independence of Canada we celebrate Confederation yeah right that's right yeah like Canada Day is so record rectified so don't

tweet at us saying we didn't know when canada became independent we'll know who didn't finish the episode exactly that's it thanks for listening to the canadian investor podcast where we know nothing about canadian history uh we really appreciate you tuning in it's uh it's been quite the ride see when i was looking at it and i have been podcasting now for almost 10 years it's impressive yeah og podcasting and boom started podcasting uh yeah that's almost the exact amount you're older than me uh it's how long i've been podcasting uh yeah that's almost the exact amount you're older than me uh it's how long i've been podcasting uh well it's four years now pretty much that we've been doing this so uh yeah yep october i can't remember the first day because we had to switch uh you know platforms yeah it's

right it sounds about right yeah because i uh we met in Toronto in September. So, yeah, I think within a couple of weeks, we were set up, yeah. Every October, I've basically launched something in the past four years. I don't know what it is. I guess it's just kind of like gearing up and then like summer and September, October grind mode. You're like, okay, not playing golf anymore. I can work on launching something. Well, it's that, but you also don't want to launch something in December.

No, no one, no one really. It's hard to, yeah, exactly. No one will. You can't get the attention of people. You don't want to launch something in October and then you're on the golf course in July and August. Are you going to launch something on the golf course? No, but you don't want to launch in December.

That's terrible. That's a really bad way to go. Spring or fall. Boom. There you go. That's right. The shoulders. The shoulder seasons.

Thanks for listening. Tuning in. We are here Mondays and Thursdays. We got some really good episodes kind of planned up content schedule wise. So make sure you're tuning in. We'll hear you through the holidays as per usual. And if you have not checked out join, I got two offers for you here. If you haven't checked out join tci.com you should, because we go through our monthly portfolio updates and you see our beautiful faces on the video and all the graphs we share. And number two, if you have not subscribed to Stratosphere, we just made the pro plan cheaper. It was 200 bucks

a month for all the KPIs because, you know, it's a kind of institutional tool, but it was pricing out a lot of people and I felt bad. And we make money on the B2B stuff anyway. So I dropped down to 79. We're not making all the bread from the one-off subscriptions. The bread comes from the big institutional B2B deal. So we backed off the top price there to 79. And then you take 15% off for being a podcast listener using code TCI. That is 15% off with code TCI on stratosphere.io. See you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.