The Canadian Investor - The Evergrande fiasco, Jinko Solar, Oracle, Intuit and Cannabis

Episode Date: September 23, 2021

In this episode of the Canadian Investor Podcast, we discuss the following topics: Evergrande, the Chinese Developer on the brink of defaulting and what potential impacts it could have in China and Globally  New developments on the Canadian Pacific offer to buy Kansas City Southern Jinko Solar recent earnings Earnings in the cannabis space, more specifically Canopy Growth and Fire & Flower Recent Oracle earnings The announcement that Intuit will be buying Mailchimp Tickets of stocks discussed: JKS, EGRNY, KSU, CP.TO, CNR.TO, WEED.TO, FAF.TO, INTU  https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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Today, as of recording, is Canada's federal election day. So we'll have some results out of there soon enough. Today with the big story on Wall Street and financial markets, is the Chinese real estate developer Evergrande? Simon, what is the spark notes on what is happening and what should the reaction of most long-term investors be in this scenario? Yeah, yeah. So I'll give everyone a breakdown of what's happening and then we can chat a little bit about what we think in terms of long-term investors, what the potential impacts can

be. So I'll give you the lowdown on what it is. So Evergrande is a Chinese real estate developer. It was founded in 1996 by Hui Kayan, who's now one of the wealthiest people in China. It grew really rapidly. It was fueled by debt, but also just on the timing. That's really when China started growing economically very, very rapidly. So they really were behind those tailwinds of that Chinese economic growth, which was really unprecedented at the time because it was in the double digits every single year. And there's about 1,300 projects across more than 280 Chinese cities going on for Evergrande. So those are a lot of projects.

Right now, there's about 1.5 million people that have put deposits on homes that have not yet been started. So there's actually no activity on them. So what this means is Evergrande has been using the pre-sale to finance themselves. Evergrande has been using the pre-sale to finance themselves. It currently has three, actually a bit more than $300 billion in debt and around $15 billion in cash on hand. So you can see the disconnect here. For context, Canada has a GDP of $1.7 trillion and Portugal has a GDP of less than $300 billion. So just to wrap your head around it, their debt is more than the GDP of Portugal altogether. Their total amount of debt is about 6.5% of the debt in the Chinese property sector.

So what's going on this week is the debt is coming due. It's starting to come due today. It's also going to come due as well for tranches of it later this week. And there are some well-known bondholders like BlackRock, UBS, and HSBC. It has other operations in industries like wealth management products, electric vehicles, consumer goods, entertainment, and sports. The downfall actually really started in August 2020 when Beijing introduced new measures to monitor and control the debt level of major property developers. The share price has since dropped close to 90% since that time. The corporate bonds that Dave issues have fallen more than 30% in value.

Real estate is close to 30% of the economic output in China. So if they do fail, this could have a major impact on the Chinese economy. Probably the easiest thing to compare it to would be with Lehman Brothers. You did mention that earlier today. It's kind of a Chinese Lehman Brothers. So Lehman Brothers had about $600 billion in assets, whereas Evergrande has approximately $200 billion in assets and $300 billion in assets, whereas Evergrande has approximately $200 billion in assets and $300 billion in debt. So it's pretty similar in total assets and liabilities. There are some Canadian,

US and European banks that have exposure to their debt. So is there a risk of financial contagion or potentially some economic ripple effects? So I did read a few things today. I listened to some experts on the subject as well. My guess would be that the Chinese government will probably intervene just learning from the Lehman Brothers experience that happened in the U.S. and the whole ripple effect that kind of started with the financial crisis meltdown. But even if they do, it could have a real economic effect in China and then have a bit of a ripple effect on the global economy. So that's the take personally that I saw a lot of people saying. If they do a bailout, the other question is, depending how

much money they pump into China for that bailout, could it cause even more inflation globally. So there's a lot of macro risks involved here. It's really hard to know where it's going to go. You have no control over it. And I'll honestly, I'll let you give your take, Braden, and then I can kind of finish up on that and then move on to our next news that we have. Yeah, sure. So, next news that we have. Yeah, sure. So I, as most people who listen to this podcast know, I do not pay attention to daily price action. And I didn't even look and know that the market was down until 2 p.m. today to give you an idea of what kind of investor I am. of what kind of investor I am. And let's just cool it a little bit with some of the hot takes I've seen. People act crazy when volatility hits. And I think the S&P finished down like two and a half percent on the day we're recording this at the close.

And let's just zoom out a little bit. And I'm here to be that permanent optimist for you. The S&P 500 is up 19.5% this year alone. So we're close to, we'll call it 20% up in 2021. And it's September, right? So this is very normal. Drawdowns happen. I think we've seen like 35% drops in the past few years. And they always are followed by potentially mixed volatility. And then people get back to reality, which is profits are good. Earnings are good. The economy is reopening. And there's a lot of real reasons to be optimistic. Now, when it comes to China and $300 billion in debt, there are companies that are exposed to that debt. And that's just the real facts in play. Now, if you look across your portfolio and you see that some of the greatest businesses

on earth are selling down 5% on the day or somewhere in that mix, this is your opportunity, right? This is what we talk about so much is this is your opportunity to buy stocks when they have negative sentiment around the entire market. And it makes it so much easier to buy stocks when they have negative sentiment around the entire market. And it makes it so much easier to buy stocks when the entire market has negative sentiment from my perspective, because it has potentially nothing to do with the actual holdings in your portfolio or the companies in your watch list or the ones you're adding to, because there's a negative sentiment across the whole board. So I mean, it's like the bathtub scenario where even if the entire level of the bathtub in terms of water is down, all the rubber duckies in the bathtub are down because the water level is down.

And that makes it a lot easier to purchase stocks from my perspective. And this is the kind of opportunity we wait for, Simon. So that's my perspective. There is $300 billion in debt that could potentially be defaulted on, and it's going to affect the Chinese macro landscape. But at the end of the day, long-term investors, I don't believe need to be too concerned about this. Yeah, I think for the most part, I agree with that I may have a little bit more of a nuanced take on it. For me, I think it will depend on the type of businesses that people own. So if you have businesses that are not too reliant on the overall economy, and you have pricing power, like we've talked before,

and you have a service or product that people can't go without regardless of the economic conditions, I think you'll do pretty well. I think some businesses will be more affected than others, especially those who have potentially more exposure in China because there's a lot of wealth in housing in China. So I think those businesses may be affected a bit more. Will it be more short term? Probably. That's a good assumption. And the last thing is I think inflation might be a real risk here. And it all goes back to owning businesses that have pricing power. I think that's really important. Why do I think inflation might be a big risk is because the Fed in the US,

if they see that there's a potential global slowdown in the economy, I think inflation might be a big risk is because the Fed in the US, if they see that there's a potential global slowdown in the economy, I think they'll just keep pumping in money in the economy, buying back, you know, debt and so on, just putting more liquidity in the economy. And obviously, that would eventually make prices go up. So I think that's kind of my more nuanced take. But I'm not selling any stock by any stretch of the imagination. And I'll probably add more for certain types of businesses that I own. But yeah, you know, pullbacks are normal. So you can't really, you know, it's good to not panic and just look at the situation and understand what it is. And if you have a good long term

approach, it'll probably just be a good buying opportunity for good businesses. 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. questtrade.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 That's right. And you do bring up a good point, right? print a bunch of money, issue stimulus. That was, in essence, a test of what the Fed can really do. And I guess maybe potentially the bear case and the concerns for inflation was that it worked so well that they have basically no incentive to act any other way in the future, right? Think of how well the stimulus from the Fed worked last year. I mean, it worked incredibly well. And maybe that's a concern for some people like yourself who look at the macro landscape and go, there's no incentive for the feds to not do what they did in the future. And I can see that. Now, for the Evergrande situation is I have in my mind, two ways to have absolute economic disaster is one, concentration and two, leverage. Concentration and leverage are the easiest way to create generational wealth and destroy generational wealth in a very, very short time frame.

So that's why it's just be careful with leverage. I mean, not just with your investment portfolio, but more so in life with personal finances. Leverage is one of the easiest ways to have generational wealth creation, but also generational wealth destruction. And that can be concerning. And we've seen it play out time and time again. I know we'll agree on one other thing is that I would not invest in Chinese banks right now. That's the one thing I wouldn't touch. So now let's move on from these news. Let's talk about some Canadian drama that is seemingly coming slowly to a close. A close is a stretch. We can't really

say that for sure yet. But it looks like it's coming to a close. Let's just put it that way. So Canadian Pacific and the Kansas City Southern merger. So news came out last week that the Canadian National Rail abandoned its bid to buy KSU after it was clear that it would not get approved by the Surface Transportation Board. There is a silver lining for Canadian National here. It's now entitled to a $700 million breakup fee from KSU. As a side note, Canadian National still paid Kansas City Southern $700 million to break the initial purchase agreement it had made with CP. CP turned around and said that it would cover the breakup fee that Kansas City Southern will have to pay Canadian National now. So it basically is a break-even endeavor for Canadian National Rail, which I guess is good.

I'm a shell holder from that perspective. shareholder from that perspective. CP Rail's offer, which includes the assumption of U.S. $3.8 billion of outstanding Kansas City Southern debt, values Kansas City Southern at $300 per share. That's in U.S. dollars. Following the closing into a voting trust, common shareholders of Kansas City Southern will receive 2.88 CP Rail shares and $90 in cash for each Kansas City Southern sharehold. Preferred shareholder will also receive $37.50 in cash for each Kansas City Southern preferred share held. CP Rail said the deal will be accretive to its earning in the first year. To fund the consideration of the merger, it will issue 262 million new shares. The cash portion will be funded through a combination of cash on end and debt.

So the deal is not done yet. Like Brayden said when we just started, the Transportation Board in the U.S. has approved the voting trust, but it's still possible that it shoots down the deal or requires CP to divest some of its existing assets. If the deal gets nixed, then CP will have to sell Kansas City Southern. So that's the latest news on this whole drama thing that's happening in Canada. I hope that on this podcast, we only have to report this story once more, Simon. The final closing of what this story has gone on for. I mean, it was so interesting at the beginning, and now it's just gotten so stale because it's just taken so long, right, Simon? Like, I can't wait till this KSU murder discussion goes away. I don't care what the result is anymore. I mean, I care.

Well, at this point, I know what the result is for me as a shareholder of CNR. But yeah, no, I'm totally with you. It was a lot of drama. And honestly, I think it was pretty obvious that the US would not approve that from Canadian National Rail. I'm not quite sure why they made that bid, to be honest. You know what? And it goes back to, I was discussing this on Twitter.

Follow me on Twitter, by the way, at Brado Capital. I was discussing how, you know, with a lot of CEOs, they're incentivized to, you know, they're going to remember the CEO who made the company bigger, not the price they paid. I don't think that's necessarily a generational type merger that might never come across the plate ever again. And it has the ability for them to actually expand their network and long-term, this is great, pay any price you can. So I've heard very opposing opinions on the deal over time. And at this point, Simon, just wake me up when I know exactly what's happening and we'll report about it one more time. All right, moving on. Let's go through a couple of companies' earnings. I shipped 5,203 megawatts of

panels in Q2, which was up 16.4%. For context, 5,203 megawatts of panels, or known as 5.2 gigawatts, could power about 99,000 homes based on my back of envelope math here. Let's call it 100,000 homes. My engineering degree didn't go to waste. Look at this. Now revenues were actually down 6.2% year over year. Now let's look at that. I said that their shipments of panels were up 16.4% and their revs were down 6.2%. They're reported in Chinese yen, but converted this about 1.23 billion USD in top line sales for the quarter. At 2 billion in market cap, Simon, this is a pretty cheap stock on any multiple you can find. The business generated 210 million in gross profits. This goes back to our discussion last week, that even though there's

this nice secular trend behind renewable power, it's obviously strong. The solar panel manufacturers are pretty meh, subpar businesses. They're so dependent on supply chain input costs that seem to be extremely volatile. And then their own product they sell, the panels, has become so commoditized, so competitive, and they keep having to sell modules for less and less every year on a price per megawatt basis. Now, this is overall good for the industry. It's maybe even good for humanity that solar costs come down. But the manufacturers have been mediocre businesses at best. I'm always interested in which manufacturers and utilities will benefit from this clean energy transition. But at this point, for me, solar manufacturers are uninvestable.

That could change. This industry landscape could change, but I'm going to have to see some pricing power before reconsidering. I think on one of the latest recordings we did, Simon, you and I both agreed that there are lots of slam dunk home run plays and the panel manufacturers are just not the best businesses. Yeah. Yeah, no, exactly. I mean, I've never been interested by

them because it seems like it's a race to the bottom in terms of pricing. And it's just, you know, I guess increasing the, you probably know this better than I do, but how efficient they are. But again, this does not make them a very good business overall. And I mean, it's great for the consumer if you want to install solar panels, it's all great and dandy. But that's something we've been seeing for years for solar panel producers. It's just cutting costs and getting a lot of competition from China, but across the world, then yeah, I mean, it's just very lumpy and not very predictable. And when it is predictable, it's usually lower margins. Here's an example of my own personal experience and how quickly the panel technology changes for the better of the consumer, but probably not for the better of these manufacturers.

And that's why these stocks trade so cheaply. I mean, they're really subpar businesses overall, but I was commissioning a 75 panel project for the roof of the engineering building of the school I actually went to. So I was doing this. Simon, when the project started, we were going to put up 320 watt panels. And then as we were finishing the project, the exact same manufacturer was able to sell us 380 watt panels in the difference of two months we're talking about you know significant increase in efficiency and reduction of price in the panels in a few months so it gives you an idea of how fast it's going all right sim, I'm going to do another one here. Oracle, the cloud company, saw earnings per share up 11% and revenues up 4%. We're going to go back to Simon's list here,

but he has a very cute dog and he's telling me right now that it might bark. So we're going to save your ears on the podcast from his cute dog barking. Now, Oracle is making some good strides forward with the new cloud segments. Now, I got to be honest, I always thought Oracle was the IBM of the cloud, but that's not really a fair comparison as Oracle has actually been a fairly consistent compounder. To my surprise, I actually had to look up an Oracle stock chart. It is not a name I follow, but I thought it performed more poorly than it actually has. So I'll give Oracle some credit. When talking about IBM or Oracle or Intel, whatever it may be, these are still unsexy tech businesses that are worth over a hundred billion dollars. Again, I was surprised at the market caps of

these three companies. Maybe I've been drinking the Kool-Aid that these things are just the incumbents and these megatech fan companies are going to eat their lunch, but they have definitely dethroned these companies as the top dogs. Now, it's important to remember with stocks, even as great as some of these companies look today, like those fan companies, it is never a sure thing in terms of their moat and position in the market. For instance, in the 90s, the term on Wall Street, Simon, even though I was not on Wall Street in the 90s, but the term that you get thrown around is you can't get fired for buying clients IBM. The business seemed incredible. The stock

just went up and up and everyone owned it. You couldn't get in trouble owning IBM for clients because everyone owned it. It was one of those consensus winners. So I digress, but back to Oracle with cloud computing, it is really sticky. So lucky for Oracle, they still have massive switching costs for their clients. So if you want to change your cloud or your database technology for large enterprises, good luck. A Stratosphere subscriber who is a software engineer for Amazon's AWS, Amazon Web Services, and he's an expert in the cloud businesses. So shout out to him. Described trying to switch cloud providers and running your business as trying to replace the engine of an airplane when it's flying. Now, this is a great analogy because it speaks to the stickiness of software.

So Oracle, they keep increasing that earnings per share number because they're like the classic buyback stock, pay dividends, flex pricing power, and grow revenues like a little bit, revenues up 4%. So if you know OpenTex, ticker O-Tex on the TSX or the New York Stock Exchange, the Canadian tech acquirer out of Waterloo, Ontario, I think of Oracle as OpenTex and very similar types of businesses. Oracle as OpenText and very similar types of businesses. They're operating these older traditional tech products, having this growing cloud services segment on the side mixed in,

which is growing double digits, 20% even top line, but they also have these traditional licenses businesses that are kind of like bleeding out and melting ice cubes over time. So the cloud segments will provide some of that double digits growth, but their older licensing revenues are decreasing like 5% to 10% a year. It's a mixed bag of results when you look at these types of legacy, older operators of tech. So it's something to look forward to, look out for is you got to look at these businesses by segment. Now they do benefit from sticky products. They have this overall net growth, even though some of these segments are declining, they're fairly undervalued. They have great margins. They buy back stock,

they pay a dividend, but this is just a look at some of the unsexy stocks of tech. I didn't think that in this market, anything tech was unsexy, but it exists out there and they actually cashflow a lot. So I mean, maybe something to look at is some of these unsexy tech names, but I don't follow Oracle well enough to really say for sure. Yeah. Yeah. And thank you for doing two in a row while my dog was barking, but we're all clear now. I'm good to go. So yeah, I agree with you. I haven't followed much Oracle. I know it's more of a legacy business. And as a side note too, the whole thing about IBM, even Warren Buffett owned it for years, right?

Dude, you couldn't get fired if you owned IBM. Yeah. I mean, I don't think people for the most part lost that much on it, but it really didn't provide much growth for tons of years. So if you compare it to the benchmark, obviously you're not doing that well. 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. That is questtrade.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. So now I'll do a little portion on just the cannabis space. I know there's a lot of people

often interested in that. So I look back at the recent earnings from Canopy Growth, a little bit behind on that one, but it was for the quarter ending June 30th, 2021, which was Q1 for them. Revenues were up 23%, $255 million. They completed a couple of acquisition, Ace Valley and Supreme Cannabis. They've come out with new vapes, actual vaporizers as well, beverages and edible products. They are focusing on single strain genetic cannabis. So I think if I understand correctly, focusing on either like indica or sativa when it comes to cannabis and not kind of mixing both. I'm not an expert in that, but that's my understanding. Maybe it's time we do some market research, Simon. Yeah, we probably should. It would be fun. Yeah. I'm not sure

how thorough our research would be. We'll do some market research and record a podcast for your guys' entertainment. Yeah, exactly. A special episode. A lot of nothing, I think. We're going to get demonetized in like five seconds after that. Yeah, exactly. Their net income was interesting. So net income of $2 million versus a loss of 108 million last year. But I dug into the financial statement because I was interested in seeing what happened. So that was due to an increase in other incomes, such as various fair value of investments and warrants. In other words, they were all non-cash items. So there were actually free cash flow negative of $185 million

versus free cash flow negative of $180 last year. But keep that in mind, they had net income positive of $392 million and free cash flow negative of $185. So that goes back to what we've been talking over a long time, right? Is you have a lot of just accounting practices in the income statement where they record things that have non-cash impact. And that's why we like to look at free cashflow because you can see here, there's a difference of over $500 million. That's huge. I mean, this is the thing about accounting. In the generally accepted accounting principles gap, you can get a pretty, I don't even know how to describe it, but just a not real scenario with net income of $392 million. And this, I haven't looked at their statements, but this

must be a cap expenditure discrepancy of 500 million because it is a fairly cap intensive businesses. Yeah, it was really I mean, I have to dig a bit more, but it wasn't the like I said in the other income. So that's always quoted. And then you have to look in the footnotes and try to find like how they classify that. So that's how I found it. But, you know, at first glance, it would have looked like a pretty good quarter for them. But then when how I found it. But, you know, at first glance, it would have looked like a pretty good quarter for them. But then when you dig into it and you look at the cash flow statements, it's not as rosy. And now another company that this one's a bit more of a retail play. And I wanted to hear your thoughts on it. So I'll go through it. And I just wanted to hear

what you think. So are you saying that because of CouchTard? No, no, just because of personal experience. And I'll give you it. I know we didn't talk about this beforehand, but don't worry, it's not I won't put you too much on. I'm ready for it. I'm sharp today, Simon. Perfect. So this one is Fire and Flower. They reported their Q2 earnings. This is a retail play on cannabis with the smaller wholesale and digital platform segment. It's really a small company at $300 million market cap. Revenue increased 51% to $43 million. Keep in mind last year in Q2 there were still ongoing tons of retail lockdowns. They posted a net income of $19 million versus a loss of $29 million last year.

They are free cash flow negative $14 million this year versus $2.5 million last year. And they also opened seven new stores in Canada to bring its total to 91 stores. And what I wanted to ask you is, I've noticed in Ottawa, actually pretty close to my place, there's a spot within 100 meters on one of the main streets near here where there's three cannabis stores. Only three? Three, but there's two that are actually side by side. Oh, yeah, totally. Like, what is going on with the licenses?

I don't understand. Like, how does that make any sense? Are you seeing the same thing in Toronto? Dude, it is out of control. in Toronto? Dude, it is out of control. Okay. So, Queen Street in Toronto, or all the streets in Toronto, but Queen Street in particular, used to be home to lots of boutique small businesses. Now, when they were all locked down during COVID, a lot of them closed their doors forever, unfortunately, which is obviously really sad to see. All of them, Simon, I kid you not, all of them turned to cannabis retail stores. It's outrageous. How are they

all going to make money? There's literally five per block section on just one side of the street like there's there every single store is another cannabis store like how do you pick it's just so much competition so it's obviously you know something's got to give but this is happening across the board and the exact same thing happened in vancouver too so yeah no i i wanted to talk about that because i know some people want to invest in the cannabis market and if i were to invest in the cannabis market. And if I were to invest, I would definitely stay away from the retail play. There's potential other plays that make more sense. But just keep that in mind.

Like when you have like retail stores, there's not much that differentiates in terms of products. I know I think they just in Ontario, they use the government system to order. But I think they'll, in Ontario, they use the government system to order, but I think they'll have slightly different products. But to have stores actually side by side, it just blows my mind. I don't get it. I'm like you. Some of them will be forced to shut down.

That's obvious. Something's got to give. There's just an absolute flood of these retail stores. So yeah, you bring up, I mean, some of these publicly listed retail plays are difficult investing wise right now. And I mean, something's got to give. I mean, they can't have this many on every street corner in major cities and not even major cities. You're seeing this happen

in small centers too. So something's got to give. The only thing I would give the edge to Fire and Flour is Kushtar, like ATD does own a portion of it and is working with Fire and Flour to get distribution inside of their convenience stores. That would be huge for Fire and Flower, like obviously having that distribution, not only just here in Canada, but globally eventually, that does give it an upper hand. And we saw like Canopy, for instance, as well, and these producers to get distribution, they own some of the retail players as well. Like Canopy owns Tokyo Smoke, which is a common, fairly popular retail play as well. And now they're just kind of lost in the mix because there's so many retail stores like right beside it, as you mentioned it.

So it seemed to be a reasonable part of the playbook to also have that retail presence as a producer to get yourself distribution right out of the gate. And now that I mean, that just probably is not a very good use of capital now. Yeah, no, exactly. Anyways, enough about cannabis. So let's go on now to some big news into it. We'll acquire MailChimp. Have you heard about that one?

I have, yes, only because I know both businesses quite well. Okay, perfect. So I'll kind of give the lowdown. I'm sure you'll want to add a little something. So the transaction is expected to be accretive to Intuit's earnings per share for full year fiscal 2022. Intuit will pay approximately 12 billion dollars to acquire Mailchimp actually Intuit will assume employee transaction bonuses the deal will be paid in approximately equal parts of cash and stocks obviously from Intuit's common stock with the shares of Intuit common stock being valued at 562 dollars which is a fixed price for the transaction. Intuit expects cash consideration to be financed through cash on end and new debt of approximately $4.5 to $5 billion. The transaction

is not expected to have an impact on Intuit's existing dividend and share repurchases. The transaction should be completed by January 2022, which is when Intuit's Q2 of 2022 ends. So they're not, they have a little bit of a weird financial year. For context, Mailchimp has about $800 million in revenue. It sounds like Intuit wants to use the marketing options that Mailchimp offers. So it will allow businesses to not only do accounting with Intuit, but also marketing to its clients. And Mailchimp has business around the world, which might help Intuit get into markets that they don't have a big presence in. And Intuit has done tons of acquisitions in the past. So they do

have a really, I would think a pretty good track record with those. So that's kind of my lowdown. Brayden, you want to add anything? Yeah. So for context, MailChimp is an ESP, an email service provider primarily. So if you are running a small business or a large business, how do you communicate with your customers? Now, the number one channel even today is email. It is a great channel because it converts really well and everyone has email. So email marketing and ESPs are great businesses even today. You can say email is dying. Sure. Email today is still as important as it's ever been when it comes to marketing, especially. So what does Intuit do? They operate software as a service for operations like accounting, tax, payroll. I am a QuickBooks

subscriber myself for Stratosphere Investing. Go to stratosphereinvesting.com. Easy plug, Simon. Thank you very much. So if I look at QuickBooks, it is this solution for me to manage all of my accounting and payroll in one place. And those two things complement each other well. I don't get the MailChimp acquisition. I don't understand it. It makes no sense to me. They're both great businesses. I don't know how they're better together. I really don't. MailChimp obviously is in the business of marketing and Intuit's in the business of operations, like business operations with tax payroll accounting. Now, if Intuit does want to be that one-stop solution for managing your business, you know, one subscription, you can get your, you know,

your CRM, your email marketing, your payroll, your accounting, your tax. That sounds great and all, but there are things like HubSpot and dude, a million of these SaaS businesses like Twilio, whatever, that are already specializing so much in marketing, whether it's SMS marketing, email marketing, your CRM, the sales forces of the world, these things exist. I don't know why Intuit wants to get in this lane. It doesn't make a lot of sense to me. And 12 billion is not a cheap price. I don't love this deal, Simon. I really don't know how else to say it. I don't know how they integrate. And if Intuit does want to be that like quote unquote super app for businesses rolling out their tech, they're going to have to catch up. MailChimp is an ESP. It's

not a HubSpot where HubSpot has CRM, ESP, and like you can even do paid cost per click type marketing inside of that as well. So MailChimp is not that platform that really moves the needle for them in the marketing side. I don't really know what else to say. I don't love this deal. Yeah, I mean, for me, I'll be honest, I kind of just read through what management was saying about the acquisition. I don't know both businesses well enough. It did sound a little strange the first time I saw it. But then as I was reading what management was saying about the acquisition, I'm like, okay, it may make a little bit of sense. I mean, they'll have to execute. That's kind of what it comes down to. But I'm with you. There's a lot of competition in that

area. So it might be a bit hard for them to really head towards a kind of complete solution. But I guess we'll see. Wait and see. I guess they'll have to prove us wrong. Right. If it's a part of a string of acquisitions that can bolster a somewhat competitive marketing CRM platform on top of the place you manage your tax accounting and payroll, then sure. I mean, the vision could make sense. But again, it seems a little far-fetched from my perspective right now. Now, Intuit doing acquisitions makes total sense, right? They have this platform and they can bolster on these other value-added services onto the platform, that makes complete sense. So if they're doing lots of acquisitions and bolstering their operations segment,

that makes sense. But marketing, I'm going to have to see this play out. Who knows? Maybe you'll start using them for Stratosphere. MailChimp went into it. Maybe. Hey, you know what? Maybe. MailChimp, I mean, they obviously have so many customers, so many creators, small businesses, large businesses use MailChimp to deliver their email sequencing and marketing and big broadcasts for sales and stuff. MailChimp is huge. I mean, so many people use it. So from that perspective, maybe they have a shot, but right now it seems like a bit of a stretch. One thing I will say is these companies, MailChimp or whatever it may be, is they have this insanely profitable operating leverage type

business where it's basically free to get started with MailChimp. If you're a small, if you're small potatoes, you can sign on there. You can start using their platform. It's completely free. Now, as soon as you pass like a threshold of contacts in your email list, the price and like how much it costs to send out emails scale so much. Like all of a sudden you're paying paying thousands of dollars on these marketing platforms before you're paying zero, but they figure, okay, now that you're big, you have all these contacts, you can afford it because you're a big business now. And that it's sticky enough that you're not going to switch to a competitor. And the competitors are expensive

too. So they have that like low friction user adoption model. And then you start charging them obscene amounts of money, which is very frustrating for small businesses. But this is the model. It works. We'll see if it plays out. I'm so far with this deal. I don't get it. Yeah. For me, it's just going to be a wait and see, but I'm not planning to buy Intuit anytime soon. So I'll watch on the sidelines and let's see if management can execute on this. Intuit ranks super high on my quant model. It always has. Intuit is one of those dividend appreciation companies. They're a tech company, they pay a small dividend, but the dividend grows a lot. So they're more mature on the software side, but they're still growing.

So I mean, it ranks super high on my quant model. So if you're looking like for dividend plays inside of tech, which is kind of like an oxymoron these days, you know, Intuit and Microsoft are kind of the two players in town that'll deliver on that. Maybe, I guess, Apple as well, right? Yeah, I mean, I'd go with Microsoft before Intuit personally, but that's just me, yeah. Yeah, fair enough.

I mean, they both rank extremely high in my equine model. So, I mean, they're doing something right. That does it for today, guys. It is the election days. Hopefully, you all voted. We'll know the results soon. Take care and we'll see you in a few days. If you all voted. We'll know the results soon. Take care and we'll see you in a few days. If you're new to the show, if you're just stumbling across this podcast somehow,

we put out shows on Mondays and Thursday mornings. So that is the schedule right now until something changes. It's Monday and Thursday releases. Thank you so much for listening. If you enjoyed today's show, we'll be back with a normal... How this works is we do a normal show on Mondays and then an earnings and news release updates on Thursdays. If you're finding value from it, share it with a friend. You'd be shocked at how much it helps us grow and then helps us deliver with better content. It is that nice feedback loop. Thank you so much for listening. Take care. See you in a few days.