Latest / Bloomberg Intelligence / State-Approved Cannabis Will Become Permanent in 2019

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State-Approved Cannabis Will Become Permanent in 2019 · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The
• 0:32
  Speaker 1: topic now is investing in the cannabis industry. Adam Bierman
• 0:37
  Speaker 1: is the co founder and the chief executive of Medmen,
• 0:40
  Speaker 1: and he joins us from Los Angeles. Adam, thanks very
• 0:43
  Speaker 1: much for being with us. Tell people about med Men
• 0:47
  Speaker 1: and about your latest and largest acquisition. Hey, Pim, good morning.
• 0:53
  Speaker 1: Always going to talk to you. Um. Yeah, So med
• 0:57
  Speaker 1: Men is a is a cannabis company here based out
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  Speaker 1: of Los Angeles. Um. We are a retailer first and foremost. UM.
• 1:05
  Speaker 1: But we also have factories in every market that we
• 1:07
  Speaker 1: operate in, so we completely control the supply chain. UM.
• 1:11
  Speaker 1: But you know, focus is really California and has been
• 1:13
  Speaker 1: for a while. I think you're referencing the farmer Can
• 1:16
  Speaker 1: transaction that took place a few weeks back. At that time,
• 1:19
  Speaker 1: the largest transaction in the history of US cannabis about
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  Speaker 1: seven million dollars UM. But what farmer Can did was
• 1:25
  Speaker 1: it really allowed us to leap frog this next phase
• 1:28
  Speaker 1: of our growth UM and enter into this next set
• 1:31
  Speaker 1: of markets that we were already targeting. Farmer cansa midway
• 1:34
  Speaker 1: Midwest based cannabis company that had operations in six markets,
• 1:38
  Speaker 1: all Midwest to East coast. So it was a great
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  Speaker 1: compliment to our footprint and UH we took action and
• 1:44
  Speaker 1: brought him under our umbrella and we're now stronger for it. Now.
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  Speaker 1: For people that may not be familiar with how this
• 1:50
  Speaker 1: industry works and it is a new business, can you
• 1:53
  Speaker 1: explain the role that licenses play, how they differ in cost,
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  Speaker 1: and how those licenses then have to be translated into
• 2:04
  Speaker 1: actual physical establishments. But there are a lot of processes
• 2:08
  Speaker 1: in the in the in the how this comes together. Sure, UM,
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  Speaker 1: I could do an hour on it, but I'll do
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  Speaker 1: it in their seconds. So basically, basically there's no interstate commerce.
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  Speaker 1: First and foremost, so every state has its own program
• 2:23
  Speaker 1: and that program is unique to that state UM and
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  Speaker 1: all of the state's been written into their program. UM.
• 2:30
  Speaker 1: It is explicit that you must have a license to
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  Speaker 1: grow marijuana in that state in order to manufacture products
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  Speaker 1: distributed in retail at all within the state. So there
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  Speaker 1: are nuances to each of these programs, but they're all
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  Speaker 1: pretty similar. Um. And so you must have one of
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  Speaker 1: these licenses. Uh. You know, at the end of the day,
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  Speaker 1: this industry is a nimbie industry. UM. And I think
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  Speaker 1: what's really interesting is you have an industry that has
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  Speaker 1: such an overwhelming support by the public. However of the
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  Speaker 1: public believes medical marijuana should be legal now where you know,
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  Speaker 1: sixty plus percent believe recreational marijuana should be legal. We're
• 3:02
  Speaker 1: in a Congress that just got a lot better for
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  Speaker 1: marijuana a week ago. Yet with all the support there
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  Speaker 1: is to legalize marijuana and prohibition, it's still a nimbia industry.
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  Speaker 1: So you know, this is not in my backyard, which
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  Speaker 1: you know, we're okay with. We embrace that's what the public.
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  Speaker 1: I think that's what the public wants now and we'll
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  Speaker 1: want for the investable future. So you have a really
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  Speaker 1: limited nature of these licenses. And again each state different, um.
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  Speaker 1: But I'm here in Los Angeles today and for example,
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  Speaker 1: in all of l A County, twelve million people plus
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  Speaker 1: a lot of tourists. Um, there are less than two
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  Speaker 1: hundred retail licenses, so you know, limited licenses, really arduous
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  Speaker 1: owning restrictions around those licenses. Um. But you know enough
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  Speaker 1: so that there's critical mass to be able to serve
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  Speaker 1: the public and make marijuana accessible. Okay, got it? And
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  Speaker 1: wondering if what you could describe you've learned from the
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  Speaker 1: experience in Canada where the country has made it legal
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  Speaker 1: for recreational use, has that informed or changed any of
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  Speaker 1: your thoughts? It's progress, right, I mean we've been doing
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  Speaker 1: this for almost ten years, and and these check in,
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  Speaker 1: these moments to check in on the progress that not
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  Speaker 1: only society and the public is making in regards to
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  Speaker 1: their viewpoint, but the commercial aspects of this industry and
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  Speaker 1: then the political realities. UM, this is a big check in, right.
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  Speaker 1: You have the first you know, nation of its size
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  Speaker 1: to legalize marijuana for recreational purposes a couple of weeks ago.
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  Speaker 1: And you know what we learned. We learned that the
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  Speaker 1: cities didn't burn down, right, And that's what we keep
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  Speaker 1: seeing as progress is made around the world. But you know,
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  Speaker 1: things are things are better, They're not worse, They get
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  Speaker 1: better progressively better. Um. As these laws change. You know,
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  Speaker 1: the probition against marijuana just doesn't work. It's a failed effort.
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  Speaker 1: Um and legalized marijuana and regulating and taxing it is
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  Speaker 1: the answer. And so what I really like about what
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  Speaker 1: we've seen in Canada, because it's been so successful without
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  Speaker 1: any hiccups, really is I really feel like it is
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  Speaker 1: the big finger wagging down here to us in the
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  Speaker 1: US saying, you know, you claim to be leaders, you
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  Speaker 1: know in business and industry. Um, you know, your stock market,
• 5:02
  Speaker 1: your exchanges are you know, leaders in in what they do,
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  Speaker 1: and yet you can't list a US weed company on
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  Speaker 1: the New York Stock has changed or NAZDAC yet and
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  Speaker 1: yet it's still federally illegal while you know your neighbors
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  Speaker 1: Tier North here run with this thing. So um, it
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  Speaker 1: puts pressure on the US and and that's something that
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  Speaker 1: we're grateful for. What would be the most important change
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  Speaker 1: that would help the industry. Would it relate to banking
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  Speaker 1: rules and regulations? Not really? I mean, you know, we
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  Speaker 1: were fully banked, as are all of our counterparts and
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  Speaker 1: peers in this industry. From a depository perspective, you know,
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  Speaker 1: we don't have access to traditional banking services, but it
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  Speaker 1: all fits in the same bucket. It's banking services, it's
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  Speaker 1: merchant processing, it's proper tax treatment, UM, it's everything that
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  Speaker 1: comes along with, you know, being a lawful business, paying
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  Speaker 1: your taxes and receiving the protections UM, and the opportunities
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  Speaker 1: that paying your taxes and being upstanding provide you. And
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  Speaker 1: and so that that next big moment that you're asking
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  Speaker 1: about really has to do with Congress, and it really
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  Speaker 1: has to do with permanent protection of state sanctioned marijuana businesses.
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  Speaker 1: And I firmly believe we will see that here in
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  Speaker 1: our country. And f y nineteen, thanks very much for
• 6:13
  Speaker 1: being with us. Adam Bierman, co founder, chief executive Medmen
• 6:18
  Speaker 1: based in Los Angeles, giving us his view based on
• 6:22
  Speaker 1: his experience in the cannabis industry. Everybody talks about the
• 6:41
  Speaker 1: US dollar, but no one does anything about it. Well,
• 6:43
  Speaker 1: we're going to change that. Here in the Bloomberg Interactor
• 6:46
  Speaker 1: Broker's studio, I want to introduce Gary Shilling. He is
• 6:50
  Speaker 1: the president of a Gary Shilling and Company. He is
• 6:53
  Speaker 1: a Bloomberg opinion columnist. He is also the author of
• 6:58
  Speaker 1: the Age of de Leverage, Investment strategies for a decade
• 7:03
  Speaker 1: of slow growth and deflation a Gary Shilling. Thank you
• 7:07
  Speaker 1: very much for being with us. Let's begin with the
• 7:10
  Speaker 1: strength of the US dollar. Is it gaining in strength
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  Speaker 1: because people love the United States or is it they
• 7:17
  Speaker 1: just don't want to own anything else. It's a combination, Tim,
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  Speaker 1: I mean, the US is clue to the safe haven.
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  Speaker 1: And you look at all the problems around the world
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  Speaker 1: of protectionism, and and the US is growing faster than
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  Speaker 1: other countries, and and it's it's traditional safe haven. One
• 7:36
  Speaker 1: of the interesting things is even if haven of problems
• 7:40
  Speaker 1: start in this country, and I think that's pretty clear
• 7:43
  Speaker 1: with Trump's attitude on the trade wars with China, the
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  Speaker 1: dollar benefits. Uh. Show you you have a number of
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  Speaker 1: reasons that I think the dollar is going to continue
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  Speaker 1: to be strong and right there today as we speak,
• 7:57
  Speaker 1: as fine as I'm sure you're aware, I am aware.
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  Speaker 1: And I'm aware also that you'd say that there are
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  Speaker 1: six long term criteria for the dominance of the US dollar.
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  Speaker 1: Go ahead, tell us quickly. Well, the first one is
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  Speaker 1: that and we've we've I've started this going back to
• 8:16
  Speaker 1: ancient ancient times of Greek in Rome and and looked
• 8:20
  Speaker 1: at what what are the characteristics of the world's leading currency. UM.
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  Speaker 1: The first one is rapid growth, and we grew growing
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  Speaker 1: much more rapidly than other developed countries. China, yeah, faster growth,
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  Speaker 1: but it's a developing country and it's slowing down. The
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  Speaker 1: second one is a huge economy UM. And the US
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  Speaker 1: is is still clearly the largest economy in the world,
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  Speaker 1: where about bigger than China, which is in second place. Uh.
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  Speaker 1: Third one is deep and broad financial markets and and
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  Speaker 1: we certainly have that. Uh In the US. You look
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  Speaker 1: for a stock market capitalization thirty two trillion dollars, euro
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  Speaker 1: Zone eleven trillion, China about nine trillion, Japan six trillion UM,
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  Speaker 1: and and our treasury market, you know, fifteen point three
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  Speaker 1: trillion compares to six point seven point six trillion in Japan,
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  Speaker 1: six point one and in China and one point six
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  Speaker 1: in Germany. So that's that's the third thing. The fourth
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  Speaker 1: one is free and open markets and economy, and we
• 9:21
  Speaker 1: certainly we certainly have that. If you look at the
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  Speaker 1: World Bank ranking of of where it's easy to do business,
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  Speaker 1: the US is is close to the top, and you
• 9:30
  Speaker 1: look at something like China, course it's it's it's very difficult. UM.
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  Speaker 1: Fifth reason is lack of substitutes. And you know, the
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  Speaker 1: dollars of all the world's transactions in in trade and
• 9:43
  Speaker 1: capital folls of the dollars involved in seven percent of those,
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  Speaker 1: there really isn't any any option UM and and UH
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  Speaker 1: in terms of substitution. Most of the over fifty of
• 9:56
  Speaker 1: the world's currency reserves in dollars six thing credibility. And
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  Speaker 1: I think we're seeing that clearly. And and I've added
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  Speaker 1: this is a list I've had for some time. I've
• 10:07
  Speaker 1: had a seventh one, which is that Tump is really
• 10:11
  Speaker 1: asserting the US UH power economic, military, financial power on
• 10:16
  Speaker 1: the world stage. We've had that really since World War Two,
• 10:20
  Speaker 1: but it has not been exercise extent that he does.
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  Speaker 1: And I think that is gaining a lot of credibility
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  Speaker 1: for the U S and the dollar UH foreigners, where
• 10:28
  Speaker 1: they like it or not. He's really saying, hey, we
• 10:30
  Speaker 1: got this, we got the upper hand, We're going to
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  Speaker 1: exercise it. Let's talk about the general economy. Is there
• 10:36
  Speaker 1: a looming recession? Yeah, I think there probably is. Now,
• 10:41
  Speaker 1: you know, to say that it's it's gonna unroll untold
• 10:46
  Speaker 1: in the next month or two, that's always a dangerous
• 10:49
  Speaker 1: pet one one very wise economist one said you should
• 10:52
  Speaker 1: forecast what will happen or when it will happen, but
• 10:55
  Speaker 1: not both. But there are a lot of signs and
• 10:58
  Speaker 1: I've written that up in our latest of the UH newsletter,
• 11:01
  Speaker 1: Insight UM. Certainly you have it that turned down in stocks,
• 11:05
  Speaker 1: and that's a leading indicator. Housing housing very interest rates sensitive,
• 11:09
  Speaker 1: and it is UH. It is responding to the Feds
• 11:13
  Speaker 1: raising race. And the said raising race, you know, don't
• 11:15
  Speaker 1: fight the Fed. UH. When the Fed starts to graze
• 11:18
  Speaker 1: rates sooner or later. They killed the economy twelve or
• 11:21
  Speaker 1: thirteen times the postwar period. They didn't get a soft
• 11:24
  Speaker 1: landing only once in the mid nineties. And now they're
• 11:27
  Speaker 1: not only raising interest rates, but they're selling off the portfolio.
• 11:29
  Speaker 1: They've had a century of experience with interest rates and
• 11:32
  Speaker 1: they still can't affect soft landing, so showing off the
• 11:36
  Speaker 1: portfolio on on top of that, and then you look
• 11:38
  Speaker 1: at the exuberance we've seen in consumers and the expansion
• 11:44
  Speaker 1: of things like leverage loans and you know, people zealous
• 11:48
  Speaker 1: for you rushing into UH, into hedge funds of hedge funds,
• 11:53
  Speaker 1: private equity and so on. All of these things are
• 11:55
  Speaker 1: are very similar similarly occur at the top. So I
• 12:00
  Speaker 1: think there's a lot of reasons to believe we're at
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  Speaker 1: the top. Now, that doesn't mean it's going to turn
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  Speaker 1: down immediately, but um, I think that the odds of
• 12:07
  Speaker 1: a recession are probably over fifty starting in the next
• 12:10
  Speaker 1: year or so. Gary, If you happen to be an
• 12:13
  Speaker 1: investor who is expecting higher interest rates, are you going
• 12:17
  Speaker 1: to be disappointed? Uh? Yeah, I think you probably are
• 12:21
  Speaker 1: because there are two There are two things working there
• 12:24
  Speaker 1: and full disclosures him As you know, I in nine
• 12:28
  Speaker 1: when they yield and the thirty year bond was sixteen
• 12:31
  Speaker 1: point seven percent, I said, we're entering the run bond
• 12:34
  Speaker 1: rally of lifetime. And since then wrong treasuries have outperformed
• 12:38
  Speaker 1: the S and P since the early eighties by six times.
• 12:41
  Speaker 1: So i'm i'm, I'm, I've got a bias there, clearly.
• 12:43
  Speaker 1: But the point is you've got two forces there. The
• 12:46
  Speaker 1: fetters tightening and there is a spillover. I mean, for
• 12:49
  Speaker 1: every hundred basis point increasing the head funds on average
• 12:52
  Speaker 1: in the post war period, you get a forty four
• 12:55
  Speaker 1: uh basis points fill over the ten years treasuries, but
• 12:58
  Speaker 1: only at twenty four still over to UH to a
• 13:02
  Speaker 1: long term treasury thirty year. I know there's a further
• 13:04
  Speaker 1: way you get from the Fed. The less the Fed
• 13:07
  Speaker 1: matters and the more other things matter. In the long run,
• 13:09
  Speaker 1: it's it's inflation. There's a sixty percent correlation between UH,
• 13:13
  Speaker 1: the CPI you're over here in the post ar period
• 13:15
  Speaker 1: and and and treasury bonds. UH. So you've got the
• 13:19
  Speaker 1: Fed fighting, but there's some spill over. But on the
• 13:21
  Speaker 1: other side, you've got a lot of deflationary forces here.
• 13:24
  Speaker 1: You look at you look at protectionism, globalization moving all
• 13:28
  Speaker 1: these high paid jobs to China and other developing countries.
• 13:32
  Speaker 1: You look at the uberization of the world, the on demand,
• 13:35
  Speaker 1: the gig economy, if you will. UH unions they're very
• 13:39
  Speaker 1: high paid and they virtually disappeared, particularly the private sarcy.
• 13:44
  Speaker 1: You go a lot of forces there that are telling
• 13:46
  Speaker 1: you there's deflationary climate, and of course we get a recession.
• 13:50
  Speaker 1: Even more so so, UM, I think that I think
• 13:53
  Speaker 1: we could be getting close to the peak and in
• 13:56
  Speaker 1: interest rates, particularly on the long end, even though the
• 13:58
  Speaker 1: Fed is still raising. On the show, Gary Shilling is
• 14:01
  Speaker 1: a Bloomberg View columnist. He's the president of a Gary
• 14:04
  Speaker 1: Shilling and Company. It is a consultancy based in Springfield,
• 14:08
  Speaker 1: New Jersey. He is the author of the Age of
• 14:10
  Speaker 1: Deleveraging Investment Strategies for a decade of slow growth and deflation,
• 14:16
  Speaker 1: and he is also the author of a Gary Shillings
• 14:19
  Speaker 1: Inside Economic Research and Investment Strategy. Well, we turn our
• 14:37
  Speaker 1: attention now to the world of crude oil here at
• 14:40
  Speaker 1: the Bloomberg Interactive Brokers Studios and joining us as John
• 14:44
  Speaker 1: killed Off. He is the founding partner of Again Capital,
• 14:48
  Speaker 1: John Always a Pleasure. Brent crude higher by about one
• 14:52
  Speaker 1: and a half percent at seventy one dollars a barrel,
• 14:55
  Speaker 1: West Texas Intermediate on the NIMEX up one and a
• 14:58
  Speaker 1: half percent at sixty one dollars a barrel. Have we
• 15:02
  Speaker 1: hit the lows for this year when it comes to
• 15:05
  Speaker 1: oil prices? I think potentially him and good morning to you.
• 15:11
  Speaker 1: Great to be on uh. Friday's low is fifty nine
• 15:15
  Speaker 1: six cents for w t I and it's sort of
• 15:17
  Speaker 1: sticking out on the on the charts that we look
• 15:20
  Speaker 1: at as a bit of a sore thumb low. So
• 15:23
  Speaker 1: we're getting some recovery here, you know, partly because this
• 15:27
  Speaker 1: um nearly seventeen dollar sell off over the course of
• 15:31
  Speaker 1: a month. You know, got the expected reaction you would
• 15:35
  Speaker 1: have thought would come from Saudi Arabia and and the
• 15:38
  Speaker 1: rest of OPEC and Russia to a lesser degree. Well
• 15:42
  Speaker 1: that reaction is what to cut production by how many
• 15:46
  Speaker 1: barrels of oil a day? Well, it's it's a little sketchy,
• 15:51
  Speaker 1: which is why the market isn't necessarily rounding war on
• 15:53
  Speaker 1: the news. The Saudis came out pushing for a million
• 15:57
  Speaker 1: barrel per day cut. Uh. The Russian oil minister not
• 16:01
  Speaker 1: so enthusiastic about it, and it doesn't seem like the
• 16:03
  Speaker 1: rest of Opec is either, although I'll point out to
• 16:07
  Speaker 1: you that based upon some of the data that we
• 16:09
  Speaker 1: look at that the Satties are already in the process
• 16:11
  Speaker 1: of cutting output by about by thousand barrels for December.
• 16:16
  Speaker 1: So they are reacting to this now. And it's also
• 16:20
  Speaker 1: not unexpected given that the US elections in their rear
• 16:23
  Speaker 1: view mirror, they probably feel more comfortable being able to
• 16:26
  Speaker 1: reign in production, get prices up a bit, and not
• 16:28
  Speaker 1: necessarily risk the wrath of their ally President Trump. Does
• 16:32
  Speaker 1: it matter that at the same time that the Saudis
• 16:35
  Speaker 1: are ratcheting back to production by half a million barrels
• 16:38
  Speaker 1: a day, that Iran is now under greater sanction and
• 16:43
  Speaker 1: making it more difficult for it to sell its oil
• 16:45
  Speaker 1: abroad were interesting tim Part of the crush here in prices,
• 16:50
  Speaker 1: um was the fact that the administration granted eight waivers
• 16:54
  Speaker 1: to really Iran's the bulk of Iran's customers to continue
• 16:58
  Speaker 1: to buy oil. There was a sense when November rolled
• 17:00
  Speaker 1: around and the stantons were supposed to take effect that
• 17:03
  Speaker 1: there would be a big impact on Iranian exports and
• 17:06
  Speaker 1: supplies to the market, that a lot would be coming off. Um,
• 17:09
  Speaker 1: there's still some coming off, don't get me wrong, but
• 17:12
  Speaker 1: nowhere near the sort of feared levels that were in
• 17:15
  Speaker 1: that got into this market and push prices up towards
• 17:17
  Speaker 1: you know, eighty dollars a barrel for w t I
• 17:20
  Speaker 1: back in October. It was it was the administration really
• 17:25
  Speaker 1: uh cut the legs out from under Saudi Arabian Russia
• 17:28
  Speaker 1: who rushed increased production and exports to the market ahead
• 17:33
  Speaker 1: of the sanctions. So, um, I guess the expressions, you know,
• 17:36
  Speaker 1: did they get played or not? It may be kind of,
• 17:39
  Speaker 1: but the market certainly got played as well. In terms
• 17:42
  Speaker 1: of this, this turnaround in policy at least for now
• 17:45
  Speaker 1: by the administration on Iran. If this is the case,
• 17:48
  Speaker 1: does that benefit US producers? The U S producers are
• 17:55
  Speaker 1: a real thorn right now in the Saudia's and Opec
• 17:58
  Speaker 1: and Russia's side, where we're exporting more oyal than ever before.
• 18:02
  Speaker 1: We're averaging about two point five liim barrel per day,
• 18:05
  Speaker 1: clipped him from zero just a couple of years ago.
• 18:07
  Speaker 1: Just to put it in perspective, Um, it's only going
• 18:09
  Speaker 1: to go up. There's there's this massive activity along the
• 18:12
  Speaker 1: Gulf coast to outlet more and more US crude oil
• 18:15
  Speaker 1: to the market. So um. The STATI response in terms
• 18:19
  Speaker 1: of cutting back here, I think is justified if they
• 18:22
  Speaker 1: want to get prices stabilized and back higher. But they
• 18:26
  Speaker 1: might have to be shouldering a lot more of the
• 18:29
  Speaker 1: cutback than they might have realized as we get into
• 18:32
  Speaker 1: this is a very interesting setup now that the U
• 18:35
  Speaker 1: S could actually become one of the dominant global suppliers
• 18:37
  Speaker 1: here as we get into next year. Take that forward
• 18:41
  Speaker 1: and explain what that would mean for the input costs
• 18:45
  Speaker 1: for the chemical industry, the plastics business, or anything that
• 18:49
  Speaker 1: uses fossil fuel. Well, it's going to keep it low
• 18:53
  Speaker 1: for sure, I think on a global basis, so it
• 18:56
  Speaker 1: should continue to be good times for that very sick
• 19:00
  Speaker 1: local industry. The rub is going to be whether or
• 19:03
  Speaker 1: not the the advantage that U. S A. Finders have
• 19:06
  Speaker 1: had will persist. I mean, right w T I Texas
• 19:09
  Speaker 1: crew continues to be about ten dollars under the international
• 19:13
  Speaker 1: markers like Brent, which is seventy one today. Um to
• 19:17
  Speaker 1: the extent that US supplies tightened here because of all
• 19:20
  Speaker 1: this export activity like we're seeing with natural gas, uh,
• 19:24
  Speaker 1: the the U. S R. Finders could actually find themselves
• 19:27
  Speaker 1: in a disadvantage because of what the exploration and production
• 19:30
  Speaker 1: companies are doing in terms of not selling to them
• 19:32
  Speaker 1: at a discount, but selling at a higher price to
• 19:35
  Speaker 1: the world market. Last question to you give you about
• 19:38
  Speaker 1: twenty five seconds natural gas at three dollars and seventy
• 19:42
  Speaker 1: eight cents per million b tou do we see four
• 19:45
  Speaker 1: dollar permannium BTU not gas? Then the natural gas market
• 19:50
  Speaker 1: could get really ugly here for consumers. We're starting off
• 19:54
  Speaker 1: this winter heating season with supplies about fiftent below last
• 19:58
  Speaker 1: year and the five year average. That sets up this
• 20:00
  Speaker 1: market to be really tightly supplied. You get a couple
• 20:03
  Speaker 1: of more of these early season call snaps, the price
• 20:06
  Speaker 1: could double at this point as you get into January. Uh,
• 20:10
  Speaker 1: in December and January, we're gonna keep watching that, that's
• 20:13
  Speaker 1: for sure. John Killed, a founding partner of Again Capital,
• 20:17
  Speaker 1: telling us about oil and natural gas. Our topic now
• 20:35
  Speaker 1: is the hotel and hospitality industry. My guest is Jay Stein.
• 20:40
  Speaker 1: He is the chief executive of Dream Hotel Group and
• 20:43
  Speaker 1: he joins us here in studio. Jay, thanks very much
• 20:47
  Speaker 1: for being here. Tell people a little bit about Dream
• 20:49
  Speaker 1: Hotel Group and how it has transformed itself from being
• 20:53
  Speaker 1: an operation that owned and managed the properties to one
• 20:58
  Speaker 1: that is focused. Well, you held a story that's exactly it.
• 21:02
  Speaker 1: So uh and and thanks for having me. Nice to
• 21:04
  Speaker 1: be here. So we have transformed the company. We were
• 21:07
  Speaker 1: more of a ownership and we built hotels and and
• 21:11
  Speaker 1: manage those and they were cool, hip lifestyle hotels, generally
• 21:15
  Speaker 1: one off properties. And then uh, we took some of
• 21:19
  Speaker 1: those hotels that we're doing very well and the public
• 21:21
  Speaker 1: seemed to enjoy them and converted them into brands. Uh.
• 21:25
  Speaker 1: This started in earnest about five years ago. And UM,
• 21:29
  Speaker 1: it's allowing us to grow much quicker because now we're
• 21:33
  Speaker 1: using other developers as opposed to just our own money UM.
• 21:36
  Speaker 1: And these are expensive assets, are about a hundred fifty
• 21:39
  Speaker 1: million dollars plus a piece to build UM and they
• 21:42
  Speaker 1: take three to five six seven years sometimes to develop.
• 21:46
  Speaker 1: So on our own it was taking a long time
• 21:48
  Speaker 1: to build up the number of properties. But now we're
• 21:50
  Speaker 1: signing a deal about one every month, every month and
• 21:53
  Speaker 1: a half. So so and you just why wouldn't say,
• 21:56
  Speaker 1: just but you have opened your first hotel in Los
• 21:59
  Speaker 1: ange Chelists we did about a year and four months ago.
• 22:03
  Speaker 1: At this point, uh hundred and sixty eight room property
• 22:07
  Speaker 1: with a tremendous amount of food and beverage, nightlife, entertainment.
• 22:11
  Speaker 1: We have six different venues there and uh it's one
• 22:14
  Speaker 1: of the most fun hotels certainly in the Explain why
• 22:18
  Speaker 1: that aspect of the hospitality industry, the nightlife, the entertainment,
• 22:24
  Speaker 1: the restaurants. Why is that so important in an era
• 22:27
  Speaker 1: of air B two B. So that is what we do,
• 22:30
  Speaker 1: That's what we're famous for. We create environments where uh,
• 22:34
  Speaker 1: social activity will happen. A lot of hotels focus on
• 22:38
  Speaker 1: their guest rooms and as we do as well, but
• 22:41
  Speaker 1: we add in that element where people from the community
• 22:44
  Speaker 1: want to come use the hotel for nightlife, food and beverage,
• 22:47
  Speaker 1: health and wellness, uh and other uh social things that
• 22:52
  Speaker 1: that we uh programmed for the hotel. And um you know,
• 22:56
  Speaker 1: Airbnb doesn't have a restaurant in somebody's apartment, So what
• 23:01
  Speaker 1: we do is very different, and uh it's always been
• 23:04
  Speaker 1: something that we've been able to uh hang our hat
• 23:07
  Speaker 1: on and and make us unique in the industry. Is
• 23:10
  Speaker 1: that something that you encouraged and emphasized and accelerated because
• 23:17
  Speaker 1: you see what is happening with the popularity of air
• 23:21
  Speaker 1: b and B definitely not. We were doing this way
• 23:23
  Speaker 1: before Airbnb had had come to into existence, and um,
• 23:30
  Speaker 1: you know, I look back in the industry and so
• 23:32
  Speaker 1: that's what hotels were back in the forties, fifties, sixties,
• 23:35
  Speaker 1: great meeting places, great uh social hubs for the community,
• 23:39
  Speaker 1: and then we got away from that in the seventies
• 23:41
  Speaker 1: and eighties nineties. They were really big box hotels. They
• 23:44
  Speaker 1: weren't very meaningful to uh the community that that they
• 23:47
  Speaker 1: were in often and um so around the mid eighties nineties,
• 23:53
  Speaker 1: uh Ian Schraeger started changing what the landscape was like
• 23:57
  Speaker 1: and we caught on pretty quickly, and now we've been
• 24:00
  Speaker 1: doing lifestyle hotels for over twenty years. Now. You've got
• 24:03
  Speaker 1: a background, obviously in the hospitality industry, having worked for
• 24:07
  Speaker 1: Durall Hotels and Resorts as well as Hilton International, star Wood.
• 24:12
  Speaker 1: What is the limit of consolidation if there is one?
• 24:17
  Speaker 1: In the hotel industry, it seems that they're just getting
• 24:19
  Speaker 1: bigger and bigger, and does that hurt the quality of
• 24:23
  Speaker 1: the product that's being offered? You know, I don't think
• 24:25
  Speaker 1: it hurts the quality. I think it's difficult for individual
• 24:30
  Speaker 1: developers that are going to these big companies and wanting
• 24:33
  Speaker 1: to use one of their brands, because now you've got
• 24:35
  Speaker 1: so much overlap and so much of that product in
• 24:38
  Speaker 1: the same city. Marriott could have twenty hotels in one
• 24:41
  Speaker 1: city where they if they used to have five or eight,
• 24:44
  Speaker 1: it seemed like a lot. So I think that could
• 24:46
  Speaker 1: be a little difficult for an owner. Remember Marriott doesn't
• 24:48
  Speaker 1: own the hotels, and I'm using Marry Up, but you know,
• 24:51
  Speaker 1: any of the big brands um so, I think their
• 24:54
  Speaker 1: consolidation has been maybe a bit of a concern for us.
• 24:58
  Speaker 1: UM a small a company like like ours, it doesn't
• 25:02
  Speaker 1: really affect us. In fact, I think it helps us
• 25:04
  Speaker 1: because those developers that really want um a unique, one
• 25:10
  Speaker 1: off type, independent type property. Uh, those it's gonna be
• 25:14
  Speaker 1: difficult for those companies to deliver it where that's really
• 25:17
  Speaker 1: a forte and that's why they come to us. So
• 25:20
  Speaker 1: what is the what is the background of the new
• 25:22
  Speaker 1: brand unscripted hotels? So Unscripted the main reason we launched
• 25:28
  Speaker 1: it. It It gave us the opportunity to go into secondary
• 25:31
  Speaker 1: markets or even tertiary markets, but where there's a cool
• 25:35
  Speaker 1: vibe again, ability to drive some social interaction. Where are
• 25:38
  Speaker 1: other three brands really belonging to? Durham, North Carolina is
• 25:41
  Speaker 1: an example. We have one of the unscripted brands. You know,
• 25:43
  Speaker 1: it's an up and coming city, but I don't think
• 25:45
  Speaker 1: it's ever gonna become a primary market for a number
• 25:47
  Speaker 1: of years from now. But it's got a great history
• 25:50
  Speaker 1: and the tobacco industry and now much of those old
• 25:53
  Speaker 1: buildings have been converted to tech and uh it's a
• 25:56
  Speaker 1: great foodie town. So it was a perfect example of
• 25:59
  Speaker 1: where and scripta belonged. What kinds of properties do you
• 26:02
  Speaker 1: look for in individual locations. I know that you've got
• 26:07
  Speaker 1: plans for Palm Springs, for Atlanta, for Dallas, Austin, and
• 26:10
  Speaker 1: so on. What are the properties requirements. So we've got
• 26:14
  Speaker 1: four brands, UH, the Chatwell which is pure luxury UH,
• 26:18
  Speaker 1: the Dream Down Dream brand, which is one notch below
• 26:22
  Speaker 1: that time as well. Difference between those two. One has
• 26:25
  Speaker 1: a lot of food and beverage, one has middle middle
• 26:28
  Speaker 1: amount of food and beverage. And Unscripted, as I mentioned,
• 26:31
  Speaker 1: could also go in the secondary locations. So we're looking
• 26:35
  Speaker 1: for properties that makes sense for any of those four brands.
• 26:38
  Speaker 1: By adding an unscripted now we have hundreds and hundreds
• 26:42
  Speaker 1: of locations that one of our four brands makes sense for.
• 26:45
  Speaker 1: And looking for a good owner who UH is looking
• 26:49
  Speaker 1: for a lifestyle hotel, someone that's gonna bring the community
• 26:52
  Speaker 1: into the property and believes in UH. The concepts that
• 26:56
  Speaker 1: we're doing point to. You have money raising money. Do
• 27:00
  Speaker 1: you find that people are throwing money at this industry
• 27:03
  Speaker 1: because it has become such a glamorous part of lifestyle
• 27:07
  Speaker 1: or is it strictly business? You know, everything comes down
• 27:11
  Speaker 1: to business. You may have a high net worth individual
• 27:14
  Speaker 1: that just does a vanity play here or there, but
• 27:18
  Speaker 1: there's not a lot of that out there. So yeah,
• 27:20
  Speaker 1: it comes down to business and you've got to be
• 27:22
  Speaker 1: able to get them financed. UM. Wasn't very easy for
• 27:25
  Speaker 1: us early. You know, people don't know our brands. But
• 27:27
  Speaker 1: as we're growing now, uh, it's becoming a little easier. UM,
• 27:32
  Speaker 1: but it depends on the ever flow of how lenders
• 27:35
  Speaker 1: are lending. Last point you're having to do with travel
• 27:38
  Speaker 1: is where are you seeing outsized interest in new tourism?
• 27:42
  Speaker 1: Is it in these tertiary and secondary markets? You know,
• 27:46
  Speaker 1: I think there's tourism everywhere, and there always was. It
• 27:49
  Speaker 1: was interest in uh in great cities, and it was
• 27:52
  Speaker 1: interest in little quirky towns that had something special about them.
• 27:55
  Speaker 1: I think the difference now people are taking advantage of
• 27:59
  Speaker 1: those little quirky things they have if they're known for
• 28:02
  Speaker 1: some great food item or a unique experience that you
• 28:06
  Speaker 1: can do their UM. You know, people want to take
• 28:09
  Speaker 1: advantage as you as you know, everybody's talking about experiences
• 28:12
  Speaker 1: and experiences. So it's not just the hotel, it's it's
• 28:15
  Speaker 1: you want to travel, you want to go see things,
• 28:17
  Speaker 1: and there's a lot to see around this country and
• 28:19
  Speaker 1: around the globe, and people are as curious as ever.
• 28:22
  Speaker 1: And UM, I think our industry has a long way
• 28:25
  Speaker 1: to go. Thanks very much, Ja stun He is the
• 28:28
  Speaker 1: chief executive of Dream Hotel Group. Thanks for listening to
• 28:33
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 28:36
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 28:40
  Speaker 1: platform you prefer. I'm Pim Fox. I'm on Twitter at
• 28:44
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
• 28:48
  Speaker 1: before the podcast. You can always catch us worldwide on
• 28:50
  Speaker 1: Bloomberg Radio.