The transcript from this week’s MIB: Todd Harrison, CB1 Capital is below.
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(UNKNOWN): This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: This week on the podcast, I have an extra special guest, his name is Todd Harrison and as you will be able to tell from listening, he and I know each other for more than a few years, we go way back. Todd has really a fascinating career in finance and a very atypical one. It began fairly reasonably, he ends up on Morgan Stanley’s derivative desk, he goes to Galleon, he goes to Cramer Berkowitz and then he starts doing some really, really unusual interesting different things.
I think you’ll find the space he’s carved out presently to be both very, very interesting and somewhat unique, he runs a hedge funds that focuses on health and wellness specifically through CBD and cannabinoids that is the proper pronunciation of what I was messing up. I was calling it cannabinoids but apparently that’s wrong. It is one of the many of active medical ingredients in marijuana, he believes this is a space that is uniquely situated to benefit from a number of waves. The changes in demographics that are taking place with the aging of American society, how expensive American healthcare and pharmaceuticals have become.
Not only that, but the huge change in the science of what we are learning about the various molecules and chemicals within marijuana and all of its medicinal applications. And at the same time, he looks at this as a wildly underserved space in the investment world.
You know, when I think about legalization, I think about people who are going to get a pax pen or a vape and basically, you know, have a little bit of fun on a Saturday night, he is looking at this completely differently, this isn’t about recreational weed, this is about the application of science to the compounds of marijuana and all that plus the opioid crisis which there is a huge overlap in helping to solve that and some of the applications of cannabinoids and marijuana and you end up with that is really a fascinating conversation about a fairly unique niche in investing and if you are at all interested in this, I think you are going to find it fascinating.
So with no further ado, my conversation with CB1 Capital Partner’s Todd Harrison.
This week, I have an extra special guest. His name is Todd Harrison and has quite the career in finance. He spent seven years on the worldwide equity derivative desk at Morgan Stanley before leaving to manage derivatives at the Galleon Group. He became President and Chief Trader at the $400 million hedge fund Cramer Berkowitz at TheStreet.com he created the trading diary which for my money was the first real-time financial blog ever.
He founded the investor education site Minionville, author of the book The Other Side of Wall Street. He currently is the founding partner and chief investment officer of CB1 Capital Management, a health care funds focusing on medical cannabinoids, Todd Harrison, welcome to Bloomberg.
HARRISON: Thank you for having me, Barry. It’s a pleasure.
RITHOLTZ: And I’ve been looking forward to having a conversation with you on air for forever. There is so much stuff to talk about. Let’s start in the 90s you go from Morgan Stanley where you’re on the derivative desk to Galleon to Cramer Berkowitz. What was that side of trading like during that sort of crazy time? The 1990s?
HARRISON: Well I think it is everything everybody hates about trading now in the Wall Street persona, it was a lot looser, it was a lot more maverick and I think industry was a lot more fun. Back then remember we actually believed we were doing real utility in our work, we believe we were of facilitating the mechanism of the capital market structure and I was noble work back then.
RITHOLTZ: It was it was God’s work in some…
HARRISON: Well I stayed away from by design but certainly, I think there was a lot of meaning in that back before this we all became algorithmic and certainly dominated by the computer world.
RITHOLTZ: And also before became less profitable, less volatile, less interesting as a career, so Morgan Stanley, you’re just a derivatives trader trading on your own behalf you training on behalf of the firm’s clients, what are you actually doing on the desk?
HARRISON: Well Was trading on the equity derivative desk facilitating customer order flow, but we also treated proprietarily back then so I had the biotech book, I had the financials that I took as my own, but it was an interesting journey to Morgan Stanley. I didn’t always plan to be on Wall Street.
When I went to Syracuse I was proficient in accounting and finance and it was really a jump ball back then but I was accused of cheating on my on my advanced finance class midterm in my junior year and as I got pulled to the professor’s office, he asked me a number of questions and when I realized what the dynamic was — long story short, he ended up placing me at Morgan Stanley in London between my junior and senior year of college and I was really the beginning of really watching the energy and seeing the way this business worked I was hooked from the word go.
RITHOLTZ: So you dropped into the middle of that sentence I was accused of cheating, I’m going to assume it wasn’t all I have this ethicless kid who is a cheater, let me send him London, that’s where they go. He figured out, obviously, you weren’t cheating and what was the basis of the accusation? Were you scoring too high on the test?
HARRISON: Yes, I blew the Bell curve so I think I got like 150 something on the midterm and I thought he was going to congratulate may but you know as it turns out, he’s a good man and was actually in a fraternity with his son, it turned into a good story but at the time, it was an interesting dynamic to go to London I while you’re in college and just sit there, I was in operations control, I brought the trade breaks to all the traders, I was screamed at, yelled at, completely demoralized and I was hooked.
I said that’s where I want to be one day, I want to be in that seat.
RITHOLTZ: I want to be the screamer not the screamee.
So Morgan Stanley, the Galleon group which was then a huge and very successful hedge fund prior to that little hiccup towards the later years. What did you do with Galleon?
HARRISON: Well, I had two roles there. I traded my own book but really my primary role was to manage the derivative book. Galleon, n when I started was $500 million, it grew to about $5 billion and it was a lot tougher than I expected without the infrastructure in the franchise behind me of Morgan Stanley but I think maybe some of that had to do with the environment.
Now, I worked there for two years only I think the writing was on the wall after the first year when there was about 100 million to rack up between five partners, there were five partners and me, I was shut out and subsequently the next year, something very similar happened and I was told that I didn’t have what it takes to make partner which I was actually upset about for some time, but that has passed.
RITHOLTZ: I would imagine. So how do you end up going from Galleon to Cramer Berkowitz?
HARRISON: Well, Jeff Berkowitz was always a friend of mine and I know they had a tough year, 1999, the year prior so we had started a conversation once the writing was on the wall at Galleon and he asked me to come over and that’s where I met Jim and Jeff and it was a good dynamic there.
So I came in and I took control of the trading operation, I turned the desk over and implemented risk protocols and it was a terrific year, that was Y2K so that was the one year that Jim and I actually overlapped, we did quite well that year I ended up staying there for another couple years after that.
RITHOLTZ: And so for those people who may not be familiar with Cramer Berkowitz, you know Jim Cramer the talking head, but I want to say their long-term track record was something like 23 percent a year compounded, is that about right? That’s a very respectable track record and you are going to take credit for how much of it?
HARRISON: Very little.
RITHOLTZ: Very little.
HARRISON: Very little.
RITHOLTZ: So from that trading background at Cramer Berkowitz, Jim Cramer decides to launch The Street.com and we’ll talk more about that later, but you decide to start writing for The Street, a real time online trading diary, what was the motivation behind that?
HARRISON: It wasn’t my decision, this was Jim going on vacation in July of 2000 and asking me if I would fill in for a day and never having written before but certainly Jim being Jim, it is hard to say no to and it was something that I had fun with, I was using pop-culture references and double entendres and the musical lyrics and I happen to be extremely bearish, this was the spring or summer of 2000 as the case may be, and it just took and developed quite a community out of that.
RITHOLTZ: So I think a lot of people here in New York might be surprised to know that New York has a legal medical marijuana set of statutes that allows on an extremely limited basis, the prescription, purchase and consumption by people on who have very specific diseases. New York is nothing like California to say Oregon or Colorado or any real places that really moved from decriminalization to full on legalization. What is the New York situation?
HARRISON: Well, they actually just expanded the access to include PTSD and that’s actually how I got my cannabis card in New York.
RITHOLTZ: Is that true?
HARRISON: That is true and I wasn’t going to talk about this but certainly has eyes a bit of a context for the card, 9/11 was very profound for all of us…
RITHOLTZ: I was going to say anyone who worked with Cramer is entitled to.
HARRISON: Jim is good man. So 9/11 we were down there, that is where our office was and I certainly…
RITHOLTZ: You were right on, it was 40 Wall Street.
HARRISON: We were at 40 Fulton. So you know, certainly heard the bang and saw people holding hands and jumping and saw the second plane entering the building and you know is a pretty harrowing experience but I remember that I refuse to really let myself feel bad because I felt guilty because so many people lost so much more and I thought…
RITHOLTZ: Survivors guilt, for sure, although repressing it doesn’t seem to be the healthiest way to…
HARRISON: Well, clearly but what ended up happening is over the course of the treatment protocol, I was I was prescribed numerous different medications, anti-anxiety ,anti-depression and before I knew it I was stocked on four or five different medications that was really just — it changed who I was as a person and really changed how I was able to think and act.
It was during the time…
RITHOLTZ: It’s that significant an impact.
HARRISON: Yes, and this is not a solo story, there’s a lot of people out there who I think are going through this right now and they become dependent on these prescription drugs and you know that was really want a catalyst for me to really start to dive down into the cannabis space. I started to invest in a company called GW Pharmaceuticals a number of years ago and they are studying the plants, they are taking the cannabinoids out of the plant and studying it for efficacy.
RITHOLTZ: So these are people rolling up joints and smoking weeds, these are people actually either consuming in a pill form or some other consumption like traditional pharmaceutical?
HARRISON: Sure and that’s really what really enlightened me because for a long time and I remember going on TV about eight years ago talking about cannabis is my single best investment idea for the next decade and I was a little early, but certainly I was also wrong and that I was looking at the job growth with the tax revenue, the prison population and the crime rate and saying this make sense. I failed to realize the coordinated agenda by the big pharmaceutical companies to keep this illegal and all that that I studied and looked back on, and really what I think is criminal activities on the part of the government to really suppress this given what they knew at the time in terms of efficacy.
RITHOLTZ: So here’s the question on that. Years and years and years ago like the 80s and 90s, I always heard weed is going to be legal because all the big tobacco companies know that their products are killing people and they know how to grow and they know how to roll and they know how to do all this.
And one day the switch is going to flip and Philip Morris and Brown and Williamson, all those companies are going to go from selling cigarettes to selling joints. That never happened.
HARRISON: That is not true, it actually is happening now.
RITHOLTZ: It is now, that never happened where — certainly didn’t happen on my timeline to be to be precise. How much is that actually happening and what I’m trying to tee up is how much is that same pivot going to take place with the pharmaceutical industry that’s been fighting what appears to be a losing battle?
HARRISON: Well, we’ve been saying for some time that the Buy Build (ph) was — cannot migrate across four spaces.
RITHOLTZ: Buy Build.
HARRISON: Buy Build. So it’s not as easy as dropping seeds in the ground and growing a cannabis plants, there is a lot of science and we are going to talk a little bit about the frontier science, the endocannabinoid system and what the science behind this is and it’s really fascinating.
It’s a for those who are intellectually curious this is a rabbit hole that I still haven’t climbed out of. But we seen it we saw the Constellation Brands take a stake in Canopy that was on the beverage side. We saw AOI buy a Canadian growers so that’s the tobacco side, and we think the next phase is going to be biopharmaceutical and ultimately consumer goods because if you think about it, as more supply comes on prices will decline, that is going to help people use cannabis as an ingredient, that’s going to help their margins in the backend.
RITHOLTZ: That’s quite fascinating. You mentioned an investment in Canada last year, Canada passed a law that essentially says they’re decriminalizing marijuana as a country, the first G-7 country to do so, what’s going to happen with?
HARRISON: Well, that is going to happen clearly but I think part of the part of the misperception about Canadian cultivators is people are extrapolating that to the Canadian population, but in actuality, what they are going to be is a service station to the world, so they had deals with Germany they have deals with — all over the world and you’re seeing this sweeping across the world whether it’s follow the money, whether it’s people are understanding for the first time the efficacy.
What’s interesting is the morning that Jeff Sessions revoked the Cole Memorandum, the Australian…
RITHOLTZ: Explain that for people who may not be familiar.
HARRISON: The Cole Memorandum effectively protected the states from government interference.
RITHOLTZ: Under Pres. Obama.
RITHOLTZ: And then under Pres. Trump, Sessions…
HARRISON: Jeff Sessions revoked that.
RITHOLTZ: And then didn’t we just here a deal with Cory Booker and who was blocking some of the presidents appointments and Pres. Trump?
HARRISON: It was Cory Gardner in Colorado, but we have been saying for some time now that we think that the four most dangerous words in finance, “This Time It’s Different.”
HARRISON: That this time is in fact different because it’s an election year you have 93 percent of the constituency that is supportive of medical cannabis.
RITHOLTZ: That is amazing.
HARRISON: And the only thing that politicians like more than lobby money is being reelected, so we actually been saying for some time that we thought that you are going to see a pretty significant pivot this year and sure enough you saw Mitch McConnell with the Hemp Bill, you saw he saw John Boehner now…
RITHOLTZ: By the way, Boehner was rabidly anti-pot when he was speaker of the House, and what happened you saw a little bit of that, no pun intended…
HARRISON: Sure, follow the money.
RITHOLTZ: Leafy, green stuff and suddenly he changed his view?
HARRISON: Well, there is that but there is also what I think the real — and we talk about this investment and in our strategy really through the lens of four arbitrageurs, right? Arbitrage of time versus policy, right? We do believe this is efficacious, and oh by the way the only way the US government can tax this is if it is through the FDA.
HARRISON: Right? We believe is arbitrage of price versus the high net worth individuals in the US institutions that are going to be onboarding to the space. Vanguard very quietly as become a top five holder in all of the Canadian majors.
RITHOLTZ: Really. Now is that within their indexes or is that within the 1.2, 2 trillion that’s active?
HARRISON: I don’t know the answer to that but I know that…
RITHOLTZ: (Inaudible) that is what I’m saying.
HARRISON: But I do know that when I’ve gone to these conferences and have seen Fidelity, Vanguard, Putnam, Goldman, all walking around these barbarians are massing at the gate, if institutions don’t chase growth, it will be the first time in my 30 years that it hasn’t happened.
RITHOLTZ: That is — so here’s the question, how big can the market for medical marijuana become?
HARRISON: Well, Gallup right now is saying it’s about a $320 billion annual market all in.
RITHOLTZ: What is that comparable to?
HARRISON: I mean, we have talked, you and I have talked about the parallel with the prohibition and alcohol coming on, I think that’s a nonlinear comparison because alcohol never killed cancer cells, alcohol never reduced epileptic seizures, we think that the third arbitrage I alluded to is perception, getting well versus getting high, we think this is about getting well and we talked about earlier with the Cole Memorandum the health ministers of Australia and Canada came out that morning and said they wanted to dominate the world in cannabis.
Now their health ministers said this, now unless they want a nation full of stoners, we’re betting that the see what we see in terms of the efficacy and this is the untold story here, this is why so powerful, right?
The people there are people on the right that think this is the devil’s weed there are people on the left that like to smoke a vaporizer on a Saturday night but all of us if somebody that we love the suffering, we want the best care with the least amount of side effects, and that’s the story here, this is a wellness story.
RITHOLTZ: I know and full disclosure I know Todd for a couple of decades we both wrote at The Street.com back in the day, I have to talk a little bit about that. We mentioned the trading diary that you filled in for a day, how did that become a daily routine?
HARRISON: Interestingly I found that it helped synthesize my thought process and I’ve always looked at the market and said there is always a bear case and there is always a bull case and if you could — that friction between those opinions is where both education is found but is also where profitability lies, right?
And so I took to it the online platform and keep in mind this is before blogs and social media so it was still a bit of a pedestal, I guess, but I enjoyed it because it allowed me the opportunity to synthesize my thoughts and really laid out there in a way that held me accountable to really following my own thought process.
RITHOLTZ: That’s a very astute insight. Daniel Boorstin was the Librarian of Congress and his famous line was, I write to figure out what I think and besides the bars aren’t open at that hour. And you pretty much said something similar.
So the trading diary continues and you did that for a long time, I recall you mentioned there is always a bull and bear, case you came up with a great metaphor for you putting on your bull suit or your bear suit, I have one hoof in, I have two hoofs in, you literally explained for readers not just on bullish and bearish hey I’m 75 percent bullish or how did the process of writing help with your own trade?
HARRISON: Well, as I said I think it held me accountable but also — it also allowed for more sequencing in my thought process so you know certainly and we talked a lot about you know there’s always this bull case and there is always this bear case and we sort of brought them to life with the characters that we invented and animated and ultimately, you know, they won an Emmy award for their work…
RITHOLTZ: Hoofy and Boo.
HARRISON: Hoofy and Boo, started laying the perfect media prize, right? An Emmy award. It looks nice on the mantle, it is nice and shiny but there is zero revenue attached to it. So but was, you know, the idea behind Minionville was really to create a vertical from the ABCs to the 401(k)s, we identified financial awareness, financial empowerment, financial illiteracy by another name through my writing at The Street.com realize that there’s a lot of people out there that need the help, that want the help, that are good people who deserve the help, and I sort of took that upon myself to do that.
And for 15 years, that was a very meaningful way to spend my day, not a very profitable way to spend my day, I traded my own account throughout this all but you know certainly I think psychic income was at an all-time high.
RITHOLTZ: So my colleague Josh Brown called The Street.com the Motown Records of the financial web and I could point to just about every institution that covers trading economy markets media from Bloomberg to New York Times, the Wall Street Journal to you name it, and there’s a huge pro publica, a huge swath of people that trace their roots back to The Street.com.
So I have two questions for you about that, what was the feeling like inside The Street when this new idea of democratizing research rolled out and then what was the leaping off a-ha moment from Minionville as the as an educational outlet?
HARRISON: Sure so I think they were the original online community in the financial media, you know that Doug Kass and GeorgeWire (ph) and Bill Fleckenstein and Jim obviously, Greenberg, I mean these are all…
RITHOLTZ: Paul Kedrosky.
HARRISON: This were good people who happen to trade not traders who happen to write and I think that came through. Authenticity is very hard to fake by definition, right? So I think that was authentically an opportunity for all of us to give back and I think that you know it was lightning in a bottle for a few years.
RITHOLTZ: Sure, sure. And then Minionville, what made you say I want to tact to something that’s more educationally focused and especially focusing on teaching kids about money.
HARRISON: It was 9/11, and it was 9/11 and in that it was — that catalyzed me to really asked the question what am I doing with my life, what is the difference between having fun and being happy.
RITHOLTZ: I love that quote of yours by the way, I tweeted that recently and someone said you should get Todd on the show, and my answer was well doing my research, where do you think that quote came from?
HARRISON: Well it certainly, I think before that I was having those questions I look in the mirror and you know, the net worth versus self worth thing certainly was a long time coming, but after 9/11, I wanted to take it to a different level, my grandfather was failing at the time I had a lot of emotions and I really wanted to just you selfishly create a catharsis and after 9/11, you know, The Street and I’m not going to get into details, it didn’t and well I think in hindsight I regret a lot of the things that went down and maybe some of the things that were said and done, as you get older you tend to reflect on sort of what matters and what doesn’t matter.
RITHOLTZ: We mellow with age.
HARRISON: Certainly and you know and Jim, listen I care a lot about the man, you know, we haven’t talked in a long, long time and that’s unfortunate but like I said, as you get older, you start to reflect on your life and the people in it and certainly I owe him a great debt for opening this world to me and also for things that nobody knows that he did behind the scenes that I think are the real definition of a good man, what you do when nobody’s watching.
So after 9/11 I decided I was going to put all my efforts into starting a new platform after I spent about $2 million on it, I decided that if I didn’t turn this into a business, then it’s the world’s most expensive hobby and you know, what is that all about?
So it turned to something pretty powerful, I think anybody who remembers Minionville can remember the energy and the events, and the lessons and in is something that I think after the — after, with the benefit of hindsight I think I appreciate it more than that maybe I did immediately thereafter.
RITHOLTZ: And last question, tell me about the Ruby Peck Foundation and the rock star’s guitars.
HARRISON: Well, the Ruby Peck Foundation, Ruby Peck is my grandfather so in 2001 started a children’s Ruby Peck Foundation for children’s education we raised a lot of money for kids, it was part of the giving back ethos that is part of Minionville and I remember Doug Kass and you and a number of others got that All-Star guitar signed by everybody from Buffet to Chanos, to Peter Lynch right across the board we auctioned it off for charity.
So it was a pass through organization, we raised a lot of money for kids but between Minionville and the Ruby Peck foundation, it was a terrific stretch in my life but as people say. you are with things for reasons, seasons are lifetimes and you know I guess Minionville wasn’t a lifetime endeavor.
RITHOLTZ: So let’s talk a little bit about CBD, can we call that that instead of my mangling the word? What is CBD and what’s it good for?
HARRISON: Well, CBD in it of itself is an antipsychotic, right? So it it’s a calming influence and taking a step back, cannabinoids in talking a little bit about the science because this is really the thrust of what’s the most important conversation about cannabis right now and what most people are missing is a wellness side. So everything that is alive, whether it’s a dog, a cat, a plant, a fish or human being has what is called an endocannabinoid system, right? And this was first discovered in the late 80s and early 90s, it is the most ubiquitous network of receptors in the human body, okay?
And what they found is the cannabinoids found in cannabis are identical in action to the endocannabinoids that your body produces.
RITHOLTZ: So in other words, these aren’t things that are getting you high. This has an impact on the biochemistry of the body.
HARRISON: Well about 10 percent of cannabinoids will produce that euphoric affect. 90 percent are non-euphoric, all of them are anti-inflammatories, all of them are anti-inflammatory, all of them are therapeutic, right? So what they’re finding out now is that by looking at the endocannabinoid system, you can now target receptors in your body with certain cannabinoids across a wealth of indications for wellness. Right?
Now we, my partner Loren DeFalco and I and I will tell you his story, but we spent a lot of time talking to scientists and genealogists and the mosaic that was painted for us effectively was over the last hundred years, we’ve gone from hunters and gatherers to desk jobs and we’ve gone from organic foods to processed foods, trans fats and chemicals and certainly heredity plays a part, but as you get older, your body stops producing these endocannabinoids. Case in point, the runners high, everybody always thought the runner’s high was endorphins, false the runners high is AEA which is an endocannabinoid, it’s identical in action to THC, this is all frontier science. Remember, still illegal to test cannabis in the United States all of this is happening in…
HARRISON: Israel, in Italy, Germany with receipts, right? But what they’re finding now and you might you sure you saw the GW Pharmaceuticals, their Epidiolex drug, we have a position in GW, but their Epidiolex drug is reducing seizures in children by 50 percent, cutting them in half, so they had their FDA expert panel while a few weeks back and they got standing ovation on top of the 13 to nothing unanimous decision. So this is to move forward which is a significant demonstrate medical efficacy, the DEA’s going to have to reschedule and that’s can open up the pipe…
RITHOLTZ: S let’s talk about asthma, Alzheimer’s, cancer, epilepsy, Parkinson’s, what else is on the list for things that CBD can actually make a difference either in the quality of life or in potentially finding a cure for these diseases?
HARRISON: The answer is that is frontier science and we don’t yet know the scope of the wellness…
RITHOLTZ: It’s early…
HARRISON: But it’s not just CBD is what I’m saying. CBD and THC are sort of the main players, what everybody associates with cannabinoids.
RITHOLTZ: There are lots of other chemicals with the plant.
HARRISON: There is a ton of minor cannabinoids. You think that people are mining for big coins and that became crazy, wait until people understand how valuable these minor cannabinoids are, CBN as a sleep aid, THCV as an appetite suppressant, this is all coming through the pipe right now, there is about 80 to 85 clinical trials. It’s going to blow your mind when you see the efficacious agility of this plant.
RITHOLTZ: Wait, weed as an appetite suppressant? Now I’m stunned to hear that.
HARRISON: Well, weed is a four letter word. We are talking about wellness, right?
We are talking about extracting the cannabinoids and targeting receptors in your body and this is literally frontier science and this is what people don’t get. We’ve gone and spoken to big pharma analysts and biotech CEOs and cardiothoracic surgeons and they looked at us like we’re crazy, seriously, they never studied this, as a matter of fact only 9 percent of medical schools now even touch on ECS on the endocannabinoid system and it all started last semester, Oxford, so that you literally have a four-year time line on an arbitrage year before this becomes mainstream therapeutic relief.
RITHOLTZ: So one of the things I read the other day and it could just be a correlation I’m not suggesting that is a causation because I didn’t look at the study closely, but in states where there is a huge opioid addiction problem and subsequently either decriminalization medical marijuana or legalization, the opioid addictions plummet.
HARRISON: Yes, 25 percent in states where it is — cannabis friendly states, 25 percent less morbidity, this is saving lives. Now people who have been following this for a long time a lot longer than I have will tell you that epilepsy cancer, as a matter of fact, 1971 Nixon is on tape burying this data, actually blaming the Jews for all the cannabinoid…
RITHOLTZ: Not Nixon. It never happened.
HARRISON: They knew this, they knew this.
HARRISON: 1971 and they banned testing which I’m saying…
RITHOLTZ: Are you going to make me lower my view of Nixon even further they — he knew this was have a positive impact then ultimately still said just…
HARRISON: There are so many reasons and we talked about the meeting, but think about the racial disparity, how this is clogging up the prison system and how this is the crime rate in…
RITHOLTZ: And the cost what about the simple calculus? The cost of this is insane.
HARRISON: Right, but my point being were at the cusp of a revolution in healthcare which we think is good of the healthcare disruption and we think big pharma is about to turn buyer but we don’t think they have a choice.
RITHOLTZ: I quoted you in a BloombergView column a couple of months ago and the line I said was imagine for a moment you go back in time to 1932, the year before the 21st amendment to the U.S. Constitution was ratifying repealing prohibition in the 18th amendment and I raise the question if you could do that knowing what the future was like with alcohol being legal again, how would you invest?
So we’re not quite at the repeal of all these rules against research or medical usage or even a recreational usage, but it certainly feels like that’s the inevitable way we’re moving that which leads me to the investing question if everything goes as it’s expected and I imagine will be parallel to the marriage equality rules, people felt we’re getting closer and closer and suddenly the dam broke, how would you position your portfolio? What sectors would you look to invest in if someone comes up to you and says, hey I got10 percent of my portfolio I want to be a little speculative and I think this medical marijuana thing is going to be big. How would you recommend investing?
HARRISON: Well, I think the consistencies are you looking for brands and you’re looking for brands at a distribution and quality of product and certainly good management teams and all the things that you look for in a good company right? You’re looking at management teams, you are looking at their balance sheet, you’re looking at the patent portfolio whatever the case may be.
But where I think it’s different now and why think a lot of people to get hurt investing in cannabis is there is a perception that this is about cultivation and that you know, a lot of the Canadian cultivators have had their run in the sun, there’s a lot of them that are that are well undervalued as a matter of fact that we were looking at a company right now that is about a $220 million market cap that we think is going to do 800 million in revenue in 2020 and why is it trading like this? It is trading like this because there is no institutional research analyst, there is no institutional holders, and we think that’s about to change in a big way, you are going to see Wall Street adopt cannabis because they are going to follow the money and that’s where the money is going to go.
But it is not just cultivation, against cosmetics and vanity, going to be huge, huge, huge vertical it’s got a huge tail end because the cannabinoids whether people to find the wellness attributes between makeup, between consumer goods, industrial hemp and farming, hemp crepe, plastic composites, I mean I think what is going to surprise people the most about this industry is it starts to evolve as is not to be any — there is not going to be any sector that is not touched by this, it is going to touch every sector of society.
RITHOLTZ: So pardon the pun, but this is a fairly sober approach to investing in a very specific sector that has yet to really gain broad acceptance amongst the investment community?
HARRISON: And this is how were approaching it, so we have exposure in Australia and Canada, in the US, in Israel, and in Europe in and in South America and we’re looking across 10 verticals which includes cultivation and dispensaries but certainly we think that’s going to migrate to drugs — from drugs from state dispensaries to medicine prescribed by doctors that is covered by insurance. Like in Germany right now, if you want cannabis in Germany, you go to your doctor get a prescription, you go to the pharmacy, you get your cannabis and submit the bill to your insurance company.
RITHOLTZ: That’s it, it’s covered.
HARRISON: Yes, and we think that’s the model so we’re — but we’re investing across biopharmaceuticals, the laboratory space, the extraction space and certainly industrial hemp and farming we think is going to be a pretty significant market for consumers.
RITHOLTZ: Your portfolio, is it all publicly traded companies, are there other any pre-public, any private or venture or how do you guys approach this?
HARRISON: It’s all publicly traded companies and again I’ve been looking for an advantageous risk reward in this space for a long time and I kind of got caught up on if I found a really good private equity deal and did very well, how am I going to demonstrate that income on my federal tax return and I always sort of stumbled there.
This is different, we are investing in but not touching the plant, we’re not moving the plant across state lines, we’re investing in publicly traded companies only that are listed on exchange and, we’re legitimately viewing this as a healthcare play, this is not an optics, we’re not trying to put a wolf in sheep’s clothing here, we’re passionate about this because we believe this is impact investing.
RITHOLTZ: And I keep reading about all this usage of CBD’s as treatments for pets, are we using our pets as again, no pun intended, guinea pigs or is there a legitimate reason that we’re giving CBDs to dogs and cats.
HARRISON: Again, it’s an antipsychotic, I have a very nervous dog at home I give CBD to and helps relax him and again anything that’s alive, plants, fish, dogs, human beings all have an endocannabinoid system and again this is frontier science, we’re scratching the surface of what we understand here and I like to — you know, there are a lot of people out there been fighting long and hard to bring this to the fore and it feels like we’re right there, this is an election year if the Republicans don’t take this issue off the table before November, they are going to lose the election.
RITHOLTZ: We have been speaking with Todd Harrison, he is the chief investment officer and founder of CB1 Capital Partners specializing in healthcare and cannabinoid medical products. Be sure and stick around for the podcast extras where we keep the tape running and continue discussing all things cannabinoids. You can find that at Bloomberg.com, Apple iTunes, Overcast, where ever finer podcasts are sold. We love your comments feedback and suggestions, write to us at MIBPodcast@Bloomberg.net. Be sure and check out my daily column you could see that on BloombergView.com, follow me on Twitter @Ritholtz, I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.
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RITHOLTZ: Welcome to the podcast, Todd, thank you so much for doing this, I have been looking forward to having this conversation for a while and I think this is a wildly undercovered section of not only the political issues, my libertarian friends are on the right side of this, hey, if you don’t think the government should tell you can drink or not then why can they tell you can — and I don’t smoke weed is the funny part of it but why should they tell you can or can’t. And I just always looked at as is a sort of odd — a sort of, by the way, I’m not saying I never smoked, don’t send me emails, but I found when I stopped smoking I suddenly became a whole lot more productive but that’s just my experience.
HARRISON: They talk — libertarian Gov. Gary Johnson’s on our board along with Dr. Ethan Russo, Dr. Julie Holland, Dave Charnick and Lorne Gertner who we’re proud of that board because these are people who get asked a lot to get involved and certainly in this space is a massive, massive credibilitychasm.
So what we found is that the people who know what’s going on who have the integrity and authenticity and mission, they all know each other so it’s been a very good network for us to tap into because there’s a lot of good people doing a lot of good work, and there is a lot of bad people doing a lot of shady things out of the 500 or so publicly traded cannabis stocks…
RITHOLTZ: It’s that many, 500?
HARRISON: There about, and about 50 to 60 maybe are legit of which we will own about half of that depending on time or price but it’s really — it’s really were talking about a nascent industry and again that’s why we think the buy build is going to be so pervasive because people are going to have to get involved. If you are a spirit company, you have to get involved, if you are a tobacco company, you have to get involved, if you are a healthcare company, if you are a consumer goods company, this is all happening sequentially.
RITHOLTZ: So 50 out of 500, right in line with Sturgeon’s law, famous — Theodore Sturgeon, a famous science-fiction writer defending science-fiction when someone called it crap quote unquote, and he said 90 percent science-fiction is crap but then again 90 percent of everything is crap and here it is, so 50 companies out of 500, is there any chance that this gets co-opted by the large Pharma companies just gets taken over and these innovative little small companies get pushed aside or is going to be more like the biotech model where the small innovative nimble companies find new molecules, new way of processing new applications and eventually they get bought or merged with some of the big guys.
HARRISON: I think the answer is yes that they are going to see all of the above and again, the expertise necessary especially when you start talking about the science and the endocannabinoid system and the compounds this is not something that you can pick up in over the course of a couple weeks or couple months, this is something you have to go acquire and that’s why a lot of these companies in our opinion are going to be taken out as this becomes more adopted and more accepted across not only state lines but international lines and we’re seeing that wave theory of sorts sweeping.
When New Jersey’s governor was elected saying they were going to legalize within 100 days, I said to my partners how long do you think before Cuomo softens his stance, and sure enough the next day he came out and he said he was open to learning more. Governors do not want to see tax revenue going to their neighbors and that is not happen.
RITHOLTZ: And we talk about tax revenue, it’s a double-edged sword was on the one hand we spend literally tens of billions of dollars a year keeping an enormous number of people in prisons and there is a whole other conversation to have about you and I, a couple white guys from Rhode Island get pulled over with a joint in our car.
HARRISON: That is exactly right.
RITHOLTZ: The cop is going to say, all right you idiots, try not to do this again, but if we’re two people of color when we go to Queens, we go to jail.
HARRISON: That is exactly right.
RITHOLTZ: It’s amazing.
HARRISON: It’s clogging courts, it’s clogging the court, it is clogging the system and it is just not right. Now you talk about follow the money, BDS Analytics came out with the number said that the industry owed $1 billion in state taxes in 2016 and while another $1.4 billion in 2017 and that it would save Medicaid another billion on top of that.
So all of these billions are starting to add up in any of the total market right now we figure private and public we’ve coughed at around $75 billion, that’s got a lot of room.
RITHOLTZ: This is just medical marijuana.
HARRISON: This is just legal tradable investable assets right now, and again, you are talking about a $300 billion to $320 billion global market before, before you start seeing these end product start to start to show up which you are going to see because when people understand that this is not a bad thing, this is not a gateway drug, this is actually an opioid terminus, right? We talked about the 25 percent mortality rate and a decrease — and states where it’s friendly.
RITHOLTZ: And cannabinoids and there is a heavy opioid problem.
HARRISON: That’s right — and then this is bit of a, you hate to find pleasure in somebody else’s pain, but this is a bit of a blessing for this science because it is pushing the conversation to the fore, but then you have pain and psychological relaxation all the mental issues which people say, okay, I can see it for that, but what people aren’t prepared for is it is killing cancer cell…
RITHOLTZ: So let us take this one by one.
Cannabinoids kill cancer cells.
HARRISON: GW Pharmaceuticals which again we own in February 2017, they had their phase 2 glioma studies which is brain cancer, the primary endpoints were terrific, they couldn’t release secondary endpoints which is overall survival because quote too many people were still surviving.
HARRISON: So we expect to have information in the coming weeks to months, that was 15 months ago now so we think that information is actually going to come out this summer at ASCO we’re hoping but which is going to show pretty demonstrative efficacy against brain cancer which is one of the if not the most of the most aggressive forms of cancer.
HARRISON: And there is a lot of science about this, there is a lot of anecdotal science, we talk about clinical validation…
RITHOLTZ: Wait, is it anecdotal or is it science?
HARRISON: Well, there’s a lot of anecdotal information because it’s been illegal to test this, right? So we talk about clinical validation because let’s be honest, like let’s take those onerous indications out of the equation, people been using cannabis to self medicate for I mean, back 8000 BC.
HARRISON: I mean we are talking 10,000 years now this has been, you know this has been in existence, so staying power right but it’s not just for what people would think it’s for, there is a lot more here that science is going to demonstrate going forward.
RITHOLTZ: Why can pharmaceutical companies in the United States or any medical schools or whoever wants to do research, why can’t we do research on cannabinoids and marijuana?
HARRISON: Ask Jeff Sessions, that is a good question, that is a schedule one narcotic right up there with the worst of the worst.
RITHOLTZ: But we research — we research other stuff, why are we precluded from doing medical research, is there a law that prevents that? They just can’t obtain —
HARRISON: There is multibillion-dollar pharmaceutical lobby that prevents that, because they have been lining the pockets of the politicians to really repress this and then you look at me like is that a conspiracy theory…
RITHOLTZ: No, and why does the United States pay twice as much medical care as any other country in the world? So it’s not a big leap to say, oh, and by the way, they are repressing this.
HARRISON: We will come back in a couple of years, I will tell you, you will say that healthcare disruption conversation we had was spot on.
RITHOLTZ: So let me ask you I am not a big believer in forecast of predictions but let me ask you a prediction and I know this is way outside of your expertise but I’m just curious as to your views since you’re putting hard capital including your own money at risk, when does the United States decriminalize marijuana for medical purposes across all country and then when does it just become like alcohol and other drugs sold to adults like alcohol and tobacco and other drugs sold to adults over the counter with the just a driver’s license?
HARRISON: Well, I do still believe it’s going to be this year’s business even if it’s framed as a state’s rights issue which it is, also a states’ rights issue.
RITHOLTZ: By the way, everybody talks about states’ rights as wild hypocrite, they will use it to when something goes in their way but then something goes against them and suddenly states rights don’t matter.
So I’ve always found that argument to be so disingenuous from most people including myself.
HARRISON: And I do think the motivation’s political, because this is — this was going to be a Democrat — a Democratic issue.
RITHOLTZ: Blue wave.
HARRISON: This is going to be a blue wave issue, that is for sure, and you saw McConnell, you saw Boehner, you saw Trump and they’re trying to very intelligently I might say, try to remove this issue before the midterms get here and I think they have to.
RITHOLTZ: So that’s on allowing the medical marijuana.
HARRISON: That is allowing the states to make their own decisions and the states.
RITHOLTZ: So in other words, remove the federal — so it’s no longer class one narcotic, you remove the federal government from the conversation and just let the states to make their own decision.
HARRISON: And I think equally important we will see this year is banking reform.
RITHOLTZ: That was the next question I was about to ask you because literally go to Colorado or Oregon and there’s one local community bank you can — JP Morgan, Wells Fargo, Citibank none of these companies can do it across they want have access to the Federal Reserve and they operate across state lines, so they are all terrified to do it.
HARRISON: And Mnuchin has already said this is a priority for him, I mean…
HARRISON: I mean people walking out with bags of cash is not sustainable.
RITHOLTZ: Supposedly these blackop guys are huge because they’re making these $100,000 cash drops every day and it’s just you know, not a smart way to manage business. So you think in 2018 ,there will be some reform that will allow these things to be banked so you could pay with credit card, you can deposit — they will be able to deposit money directly into a major bank that this is going to go completely legitimate.
HARRISON: I think so, I mean listen, it is speculation at this point given that the environment, but look at what’s happening north of the border, you have the Bank of Montréal now entering the space and the biggest of the big, this becomes…
HARRISON: Right, BMO and as with any business, when you see a new revenue source, you are going to work to capture it but the government has to get out of the way on this, this is — the horses are out of the barn, the patients aren’t giving back their medicine, the states aren’t giving back their tax revenue and the people aren’t giving back their jobs.
RITHOLTZ: So if you are going to make a bet 10 years from now, block chain or cannabinoids, which is bigger?
HARRISON: Well, I am making a bet and I think cannabinoid wellness is going to be massive because I think block chain is going to have its own role, I think — I’ve always been a fan of I know this is sort of become the popular narrative now, I’m a big fan of block chain more so than China speculate which currencies because I don’t know, but cannabinoid wellness is healthcare, right? This is better care with less side effects and when people understand the 90 percent of cannabinoids are not euphoric and they’re all good for you in different ways and you could target receptors and my partner hates when I use this analogy but it’s a little crude but rather than the Western medicine of taking a pill and hoping it gets to where it needs to go, you can actually target receptors in different parts of your body as a retrograde pathway.
This is really powerful science here and it is just on the cusp of coming through.
RITHOLTZ: So I have two demographics I have to ask you about. First, we have 65,000 baby boomers retiring each day the population of the United States is aging, what do the cannabinoid group of compounds and molecules what do they mean for the healthcare of the elderly?
HARRISON: This is actually, that our focus market, that’s why Florida is such a big focus for us because the elderly obviously take the most medication but interestingly the older you get the better this is for you. If you think about how your body stops producing endocannabinoids as a function of diet exercise and heredity, over the course of time but we’ve heard all of these scientists and genealogist talk about is endocannabinoids depression, right?
Our endocannabinoids system is just as just withered up and died at certain age as we get older, the cannabinoids identical in action to what our bodies are supposed to produce but stop producing if you ever saw — if you have ever seen the elderly ingest cannabis, they light up right and forget…
RITHOLTZ: No pun intended.
HARRISON: No pun intended but here’s the here’s the part that’s interesting, I’m not a doctor but what’s dementia? Dementia is the degradation of the mind right? Your mind fails, it becomes decrepit, what does THC do, it stimulates brain cell activity, so again.
RITHOLTZ: Is that a medical observation.
HARRISON: No, but I’m just — it’s an intuitive one, glaucoma the same way, it opens up…
RITHOLTZ: Glaucoma is a very specific — right, that is a very specific pressure on the back of the eye which THC…
HARRISON: That is right, which is why your eyes get red because the capillaries enlarge as the cannabinoids take effect.
RITHOLTZ: So and then the second demographic I have to ask for partially selfish reasons because my office, we have a significant number of veterans we have hired and that group has an enormously disproportionate amount of medical issues including depression, and there’s some 16 suicides a day, that aren’t all veterans but a high number of veterans are in that group, what can cannabinoids do for that that group of people coming back with PTSD, coming back missing limbs, coming back with all sorts of permanent pain and ongoing trauma, what could this do for that group?
HARRISON: Here’s the difference between opioids and cannabinoids, you have opioid receptors in your brainstem, right? Your brainstem controls your lungs and your breathing, right? That is why people overdose from opioids, you have very, very scarce endocannabinoid receptors in the brain stem, that is why nobody’s ever died from cannabis. So right, there you’re talking about pain relief or emotional relief without the possibility of death.
RITHOLTZ: Much lower risk type of medication.
HARRISON: Clearly the adverse effect profile is demonstrably better for starters.
RITHOLTZ: That’s quite interesting. You’re very comfortable speaking in public but you weren’t always very comfortable speaking in public. Do you want to have a conversation about that? You said everything is on the table.
RITHOLTZ: Do you remember you and I doing an episode of Dylan…
HARRISON: The Dylan Ratigan Show.
RITHOLTZ: MSNBC show, dude, you were Albert Brooks on broadcast news.
HARRISON: Listen I think it was one of the best lines ever said on TV, if we don’t stop being Democrats and don’t stop being Republicans and we start being Americans, this thing is just going to faster, and what happened, it’s festered, we are there.
RITHOLTZ: That was almost a decade ago and you’re right, it did fester, but what I’m bringing up is not that we get off the set and you are drenched, I am bringing up you are so much more comfortable discussing this then you are talking about whatever we were talking about, is it just you’ve gotten used to this or is it you are just so enthusiastic about the subject that whatever butterflies just have disappeared.
HARRISON: Well I will tell you this, and you know, and some people will maybe disagree with this but I’ve never really been interested in doing the whole media thing and I did it for long time at Minionville because I felt like obligatory part of the job, is to get more sort of page views and clicks.
RITHOLTZ: And it’s also see from everything we’ve talked about writing is a way to distill what you think and being able to share your perspective, I’ve always looked at it as first of all, it’s fun, I started doing Kudlow & Cramer.
HARRISON: Me to, I did that.
RITHOLTZ: 2003, it was — they were fun to have the conversation with you got to help shape the debate especially there really weren’t a lot of people talking about subprime housing and derivatives and CDOs prior to…
HARRISON: On the Money For Nothing Federal Reserve documentary.
RITHOLTZ: That is right, you and I both were, and there were very few people talking about it and just being able to move that debate forward, I was especially when you say I’ve seen something that’s unique, no one else is talking about and I want to have this discussion, you seem to be doing that same thing with the cannabinoids today, it’s the parallel to 2006, 2007, maybe even 2005, 2006, 2007, before the market reacted…
HARRISON: I mean I have always been somebody that needs a purpose, I need a purpose to get up in the morning, I need to be passionate about what I do and it hasn’t always been that way and I think for a long time, you know, when the writing was on the wall with Minionville and I still was a sort of going through the motions because I had that sense of duty to finish that thing, it lost a lot of its passion and a lot of its spontaneity, a lot of its enthusiasm, this to me, this to me is powerful, right?
I’ve seen the parents, I’ve talked to the parents…
RITHOLTZ: The stories.
HARRISON: The stories are heartbreaking, I was sitting there watching them speak at the GW expert panel when I was swelling up watching, I have a little girl at home, I have three kids at home, any parent is going to see that and really is going to hit home for them.
RITHOLTZ: What, this can cure my kid’s disease and you’re not letting — who do I have to run over with a steamroller?
HARRISON: There are kids going from 300 seizures a day to two a month right, and they’re saying that this is illegal and they have to run from the feds, they have to move to Colorado to get their — it’s criminal, this is the time has come for this issue and what’s why were passionate is because people are so offsides here, they think this is a gateway drug, yes it is a gateway drug, it’s a gateway off of opioids, right? But it is also a wellness play and that is what people are missing.
They think of Cheech and Chong even still you said to me just before during a break, you know, maybe, do you have any samples with you as a joke but we hear that all the time people think this is about getting high. The more people would think this is about getting high more of an opportunity is for the wellness strategy because people are looking on the wrong side of the pipe.
I mean it’s…
RITHOLTZ: But it really is true, I’m astonished by the way, there is a bunch of stuff I have to ask, nobody’s talking about this, nobody has married the science and the strategies. It’s so amazingly clear that this is a wildly undercovered space it’s shocking. So we have an office in Portland, Oregon and when we’re out there, the first time we got there, I said to our employee, Joey, I’ve never been in a weed shop, you got to take me and it was the craziest experience. First like is they buzz you in and this door slams behind you like you’re in a vault. And then you have to show ID and a photo ID and then they take you to the next thing and it’s sort of like the Starbucks of weed, there are all these different things and the of the mellow caramel flavor in them…
HARRISON: All right, well it is different strains, different cannabinoids, everybody has…
RITHOLTZ: It’s the same coffee/wine/ there is a certain type of obsessive deep dives in a fatwa oenophile type of — I’m a drawing a blank on what it was…
HARRISON: People are passionate about their cannabis I mean not just from a wellness standpoint but I again I think I think from a semantics and lexicon…
RITHOLTZ: Craft beer is probably the best parallel I could come up with, they are like, I like this, I don’t like hops, I like a white beer and it’s the same sort of service, is it Indica, is this Sativa, what’s the — the depth of enthusiasm is really…
HARRISON: But I’ll say this though just because I think it’s important, I was at a Wall Street dinner a few months back, and they were talking about cannabis and framing it as a discretionary vice, framing it as beer.
RITHOLTZ: Right, that is my frame of reference.
HARRISON: Right, that is most people’s frame of reference for this, s but it’s in our opinion it’s off base because…
RITHOLTZ: This is only medical.
HARRISON: Well, again, not all medical I think a lot of it semantics people self-medicating and certainly there is a contingent that does this recreationally or as it’s called, adult use, but I certainly think there is blurred lines of people who believe they are doing this recreationally but really they’re self-medicating in a way that maybe they don’t realize.
RITHOLTZ: I remember I know you well, I know Jim Cramer well, I read the first book Confessions of a Street Addict, the one aspect of that book that stayed with me was Cramer taking a keyboard and smashing it and literally there is somebody assigned to before the keys stop dancing across the desk, someone has to walk into the closet get a box from a stack of keyboards, come back plug it in so he’s ready to trade, literally, the keys haven’t even stopped moving and there’s another. Is that an exaggeration or is that a fairly accurate occasional occurrence?
HARRISON: It was the best of times, it was the worst of times, but again, I owe Jim a great deal of debt for really being kind to me. My father, as an example when I was this is Y2K, we’re in the middle of Y2K, I don’t know how else to put it, 15 point swing — the 15 percent swings in a day and I got a call my father who I hadn’t talked to in many years was in jail in Maui, it was really like emotional sort of like and Jim turning in the middle of the trading day, gets off the desk and he calls up his people in Hawaii and gets an attorney and says go, we take care of everything. I mean these are things that people don’t know about Jim, how kind he is when nobody’s looking.
And I think I think the rest of it is a passionate guy, he hates to lose but if you’re his friend, he will do anything for you. If you are his enemy like I still appear to be I guess, you know, you’re persona non grata.
RITHOLTZ: So the thing I have always been amazed by Cramer, some people told me I don’t have much of the filter and that’s sort of true I guess I have to cop to that, but Jim literally, like whatever voice inside your head that says you shouldn’t say that, he is completely filterless, you’ve never and anyone who’s never spent time with him for good and for bad, no one in the universe is more honest, there is zero filter.
There’s just nothing between hey maybe I should hedge this little bit, maybe I should put a little, maybe I should make this a little white lie, put a — pretty it up, that filter is congenitally not there and that’s what makes him such a unique and fascinating individual because say what you will about him, you know you’re not getting spun by him, he is telling you exactly what he thinks. I don’t know how else to describe that.
HARRISON: I think Bill Fleckenstein said it best, sometimes right, sometimes wrong, always honest.
RITHOLTZ: Yes, yes.
HARRISON: You’re getting the truth and I think there is something to be said for that.
RITHOLTZ: And it’s a shame you guys had your falling out, he seemed to feel that you stuck a knife in his back, you just had enough of what you are doing and moved on.
HARRISON: Yes, no, and this is sort of the that you know this is I guess my cross to bear but you know, after 9/11, I had my own issues and I wanted to do something meaningful and kind of strike out on my own and you know, having I was a writer on The Street.com and I was at the time, president of his hedge fund so I understand sort of the animus of me leaving and doing my own thing. But you know again, things were said and done in certainly on my part that I take full responsibility for but you know, life’s too short to kind of hold these things going forward.
RITHOLTZ: I’ve always thought you had a very healthy attitude not only about stuff like this but about money and the pursuit of it and understanding it’s just a tool and if it’s your whole life…
HARRISON: I mean listen, Minionville, when Minionville still.
RITHOLTZ: Did that really cost you $2 million?
HARRISON: It cost me $22 million on paper.
RITHOLTZ: I mean in actual…
HARRISON: Yes, I put a few million in but I put 15 years of my life and every part of my body and soul and purpose into it so it was like losing a child and you know, I say losing, listen, the digital media model broke and I got — I said I literally wrote an article that said the digital media model has broken and I’m putting this up for sale and we sold some of it which was the — the proceeds were used to pay back everybody that was owed money for the most part and you know certainly I have the — you know, it’s still up, I have the…
RITHOLTZ: The archives are still there.
HARRISON: Everything you know, it is still up there, you know, in the back of my mind and I sort of think that maybe a revival one day, but you know I think part of it also is a lot of very good lessons in there, there is a lot of good content in and really it was a real time assimilation of probably the most interesting 15 years in financial history. So through that lens, from Y2K to you to 2015, you are talking about a lot of changes in financial system.
RITHOLTZ: Well, so you haven’t seen the next 15 years and I have a sneaking suspicion it’s going to be perhaps just as interesting. All right. So let me get to my favorite questions these are the things I ask all my guest and I found that they are both fun and intriguing in revealing. And a lot of these have come from listeners so I’ve — I can’t take full credit for all these, so let’s jump right into this.
Tell us the most important thing people don’t know about your background.
HARRISON: Well, I think there is a lot that people don’t know but…
RITHOLTZ: You were starting forward at Syracuse, right? People don’t know that, right? Now what do people know what — give us a little…
HARRISON: I think it’s you know it think it’s really, if anything, it’s the fact that it just you know I’ve been working since I’m 13 years old and you know from working in a bagel shop of turning bagels and 13 at 5 o’clock the morning of Saturday to when I lived in California for high school and going out to Simi Valley and picking weeds for $50 a day.
RITHOLTZ: Picking what? I’m sorry.
HARRISON: Picking weeds out of a field.
RITHOLTZ: Like literally you are weeding the.
HARRISON: For $50 for 8 hours in the sun.
RITHOLTZ: I keep hearing subconscious weed references.
RITHOLTZ: Valley in California, I think in Nalley (ph) Valley like everything has..
HARRISON: A menial labor my point being…
RITHOLTZ: That is backbreaking labor, that is hard to do.
HARRISON: Yes, I think that is the best thing that ever happened to me you know, when I was a young kid, my mom said if you want money, get a job and it stuck with me because we didn’t grow up with money, we lived on the other side of the tracks and I always wanted to be the guy with the money and it taught me at a very early age if you want something, you better put the work in.
RITHOLTZ: Makes sense, tell us about your early mentors who guided your career? Who did you take a lot of lessons from?
HARRISON: Well, I got to say, in the early 1990s in 1991 when I started Morgan Stanley there were a few people there, Jack Skiba I would come in at 5:00, 5:30 in the morning and write up the T accounts and write up the point of figure charts and certainly Jack was a meaningful purpose person in my development, Tommy Cardin, David Slane, these are people who were there early in and they didn’t really care about anything other than see me succeed and I think that’s — there is something to be said for that.
RITHOLTZ: People don’t realize what those desks were like back in the day, I had friends on the Merrill desk I know other people on other — that was a big family wasn’t it?
HARRISON: Yeah it was a you know when I was…
RITHOLTZ: Brother in arms.
HARRISON: When I was at Morgan Stanley, we were you know,, we used to put on our hats and go to war against Goldman Sachs every day, I mean it was Morgan and Goldman right so we were — we took that seriously and we’ll go out there and try to get all the customer business we could and try to out trade these guys, remember back then there were no tape lines, you know your name was your word, if you if you pick up the phone and then made a trade you’re bound by your own…
HARRISON: Yes, and that is it, but it worked for a long time until it didn’t, I guess.
RITHOLTZ: So what traders influenced your approach to either trading or investment?
HARRISON: You know I’ve always had respect for Peter Lynch and then the obvious reason would be yelled getting to know your investment really believing in your investment having a stake in your investment, but I also like the fact that he was that, you know, he adapted his style to the market and there are a lot of different markets, there are times when you want to fade the market and trade around a core, there are times want to hit it to quit it, there are times you want to you know invest for the long haul and trade against it and I always admired Peter Lynch for having the ability to sort of to adjust his style to the type of market that he was in.
RITHOLTZ: Hit it to quit it which is a phrase I love and most of my young colleagues have no idea who James Brown is. Hit it, then quit it.
Let’s talk about everybody’s favorite question, tell us about some of your books that you like best, when I mentioned the book you wrote, but what do you read for fun, what do you read for finance, fiction, nonfiction, tells what you enjoy?
HARRISON: Well, I think of from a book standpoint, Man’s Search for Meaning by Victor Frankel is probably the most powerful book I’ve ever read and I strongly suggest it if you haven’t read it, but I will tell you, given where we are right now, I’m reading nonstop but I’m reading about clinical trials and I’m reading about research studies, I’m reading about everything that is happening around the world in cannabinoid wellness that people don’t get.
So were actually to that end, we’re building a CB1 Capital, our website, we’re building a research repository that should be up this week so you will be able to go in by indication whether it’s cancer, pain, epilepsy, and be able to access all of the research that we’ve been reading because we want to share this with people, we want people to understand what’s going on here.
RITHOLTZ: Have you plowed through any book on health and wellness that really stood out with you because I know you have read a ton of that stuff? They all kind of blur together in my mind. Anything stands out?
HARRISON: Yes, well, Dr. Julie Holland who is on our advisory board has written some terrific books, The Pot Book is one of them, she’s also done great work with MDMA and depression which think is probably on the horizon as the next like, oh my gosh, is that really medicine?
So there’s a lot being done for particularly for veterans for PTSD and things of that nature but she certainly the first step that I would take in learning.
RITHOLTZ: Normally, at this point I would ask you what you are most excited about today, but I don’t think I even have to ask that.
HARRISON: I have never been this excited, I think is the best risk reward that I have ever seen.
RITHOLTZ: And the next question is what’s the next major shift that you see coming but you have already answered that also, you think politically this is going to be just the next domino we — marriage equality fell on the Obama administration, you think this is going to fall soon around.
HARRISON: I think it has to. I mean the world is not waiting for the US, this is an outside in global bull market.
RITHOLTZ: We are lagging not leading.
HARRISON: We are we are way behind and by our own doing, right? But certainly not too late, we had — this is a great country, we have the resources and the intellect and know, we have the capital but we also have the human capital, right? There are a lot of these kids who are coming up right now who don’t know what to do and a lot of these industries I think we grew up on have changed so dramatically, like Wall Street up the top of the terms of the way it used to be versus the way it is now.
But I got to tell you, like I have kids and you know, I think cannabinoid wellness, learn the science, right? There is going to be such demand for people who understand the science, you’re talking six figures out of the gate for your entire career in my opinion and you just got to put the work and you got to learn the science.
RITHOLTZ: So this is a always an interesting question, tell us about a time you failed and what you learned from the experience?
HARRISON: How much time do you have? I’ve got a lot of failures, I actually…
RITHOLTZ: Give us one that stood out that perhaps people can take a lesson from?
HARRISON: Well I remember when I was at Morgan Stanley, I think this is about 1995 and I was what 24 at the time, 25 maybe and I was just coming to my own, I just, you know, and I never I never was prepared for life on a trading desk, I came out of Syracuse University, they gave me a Black Scholes model and a Wall Street Journal and like good luck, right?
But none of that was applicable really, so having to teach myself the derivative business and certainly stumbled more often than I would like to admit but got to where I thought I was in a pretty good space and you know, one day we had a customer come in and the biggest bank trader on the street and wanted to buy First Interstate calls and you know, it was an $80, it was a $120 stock, I think he was buying the $80 calls like $40 $50 in the money and he started buying them after the first 500, after the first thousand, after the first 2000, I said what’s going on? He tells me a story that he thinks it’s going to get taken over.
So he ends up on 8000 calls which at the time was position limit, I sold him most of them and against that I pretty much was long everything under the sun against this stock, I was going to make a lot of money if this happened and I also told a lot of my friends on the desk, like you said it was a very collegiate community so I told everybody who would listen this is where you want to be in the stock right now. And I’ll never forget it was a it was about 3:50 one afternoon and my sales trader, Kim DiSpigna said how you are making letter I and I’m thinking to myself, geez, he’s position limit, I thought he knew that and I showed him and offer, and she said no, I need two-sided market, he wants to sell them.
So I try to get the story I assume the deal is off and I bought the first 500 and I got myself in shape, sold him a lot, bid him on the rest of which is a terrific bid at the time, 7500, Paul’s, I said I’ll bid you x for these, and says it’s a great bit, but we will pick it up tomorrow morning.
HARRISON: Right, so that was my thought. So the next morning, I come in early, and I’m sitting there and I will never forgot Bobby Broskopf who run the banks on the on the listed side of Morgan Stanley runs up to me said are you still involved with the letter I?
And I kind of looked at him and I said yeah.
RITHOLTZ: In a big way.
HARRISON: And he said, well, you are still long right?
I said why and I can’t tell you sure enough, 15 minutes later I went to the bathroom and I hear the cheers on the trading floor, everybody’s excited, think I’ve taken over $508 or whatever was and Morgan Stanley was the banker so I was restricted I was probably – I would’ve been up for €5 million, I was down you know something…
RITHOLTZ: Horrible figures.
HARRISON: And I thought I was done I was like wow at 25.
RITHOLTZ: You just lost $5 million.
HARRISON: I thought I was done, I waited to the end of the day I was the last one there…
RITHOLTZ: How much money came back from that trade to the firm because the guy.
HARRISON: I have no idea, all I know and I then I had to execute agency and had an error and long story short, I got pulled in my boss asked me what was going on what happened I told him play-by-play what happened and he said you treated it right, that’s exactly what — how you should have handled it, come in tomorrow to fight and ended up getting promoted that year, I was the youngest vice president at Morgan Stanley but it really, what it taught me was you have your process, you stay to your process, sometimes it is going to work, sometimes it’s not going to work but if you stay true to your process over the course of time, it’s going to work out pretty well.
RITHOLTZ: There is nothing more nauseating than that sensation when you have a giant position and suddenly you realize oh my God this is just going…
HARRISON: I’m sweating talking about it right now.
RITHOLTZ: I remember that I have a pretty iron constitution, my god I can eat anything as you know but the I just remember that sinking feeling in the put of your stomach, here comes a breakfast here it comes, and you had to look at that (inaudible).
HARRISON: But I mean listen when I was — we’re at Cramer Berkowitz, a few years later we were having $30 million swings in a day.
RITHOLTZ: Up or down or both ways?
HARRISON: Both ways.
RITHOLTZ: Well Cramer tells the story of being on it was at the Asian invasion in 98 he’s on the beach getting shellacked the markets up 40 percent that year he’s down 15 percent 20 percent, from the beach, his then wife who he call the trading Goddess picked up the phone and literally said, buy Dell, buy Yahoo, went down a whole list and basically in a bikini from the beach, saved their year. True more or less?
HARRISON: I wasn’t there for that.
RITHOLTZ: It’s definitely in one of his…
HARRISON: They were interesting times, the turn-of-the-century they were certainly interesting times and something I will never forget.
RITHOLTZ: And I, you know we didn’t talk about in 2000 so I was slightly bearish then, nobody knew who the hell I was, so no matter how bearish I was, it wasn’t relevant. You were full on bear come March 2000 and like you went full on..
HARRISON: I said we were going to the war of 1812 and we were at 5000 something at the time. So better lucky than smart, better lucky than had an actual platform to you know, otherwise if you are bearish in the woods and the market goes down….
RITHOLTZ: I was bearish in the woods in 2000 and no one knew or cared who the hell I was.
What do you do for fun, what do you do to stay either mentally or physically fit outside of the trading room?
HARRISON: I got a peloton from my wife for the holidays…
RITHOLTZ: Second person who told me that.
HARRISON: And I live on that thing as much as I can.
HARRISON: Yes, it’s terrific I try know it’s tough I get area we just took an office in Port Washington which is a stone’s throw from my house…
HARRISON: And you know, I thought this would allow me to do some more in the morning but now I just get to the office like at 6 o’clock 630 and I just can’t wait, you know to be able to get up every day and this is another one that I have always said and kind of lost its luster and you say it enough, but it is so true, if you do what you love with people you respect while serving the greater good.
RITHOLTZ: That is not work.
HARRISON: That’s professional nirvana, that’s as good as it gets, if you can get up every day with purpose and do something you love and actually have a knock on effect for society or at least believe you do, I think you’re a blessed man.
RITHOLTZ: You more or less just answered the question I’m about to ask, so if a millennial or recent college graduate came up and said, hey what sort of career advice can you give me, what would you tell them? If they said I want to go into either trading or investing, what would you say to them?
HARRISON: I would say to prepare yourself for very long a very long process, I mean, listen, the cream always rise to the top and there will always be demand for the exceptional talent, but certainly the playing field has changed and I’m not even talking about the 70 percent of trading that is done by computers now, I’m just talking about the efficiencies. I mean, listen, when I started Morgan Stanley in the early 90s, the Dells, the Microsoft, the Intels of the world would all sell puts rather than buy back stock because they there were capital gains instead of — there were lots of reasons to do that, but my point is we would price that and we would win, you know, by 70 80 vols because we’re the only ones in the market.
HARRISON: So we would make 70 to 80 vols pricing this paper and in a couple years, we’re winning business by maybe a quarter penny, so the inefficiencies were such, those inefficiencies in my opinion now exist in the cannabis space, you have no institutional presence, you have no institutional analysts and you have a lot of inefficiencies that because you have all retail holders in a lot of these names, they are very emotional and you have these moves that are outsized relative to what they should be.
So if you have the time horizon the risk profile and the fortitude to kind of see through that think, I think you can make a lot of money here.
RITHOLTZ: And our final question what is it that you know about the world of investing and trading today that you wish you knew 20 or even 30 years ago?
HARRISON: I think it would be just to hold onto your winners and let your winners run, you know, I think you have to — somebody once said to me don’t be afraid of losing money or don’t be afraid of making money, I should say.
RITHOLTZ: Now I have always heard, hey bulls and bears get — bulls and bears make money but pigs get slaughtered and I always thought it was terrible advice, is that why you are up 30 percent, hit that bid when especially in a world of Amazon and Apple.
HARRISON: There are different strategies you can trail your stop, there are a lot of different things that rather than just okay I’m up, what you we might have a preconceived notion of how much we should make, okay I hit that, and I will get out. If you do that you can make money, but you are never going to get wealthy. You are never going to get — listen I say to these guys all the time in the office, we sell for dimes, we buy for dollars, and so listen, if I think a stock it’s over skis I own 250 will I sell 25 or 50 because it’s up 50 percent in a matter of two, yes? But I’m not going to sell the position because it read some you know some P&L that I deem to be adequate that whenever to really to turn this from my know from a trading operation to investment shop.
RITHOLTZ: We have been speaking with Todd Harrison he is the chief investment officer and founding partner at CB1 Capital Partners, a health and wellness medical cannabinoid hedge fund.
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