Oct 8, 2019

Axios Markets

📺 “Axios on HBO” Season 2 returns 6 p.m. ET/PT Sunday, Oct. 20 on HBO. Tune in: Oct. 20 & 27 + Nov. 3 & 10. Bonus: “Axios on HBO” renewed for 2020 & 2021. They may even let me be on the show this season to talk about the markets.

Situational awareness:

  • Hong Kong's stock exchange retracted its nearly $37 billion bid for the London Stock Exchange. (NYT)
  • Analysts cut their profit estimates for SoftBank’s Vision Fund by more than $5 billion, citing the stock declines of Uber and Slack and the withdrawn WeWork IPO. (Bloomberg)
  • The U.S. added 28 new Chinese entities to an export blacklist Monday, citing their role in Beijing’s repression of Muslims. (WSJ)
  • The Turkish lira had its largest single day drop since March after President Trump threatened to "obliterate" Turkey's economy ahead of expected military operations in Syria. (FT)
1 big thing: Welcome to Marijuana 2.0

Illustration: Aïda Amer/Axios

The cannabis industry is poised to undergo another major change as Colorado's House Bill 1090 takes effect next month, providing investment opportunities in the sector for publicly traded companies, venture capitalists and private equity firms, which were previously barred.

Why it matters: The law will push cannabis into a new phase of development and foster considerable consolidation in the industry, creating new businesses and driving out others.

  • Wall Street, VC funds and PE firms will now have the opportunity to enter a fast-growing industry and provide the funds to scale at a new level.
  • "We are moving to a national, even international economy in marijuana," Jim Burack, director of the Colorado Department of Revenue's Marijuana Enforcement Division, tells Axios.

The big picture: Colorado is opening up right as investors have begun to sour on publicly traded pot stocks, which have seen their once massive valuations cut in half over the course of the year.

  • "There was too much exuberance and froth in the markets," Emily Paxhia, managing director at cannabis investment firm Poseidon Asset Management, tells Axios.
  • "Anyone who was prudent about valuing the market saw this coming from 10 miles away. Now there will be a shift to operational efficiency in many of these businesses. That's a healthy innovation for any market."

Between the lines: While Canadian companies like Aurora Cannabis and Canopy Growth have drawn massive valuations, investors have been eager to find a way into the U.S. market, which has a much larger and richer consumer base.

  • Investors will now have access to a U.S.-based mature marijuana market that includes businesses ranging from restaurants and property development to advertising and wellness.

Yes, but: The industry's growth prospects remain restricted by the fact that it is federally illegal, making many traditional avenues for growth impossible.

Still, Colorado's deregulation of the industry and the potential for access to banking services through the SAFE Banking Act, which recently passed the U.S. House of Representatives, could be game changers.

  • The new law "opens up funding opportunities that we have really not had available to us before," Nancy Whiteman, CEO of edibles company Wana Brands, tells Axios.
  • "Having more and more cannabis companies that are operating in multiple states and some of them with very large, deep pockets, it's changing a lot about how the industry operates."
2. GE freezes pensions in latest bid to save cash

GE said it will freeze pension plans for about 20,000 U.S. employees and make other moves to help cut its debt and reduce its retirement fund deficit by $5 billion to $8 billion.

What it means: A pension freeze means employees no longer build up retirement benefits to reflect higher pay and additional years of employment. Employees stop earning some or all of their benefits from the point of the freeze onward.

  • However, a company "cannot take away any benefit that employees have already earned up to the point of the freeze," according to the Pension Rights Center.
  • U.S. employees facing the pension freeze will be moved to a defined-contribution retirement plan, such as a 401(k) plan, in 2021, the company said.

The big picture: The move is expected to help offset increases in GE’s pension obligations — among its biggest liabilities and underfunded by about $27 billion as of the end of 2018, according to Reuters — and is the latest step by CEO Larry Culp to raise cash and reduce the company's $106 billion debt.

  • Culp, the first outsider to helm GE in its 127-year history, also cut GE’s quarterly dividend to a penny and has sold off major assets to focus on a core of power plants, jet engines and windmills.
3. Swedish krona falls to 17-year low vs. the dollar
Expand chart

Data: Investing.com; Chart: Axios Visuals

The value of the dollar against the Swedish krona has risen to the highest level in 17 years as the Nordic nation's currency has been stung by the U.S.-China trade war, record low interest rates and slumping eurozone growth.

  • The krona fell to its weakest level against the euro since 2009 on Monday and has been falling toward its weakest level against the dollar in 2 decades, having lost 10.5% of its value against the greenback this year.

What's happening: Sweden's central bank has been one of the world's most dovish, slashing rates far into negative territory, and lower interest rates make currencies less attractive for investors to hold.

  • The export-heavy economy also has been hit by trade war uncertainty as top trading partners, including Germany and the U.K., have seen their growth and demand for Swedish vehicles and electric machinery slow.
  • Those products make up around a third of Sweden's exports and have been among the items hardest hit by increasing tariffs and tensions from the trade conflict.
4. Altria's stock rises despite Kroger, Walgreens e-cigarette bans

Kroger and Walgreens announced they will stop selling e-cigarettes amid rising deaths and illnesses linked to vaping, becoming the latest retailers to do so after Walmart and Rite Aid stopped sales earlier this year.

  • Despite the bad news for vaping, Juul maker Altria's stock rose on Monday as investors continued to bet its recently launched Iquos product will succeed where electronic cigarettes have failed.

What it means: "Iqos isn’t a vaping device or a cigarette," CNBC's Angelica LaVito writes. "It heats tobacco, but doesn’t burn it, and is designed to give users the same rush of nicotine as smoking with fewer toxins. It also comes amid public panic over an outbreak of a deadly lung disease that’s killed at least 18 people. U.S. health officials have traced the illnesses to vaping."

  • “It’s perfect timing,” Piper Jaffray analyst Michael Lavery said, according to CNBC. “I don’t think they would have expected some consumer uncertainty around vapor coinciding with the launch of Iqos in the U.S.”

Was this email forwarded to you? Sign up here.