Introducing our 7th Lead Advisor!
The secret is (almost) out! Join 7investing's founder and CEO Simon Erickson on Wednesday, January 19th at 11 ET as he announces this extremely exciting addition to our team...
November 10, 2021
A Republican Congresswoman has written a bill that would make marijuana legal on the federal level so it could be taxed. That’s good news for the cannabis industry but it does not mean that you should expect every stock in the space to be a winner. In addition, Lemonade has purchased Metromile and that deal comes with some pretty big perks for the company’s efforts to offer car insurance on a nationwide level.
Sam Bailey 0:09 Welcome to 7nvesting Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.
Dan Kline 0:20 Good afternoon. Good morning. Good, Steve. I don’t know what time it is. I am in Las Vegas. I am Dan Kline. This is 7nvesting. Now joining me today is Steve Symington. Steve, I am sitting in front of this very strange background. There’s a sink next to me, because this is the spot that has decent internet. If you look over there, I know you live in a beautiful place. Las Vegas is gaudy and bright you were here this summer.
But out my window are these mountains that are just the most transfixing it’s just unbelievably beautiful. And I wanted that to be my backdrop. But the internet doesn’t work in that corner of the room. So we’re going to be talking marijuana legalization that we had a pretty shocking bit of news out of out of Congress this week.
Then we’re going to talk about Lemonade (NYSE: LMND) buying Metromile (NASDAQ: MILE) this was a big news story out of nowhere. But Steve, before we get to that, how are you doing today? What’s it like in Montana? What time is it? I don’t even know I think it’s I haven’t slept in three days.
Steve Symington 1:17 It’s a little after 2PM it’s a little dreary here right now. But November gold drums. I feel like it needs to snow any moment. So we’re at about that point in the year. Right.
Dan Kline 1:28 Oh, Steve, there’s still time to move like snow. It’s like 82 here in Vegas. But it’s so dry. It’s that 82 that feels like 140. And like you have like nosebleeds like so. But that being said, so here’s what happened. The US government has in my opinion, this could be what legalizes marijuana on a national level. On Friday, online magazine marijuana moment, Steve marijuana moment is not a magazine I’ve ever heard of. I’m taking this from. I want to say it was a, you know, I don’t even know what the original sources so I won’t.
They broke the news that Nancey Mace who is a Republican from South Carolina is leading a bill to deschedule and tax marijuana. Steve, do you want to tell the audience why that gives it a better chance of passing than if, say someone on the other side of the aisle had maybe put it out there?
Steve Symington 2:21 Well, yeah, I mean, this is it’s coming from a Republican, right? And there’s no, not getting political at all here. But generally, it’s understood that the Republican side of Congress is much less supportive of legalizing marijuana on any meaningful scale. And actually especially on a federal level, so that you can actually have this and pull in some of that bipartisan support from both sides of the aisle. It’s really interesting. This could be kind of a change in the tide for marijuana legalization nationally.
Dan Kline 2:58 And it makes it a fiscal question. If you’re looking at balancing budgets, or even God forbid, paying down national debt, if you have this thing. And, Steve, I don’t want to let you in on a secret. There are a lot of people who illegally use marijuana. I, I know I’m in a city where it’s legal at the moment and the entire city smells of marijuana.
But even in Florida, where it’s only legal for medicinal purposes, there’s a lot of marijuana being consumed, add taxes to that. And it’s going to be a significant amount of money we’ve seen in places that it’s been legalized. But we’ve also seen sports betting has followed the same pattern when you make a fiscal thing. So, Steve, do you think this could actually happen not to put you on the spot here?
Steve Symington 3:41 Yeah, I think it seems at this point more an inevitability. It’s a matter in my opinion of, of when not if it eventually happens. So it just makes sense. It’s where the country’s going. Like it or not, I think this will happen. I don’t know if this particular bill will be the one that makes it happen. But it seems to give it a much higher chance, pun intended, of passing.
Dan Kline 4:09 This is an early stage bill. It’s also one that doesn’t need that much. If it gets a lot of support from the left side of the aisle, it doesn’t need that much support from the right. So, you know, look, a lot of votes are made in Congress based on political cover. Like, I am not going to support this because my district is against it. Well, okay. It could pass. But here’s the problem. And I want to get into the investing lesson here. There’s not a lot to talk about here.
But the investing lesson is every single marijuana stock every single cannabis stock yesterday, maybe not everyone but a lot of them shot up ridiculously. And what’s the problem with that one? This isn’t going to happen quickly. This is an early stages bill, even if it passes, it is not going to be a flip a switch bill. There’s going there’s a lot of money management. There’s a lot of complicated issues here. There are some companies in the cannabis space cluding one, I like that legal will actually hurt a piece of their business, you know.
So now I actually think it’s still a very strong company. But there’s a lot to unpack here. But what have we seen investors do? We’ve seen it in, in Canada with cannabis we’ve seen in the US with sports betting, they throw their money at every player. And that’s a mistake, right?
Steve Symington 5:19 Yeah, absolutely. And that some, I think, it really becomes a matter of kind of picking and choosing the leaders in the space and the companies that aren’t necessarily harmed by potential commoditization of marijuana, right, and you need to have differentiated experiences, you need to have something that sets you apart from the rest of the players in this space as a marijuana centric stock.
And that’s something that I think investors really need to keep in mind when they’re researching this space. You know, of course, you’re going to find some ETFs, and those sorts of things that kind of like, wrapped around, you know, kind of roll up, so to speak, these these marijuana stocks in, in one kind of tidy little package. And, you know, potentially, you could say, to a certain extent, this rising tide lifts all boats, but not, you know, some will be lifted more than others. And it’ll be, it’ll be interesting to watch for sure. And, you know, we’ll be watching it closely.
Dan Kline 6:19 There are actually very few winners in this space. And because it’s already a commodity, it’s very easy to grow the plants. So it is about branding. And my dear friend Emily Flippen used to have this presentation, she probably still has it that she did on the two leading ETFs. And she basically showed you how you think you’re buying exposure to an industry. But the reality is, you’re also buying a lot of companies you wouldn’t want to own. Now, that doesn’t mean all ETFs are are bad. There’s lots of well curated ETFs.
But in the cannabis space, there’s not going to be a lot of winners, like this is a gold rush. It is a, you know, a Race to the Top kind of. And I only think there’s a couple of players in the space. How do you find out which ones I think are players in the space? You become a member of 7nvesting. Well, how do you do that? You’re going to 7nvesting.com/subscribe. And you get not only our latest pick, each one of the seven of us a very diverse, incredibly experienced seven advisors, we each make one pick every month, we give you a big write up, we record a video presentation where people can, can push back one of ours got in a friendly way very heated this month where there’s some very pointed questions asked, so you could become a member and it’s $49 a month or $399 a year 7nvesting.com/subscribe.
You could join and then you could go hey, I’m going to filter by Dan’s picks, because I want to see the couple of picks he’s made in the cannabis space. And by the way, one of them I have recommended I picked it twice. It’s the stock I’ve purchased the most often it’s not my biggest holding because it’s a relatively inexpensive stock. But it’s the stock I’ve made the most individual purchases of over the last 15 months, probably 12 months, whatever it is.
So if you are a student, you can also get a student membership that is $84 a year it will recognize most student email addresses but if you have trouble you’re buying a gift. Just shoot us an email at email@example.com.
Steve we are going to segue we are going to talk about Lemonade, which is described as an insurance AI company. So I have Lemonade life insurance. It’s delightful. I could not wait. Yeah, like it’s like 10 minutes. They ask you questions. They use an algorithm. It was a much better price. I didn’t have to have a medical exam. And I got I think the number was $500,000 worth of insurance. My wife got more because we we both have policies that we got when our son was born that expire when he’s 20. So I already had half a million. So now I have a million. She only had a quarter million. So now she has a million. And we’ll figure out adding another policy when the first ones expire.
But it took like 10 minutes it is super, super simple. They’re going to be going into car insurance. And they made a purchase. Steve, why don’t you explain what happened yesterday with Lemonade?
Steve Symington 9:02 Right? So it’s kind of interesting dichotomy in the share prices. At first Lemonade shares are down pretty handily. Last I checked like 11% today. And there’s a reason for that, right? It’s not necessarily that this is a bad deal. That’s kind of being panned by the market. But what’s really interesting is Lemonade.
Dan Kline 9:21 Steve, let’s reset. I didn’t actually say who they bought so.
Steve Symington 9:24 Oh, okay. So Lemonade. They announced they’re acquiring Metromile. So Metromile is a, an auto insurance company that that focuses on using telematics data and actually driving data, how far you drive usage based insurance. So really, really kind of compelling play in that space that’s been beaten down really hard. And I do think maybe we get a little bit of pushback from Metromile shareholders, some of them anyway, it still is subject to approval of Metromile shareholders.
But shares are currently trading around $3.25 a share. And I think they peaked at like $20 in February. So they’ve been beaten down pretty hard. Interesting that Metro mile will would agree to this because the deal is valued at about $500 million, or about 200 million net of cash that’s on Metro miles balance sheet, which is equally bonkers, right? Lemonade is a significantly larger company at this point.
But they it’s an all stock deal. So basically, under the terms of transaction Metromile, shareholders will get one share of Lemonade for every 19 shares of Metromile they had. So that’s the reason that Lemonade shares are down about 11%. They’re kind of reeling a little bit from the dilution that’s going to happen from this. And, as a result, Metromile shares are actually down slightly. Last I checked, because their stock is now going to be tied to the transaction with Lemonade stock, as Lemonade stock increases, the value of the deal increases.
So it’s kind of overshadowed and otherwise actually pretty strong report quarterly report from Lemonade. I won’t get into the details of that here. Because Metromile is the focus. And that’s kind of how it’s been. But there is a strategic rationale, as well, for this Lemonade actually only recently launched Lemonade Cars on auto insurance product feels like just a few weeks ago, they said it was available. And I was actually disappointed because they weren’t in Montana yet.
I did the same thing. I went to the site, I got the email, and I checked immediately, and they weren’t available in Florida yet.
Yeah. And they said, well let you know, I’m like, Oh, darn it, and then it looked and they were only in, I think just one or two markets. And it’s like, okay, they’ve technically launched but they’re not everywhere. And that’s part of the challenge of launching an auto insurance or any insurance operation is you have to go through and you have to get licenses to operate in every state.
And Metromile has licenses to operate in 49 states. So basically, this will enable Lemonade to instantly expand and kind of leverage Metromile’s pretty complementary technologies, skill set, with Lemonades existing skill set and Lemonade for its part only just launched life insurance, which we were talking about earlier a few months ago. And, and you know, it started in home and pet insurance. And that’s kind of where it’s been. But now auto, really interesting transaction. And if it can go through, I think Lemonade it’s actually getting a steal of a deal here with with Metromile so badly beaten down.
Dan Kline 12:27 Yeah, so this deal was actually reported, I want to say incorrectly. So there was a lot of negativity, because people thought that what Lemonade was buying was the Metromile sort of business model of tracking how you drive and maybe they will integrate that. But the biggest thing they’re buying here is they got 49 state licenses. I don’t know what state isn’t included, maybe there’s maybe there’s no Alaska, or maybe it’s weird, it’s like no, California, I don’t know, one state not included, this jumpstarts Lemonades ability to have the license needed to offer life insurance in just about all of the country.
Steve, that takes like years out of the process. And that was not at the top of the story in any story like to you as we’re both Lemonade shareholders. I think that’s true. I got really excited about this, because I want to be a customer and I went maybe this means they come to Florida sooner. Is that sort of like the secret sauce of this deal?
Steve Symington 13:21 Yeah, I think that’s what’s going to happen. And they have indicated that they will integrate Metromile’s technology with their own. And, you know, really, it’s they sort of both approach their markets the same way in an effort to kind of disrupt their respective insurance niches with technology. And I think it’s a compelling acquisition. I applaud him for it. And it’ll be interesting to watch how Lemonade shares kind of respond over the next several months, as people kind of get more excited about the potential for ramping this. So definitely a competitive industry, though, for sure. So there’s work to do.
Dan Kline 14:01 It’s a competitive industry, Steve, but do you know anyone who’s like, you know what, I love my car insurance company. I mean, I’m a GEICO customer, and they’ve been fine. Like, we’ve had a couple of accidents like, my wife got hit, and they went after the other person because it was very clear based on how she got hit that even though the police report didn’t make it look made it look like it was equal fault. There was zero possibility. It was her fault. And they won.
I hit a gate in a rental car and GEICO was so like, I like mine more than most. I’m going to leave them in a heartbeat if Lemonade goes into car insurance. Yeah, that’s what I think we won’t see play out. It might be like two or three years until we start seeing the numbers in earnings calls. And this is going to be a massive growth accelerator. Because I think and maybe I’m wrong, Steve, but I actually think Lemonade customers love Lemonade, because life insurance is a terrible process. And they made it simple. I would follow them anywhere pretty much.
Steve Symington 14:54 Yeah. Well, I mean, I had kind of a traditional auto insurance policy through through the kind of old school agent for the longest time. And and I became a Root (NASDAQ: ROOT) customer for that reason, right? It was a fantastic process. It was super easy. And I left my old insurance guy for route because it was such a massive opportunity, right? Yeah, hundreds of billions of dollars, I think if memory serves a $300 billion market, not without competition, obviously.
But if people can find a simple way not have to go into an insurance agent, or call or you know, just just super, super simple. And with a simple app, I love it. And even I know, as a Root customer, I’ll check Lemonades insurance rates, if if all else is equal, I’d jump ship over there. And if they if they’re willing to give me lower premiums, so it really depends on on a combination of ease of use and costs so.
Dan Kline 15:53 We also both have kids who are heading into their driving age, which is, which is a really tricky process. If Lemonade can make that more affordable, frankly, if anyone can because we were going to shop as soon as my son gets his license. Our plan was to shop around our insurance because generally you can you can save by doing that. This is a story we’re gonna keep following. This is kind of an underreported story. I think this is a big deal. But I don’t think it’s a big deal for the reason it’s being reported as a big deal.
I think we’re gonna see Lemonade insurance or car insurance sooner rather than later. Steve, thank you for doing this. Thank you for putting up with the time change. The differences. The glassy look in my eye. Here’s the thing you know, when you travel, you live in a middle time zone. But when you travel on the East Coast to the West Coast, your body doesn’t know that. So I go to bed at like, you know, Vegas 11 and four o’clock your body goes like it’s up.
And the problem is due to labor shortages, the coffee places Starbucks doesn’t open till six that used to be 24/7. Right now, that is not a thing, but we are going ridiculously off track here. Thank you to Sam Bailey. Thank you to JT Street. Thank you to Steve Symington. I will be back on Friday from my house assuming all the travel goes well. We will see you thank you.
7investing Operations 17:05
Lemonade (NYSE: LMND) Metromile (NASDAQ: MILE) Root (NASDAQ: ROOT)
The secret is (almost) out! Join 7investing's founder and CEO Simon Erickson on Wednesday, January 19th at 11 ET as he announces this extremely exciting addition to our team...
There was a time not all that long ago when the valuation of stocks, tech stocks included, could be calculated based on a discounted cash flow analysis. Sure, there was lots...
Moderna has been a stock market darling but its share price has fallen by around half from its 52-week high. Now, problems are piling up for the company which has slashed its...