Warren Buffett Is Wrong on Cannabis And Its Hurting Coca-Colas Stock

By CCN: In an interview with Fox Business, Warren Buffett and Charlie Munger of Berkshire Hathaway revealed they would not be a fan of Coca-Cola getting into the cannabis business.

Munger said:

“It would be a big mistake. [Coca-Cola has] got such a wholesome image and cannabis doesn’t. It’s that simple.”

Buffett added:

“There’s something in everybody’s mind in the world practically about Coca-Cola…I’m not sure that you would want to muddy that image a little bit.”

To a certain extent, that’s true.  Just look at this tweet as an example of wholesome brand image:

Even Warren Buffett Can Make a Mistake

Berkshire Hathaway is Coca-Cola stock’s largest shareholder, but that doesn’t mean that Warren Buffett and Charlie Munger are infallible. They’ve made many mistakes over the years. Those mistakes include investing way too late in Apple and holding onto IBM’s stock for much longer than any rational person would.

Warren Buffett also admitted that he should’ve invested in Amazon earlier.

Warren Buffett is also wrong that Coca-Cola should not get into the cannabis business.

Coca-Cola Overrun by Competition

For decades, Coca-Cola’s stock was king of the mountain. It was driven by a very stable, slow-growing business that had reached into the furthest corners of the world. Coca-Cola, however, stopped innovating.

Coca-Cola stockCoca-Cola stock

Coca-Cola’s stock is up less than 4% year-to-date. | Source: Yahoo Finance

That allowed competitors to surge ahead of Coca-Cola because they all had a broader view of the market. All the major competitors were making moves into healthier drinks with less sugar and flavored water beverages while Coca-Cola rested on its laurels.

Coca-Cola stock has been playing catch-up as competitors’ stocks have soared. Coca-Cola is been struggling with constantly declining volume. In order for Coca-Cola to stay competitive, it has to innovate along with everyone else. The beverage market is moving increasingly into cannabis and CBD products.

Constellation Brands, for example, invested billions of dollars into cannabis firm Canopy Growth Corporation. Constellation is the home of numerous famous brands of beer, liquor, and other forms of alcohol.

Canada has now legalized recreational marijuana, and multiple states in America have as well. The marijuana lobby is very powerful. It has excellent resources, very deep pockets, and has been winning regulatory and legislative fights both at home and abroad.

Cannabis Cannot Be Stopped

All this sets the stage for increasing acceptance of cannabis products. It’s not like Coca-Cola is going to directly infuse marijuana into its flagship beverage. What Coca-Cola can and should do is find ways of working CBD into one or more of its other brands.

Warren Buffett is right that Coca-Cola has a certain brand image and that image is squeaky clean. However, the vast majority of consumers have no idea that they are drinking a beverage owned by Coca-Cola when they drink any of its hundreds of brands, ranging from Bacardi to Vitamin Water.

Reinvent the Tired Coke Brand Already

The Coca-Cola brand name will not be affected at all if the company moves into cannabis products that it combines with some of these beverage brands. Warren Buffett might be right if the company is foolish enough to introduce cannabis products mixed in with its flagship Coke drink. But he misses the fact that increasingly widespread acceptance of cannabis products means Coca-Cola’s stock might actually get a boost by incorporating cannabis products into its beverages.

Crypto Invades the Nasdaq as Institutional Adoption Ramps Up

By CCN: The Nasdaq has shown a growing affinity for bitcoin. That relationship has just gone to the next level with knowledge that CNBC Africa’s Crypto Trader will begin broadcasting from the Nasdaq studio. Ran NeuNer, the host of the show, tweeted that the next season will launch from Times Square on May 9. The Nasdaq studio is in the middle of all the action and could be visible to the tons of people passing by on their way to and from work, not to mention tourists. It thrusts crypto into the heart of Manhattan at a pivotal time for the industry and is sure to turn some heads.

Ran and his show will now have a front-row seat to this evolution as it plays out on global media. With the bitcoin price now poised above $5,700, crypto is about to get its time in the sun.

The timing of the move is surely no accident. Bitcoin bulls are back and institutional investors are now beginning to dip their toes into the crypto waters. Fidelity published a survey revealing that institutional investors’ crypto allocations are poised to rise over the next half-decade, which could open the floodgates to mainstream adoption.

Fidelity spoke to hundreds of hedge funds, pension funds, family offices, and more. They found that more than 20% of institutional investors already have “some exposure to digital assets,” allocations that were made since 2016. Nearly half of them “view digital assets as having a place in their investment portfolios.”

Fidelity Fidelity

Pension funds and hedge funds are figuring out the role of bitcoin in their portfolios. | Source: Fidelity Digital Assets on Medium

Bitcoin Is Becoming Famous

The timing of CNBC’s Crypto Trader arriving in New York also coincides with the recent bitcoin commercial released by Grayscale Investments. The campaign, which is entitled “Drop Gold,” is set on the streets of Manhattan. The ad mocks gold as an onerous investment, instead touting bitcoin as the future for features like security, borderless, and its utility.

Anecdotal evidence also suggests that institutional investments into bitcoin are on the rise. Bakkt, the regulated bitcoin futures exchange owned by NYSE-parent company ICE, will be launching soon. The exchange is headquartered in Atlanta and is expected to be a magnet for institutional capital.

Meanwhile, the Nasdaq is no stranger to crypto. They recently launched a new XRP Liquid Index. Also, a trader on Twitter suggested that the Nasdaq is already supporting bitcoin trading via TD Ameritrade.

In the heart of Manhattan, Ran NeuNer and Crypto Trader will seemingly be sharing a studio with other CNBC shows. This means that traders and big investors who are there to discuss the stock market could also double as guests for Ran’s show. It creates an opportunity for both markets to collaborate and share information and guests, which is something that will help catapult bitcoin into the limelight.

The Trump Administration Is Expanding Its Network Of Privatized Immigrant Prisons

The Trump administration awarded three contracts to expand a network of immigrant-only federal penitentiaries involving the country’s second-largest private prison company this week, marking the culmination of its promise to keep relying on private contractors to run federal prisons.

The three facilities ― one in Michigan and two in Texas ― have a combined capacity of nearly 5,000. The Texas prisons are part of a complex that attracted national attention in 2008 after poor conditions and a death in solitary confinement sparked a major inmate uprising.

“We’re pleased to have been able to strengthen our long-standing partnership with the [Federal Bureau of Prisons] with this important contract award,” GEO Group CEO George Zoley said in a statement

In August 2016, the Obama administration directed the Federal Bureau of Prisons (BOP) to phase out contracts with privatized prisons, citing their poor safety records and lack of cost savings. 

A GEO Group employee wears a company patch on his uniform at the Northwest Detention Center in Tacoma, Wash., during a media

A GEO Group employee wears a company patch on his uniform at the Northwest Detention Center in Tacoma, Wash., during a media tour on June 21, 2017.

But the Trump administration quickly reversed the decision. Then-Attorney General Jeff Sessions issued a memo less than a month after his appointment saying that ridding the system of privatized prisons “impaired the bureau’s ability to meet the future needs of the federal correctional system.”

Two months later, BOP posted a solicitation for private prison space that resulted in this week’s awards.

Starting in 1999, the prison bureau began segregating noncitizens serving federal sentences into facilities called Criminal Alien Requirement (CAR) prisons. Most of the inmates held there are serving sentences for either drug or immigration crimes. The low-security prisons aren’t required to offer services available to citizens locked up on federal charges, such as drug rehabilitation services or continuing education.

“These prisons are not only separate from the rest of the prison system. In practice, and perhaps by design, they are worse than other prisons,” wrote University of Chicago teaching fellow Emma Kaufman in a recent article for the Harvard Law Review.

The North Lake Correctional Facility in Baldwin, Michigan, is currently vacant, but it previously held state prisoners transferred from Vermont. With bed space for 1,800 inmates, the prison will earn GEO Group $37 million annually after “reactivation,” the company said in a news release.

Two of the contracts went to Reeves County for prisons in West Texas that were part of a larger CAR prison in the past. The two that won contracts this week currently sit idle. A third unit there still runs as a federal immigrant prison on a short-term contract. All three are owned by Reeves County, to whom GEO Group provides management and consulting services.

The Reeves prison complex earned notoriety during its previous stint imprisoning migrants. In 2008 and 2009, five inmates died there, including two who died by suicide, according to The Texas Observer. An epileptic inmate, Jesús Manuel Galindo, died of a grand mal seizure while locked in solitary confinement in 2008, prompting two riots in quick succession over poor conditions.

It was problems like those at Reeves that led the Obama administration to reconsider its use of private contractors for federal prisons. A 2016 investigation by Seth Freed Wessler published in The Nation found that CAR prisons consistently delivered poor medical service, likely leading to several prisoners’ deaths. Abuses and shortcomings at privatized federal prisons, including the complex in sparsely populated Reeves County, were also profiled in a damning report by the American Civil Liberties Union in 2014 called “Warehoused and Forgotten.”

Criminal justice reformers decried the Trump administration’s contract awards, citing the Reeves County prisons’ troubled past.

“It’s a travesty,” Carl Takei, an ACLU staff attorney, told HuffPost. “The awful human rights record at Reeves is well documented and has been publicly available for years.” Takei spent years working on prison privatization issues and co-wrote the 2014 report.

“A number of these facilities have deep-seated problems,” César Cuauhtémoc García Hernández, a law professor at the University of Denver, told HuffPost. “When we see the same private prison companies getting a contract renewed despite those problems, to me it’s a missed opportunity.”

A number of these facilities have deep-seated problems. When we see the same private prison companies getting a contract renewed despite those problems, to me it’s a missed opportunity.
César Cuauhtémoc García Hernández, University of Denver law professor

Setting the contract length for a decade would also give the federal government less leverage to address problems if they resurface, according to Bob Libal, the director of the criminal justice reform group Grassroots Leadership, based in Austin, Texas.

“Signing a long-term contract with Reeves — one of the nation’s most notorious immigrant prisons — is not only bad policy, it could be deadly for prisoners confined there,” Libal wrote in an email to HuffPost. “The long history of abuse in the fed’s private prisons is a reason to shutter these facilities, not renew contracts. And the best way to close these facilities is to stop the unnecessary and deeply costly — both in lives and dollars — criminal prosecutions of migrants at the border.”  

GEO Group defended its record in a statement announcing the contracts, saying it provides “high-quality services in safe, secure and humane residential environments.”

The company relies heavily on immigration enforcement. Some 43% of its profits stem from contracts with U.S. Immigration and Customs Enforcement, the Federal Bureau of Prisons and the U.S. Marshals Service, according to a company disclosure filed in March. ICE uses private contractors like GEO Group to run immigrant detention centers. The prison bureau uses them for its CAR prisons. And the Marshals Service holds migrants facing short-term sentences for immigration prosecutions.  

Before this week’s announcement, the prison bureau ran 10 of these immigrant-only prisons with a capacity of about 19,000, according to the Harvard Law Review ― about half of the noncitizen federal prisoner population. All of them are managed by private prison contractors like GEO Group.

But, along with adding the three new prisons, BOP canceled a contract with Adams County Correctional Center outside Natchez, Mississippi. That leaves the bureau with a net gain of about 2,800 beds.

The Natchez facility is owned by CoreCivic, the country’s largest private prison contractor. It also has a past marred by major disturbances and allegations of abuse. Caitlin Carithers, a guard at the Natchez prison, died during a riot in 2012 that led to several other injuries. The prison’s contract with the federal government is slated to end in July.