Munificent Mayweather strikes again, flying taxis, Women and Weed, Funds may be forced to Dump tech stocks, Walmart makes a major move into pharmacy

Greetings, folks, and a warm welcome to the 15th edition of Friday Finance Weekly. Your feedback is appreciated, as long as it's positive. Totally not finance-related, but seriously hilarious. A pizzeria in the German city of Düsseldorf was busted by police. If a customer ordered a number 40, their pizza was delivered with a side of cocaine (that’s not a typo). Not surprisingly, it was one of the most ordered options on the menu. Gives a side of garlic sauce a whole new meaning. Okay, lets move on to more serious news.

This week, we are going to jazz things up and introduce our first infographic. There are key materials required to transition to more green technology. With the projected extraction rates, we are going to face serious supply deficits in key materials. Below you’ll find the projected supply deficit for each mineral and the additional investment needed to bridge the gap.

Munificent Mayweather strikes again. Floyd “Money” Mayweather Jr. has agreed to pay $402 million to acquire an affordable housing portfolio comprised of 1,000 units across more than 60 buildings located in Upper Manhattan. For Mayweather, the investment in affordable housing holds significant meaning, with the boxer having previously been quoted saying that he lived “seven deep” in a one-bedroom in New Brunswick, NJ. This new investment will join the nine New York City skyscrapers previously acquired by the 15-time world champion alongside SL Green Realty.

The seller, Jack Gotlieb of Black Spruce Management, is one of New York City’s biggest landlords, with a portfolio of 4,000 affordable housing units. The property management firm has been seeking to recapitalize its Article XI portfolio since 2021. (Note: Article XI is a 40-year tax exemption for housing projects that are at least two-thirds affordable.)

Gotlib is currently embroiled in a civil suit filed by the widow of his former Black Spruce business partner in late 2023. In the suit, the plaintiff alleges that Gotlib defrauded her and misappropriated assets from her husband’s trust. Specifically, she alleges that following her husband’s death from brain cancer, Gotlib used his power as trustee to utilize trust funds to service Black Spruce loans while paying himself lucrative fees.

If the court rules in favor of the plaintiff, Gotlib could lose control of Black Spruce and its properties—creating potential issues for Mayweather’s deal. In the interim, the first tranche of the affordable housing portfolio closed last Wednesday, with the remainder set to close in Q4 or early 2025. We know Mayweather has very good conflict resolution skills, so I would count this deal as going through. The 40-year tax exemption also caught me off guard; that has a great benefit and is something we should consider in Canada.(Source: Yahoo Finance, The Real Deal)

Watch out Robotaxi, we have other potential competitors. This week, the Federal Aviation Administration (FAA) published its final regulations for electric vertical takeoff and landing (eVTOL) vehicles as part of an 880-page document (I mean, it must be serious then, right?). The release marks the first time the FAA has approved a new type of aircraft since the introduction of helicopters in 1940. It’s a significant milestone for what could evolve into a multibillion-dollar transportation category.

eVTOLs, also referred to as air taxis, take off and land vertically like helicopters but transition to fly on fixed wings like airplanes. VTOL technology allows pilots to land almost anywhere, which eliminates the need for a runway and creates major advantages in combat or rescue situations. Unlike conventional jet engines, this type of aircraft also produces fewer greenhouse gas emissions thanks to its electric design. The FAA said it will allow these vehicles to be used for cargo, passengers, and emergency medical transportation.

One of the companies pioneering the commercialization of battery-electric and hydrogen-electric aircraft is Joby Aviation. Earlier this year, Joby demonstrated the plausibility of zero-emission regional air travel after completing a 523-mile flight using hydrogen-electric propulsion technology. Although the company remains (essentially) pre-revenue, its accomplishments have led to over $2 billion in funding, including high-profile investors like Toyota, Delta Air Lines, SK Telecom, Uber, and Baillie Gifford.

• In 2022, Delta Airlines provided Joby with a $60M investment.

• In Q1, Joby signed an agreement with the government of Dubai granting the exclusive right to operate air taxis in the Emirate for six years.

• Earlier this month, Toyota invested an additional $500M into Joby, placing total investments at $894 million.

• The company also broadened its partnership with the U.S. Air Force through a commitment to deliver two aircraft by 2025.

I have an electric car right now and am plagued with range anxiety. That won’t be a problem with eVTOLs, as I can carry a parachute with me. (Source: The Verge, Electrek)

Snoop Dogg will be happy to know that, according to a survey by the U.S. National Institute on Drug Abuse, young women (ages 19–30) surpassed their male counterparts in cannabis consumption for the first time in 2023.

• Per Jointly (super creative name), a cannabis discovery app, women now represent 55% of its user base.

• In September, the average purchase size from female buyers at Housing Works Cannabis Co. (New York’s first legal dispensary) exceeded that of males—albeit by a narrow ($2) margin.

In the U.S., cannabis has quickly become a $30 billion industry, with 38 states (along with three territories and the District of Columbia) allowing medical use. In Canada, where cannabis sales have been federally legal since 2018, the industry has grown to a whopping $43.5 billion. The demand finally came; they weren’t kidding.

Cannabis retailers are seeking to capitalize on this historic consumer trend shift by refocusing shelf space in favor of products and brands that have proven popular with women. These products include edibles, tinctures, topicals, and beverages. One cannabis CEO indicated that short-term investments in branding, market studies, and women-focused R&D will be necessary to capitalize on this growing market potential. In the U.S., where women make over 80% of purchasing decisions, these investments could reap major long-term benefits. According to Tatiyana Brooks, the CEO of GetCannaFacts, “Businesses that take the buying power of female cannabis consumers more seriously will stay ahead of the curve among competitors.”

In a Reuters article, two possible explanations were given for the rise in female popularity:

• Consumers may be using the drug as a home remedy to treat issues like stress and anxiety, which may be more prevalent in women

• Women are more likely to make purchases via legal markets

Regardless of the underlying causes, we can expect more investment toward research on consumer spending habits in the years to come. This is particularly true as younger customers, including Gen Z, continue to show a propensity to favor marijuana over alcohol and tobacco. Today I learned cannabis does not unlock the creative side, as the companies associated with the industry have very uninspiring names. GetCannaFacts, Come on? Maybe ordering a number 40 makes more sense. (Source: Reuters)

The IRS requires that any “regulated investment company” restrict the combined weight of large holdings (i.e., anything that accounts for more than 5% of assets under management) to less than 50% of the overall portfolio. Most mutual funds and ETFs are registered as regulated investment companies, given the associated tax benefits, and are therefore subject to this rule.

Historically, the rule has mainly affected specialized funds whose strategy specifically involves taking concentrated positions in hand-picked stocks. However, due to this year’s lopsided stock market rally, actively managed blue-chip funds are being forced to consider dumping shares to remain compliant. So far this year, five large companies (Nvidia, Apple, Meta, Microsoft, and Amazon) have contributed roughly 46% of the S&P 500’s overall gains, which is putting many prominent funds in a precarious situation.

• T. Rowe Price’s $63 billion Blue Chip Growth Fund has exceeded the 50% threshold in six of the last nine months.

• Fidelity’s $67 billion Blue Chip Growth Fund had more than 52% of its portfolio in large positions as of the end of September.

• BlackRock’s Long-Term Equity ETF also had 52% of its assets in holdings worth more than 5% of the portfolio as of last week.

While funds are not immediately penalized for breaching the concentration threshold, they are restricted from adding to overweight positions and are required to rebalance their portfolio if/when the fund receives inflows. The IRS monitors adherence at the end of each quarter, at which point portfolios must be rebalanced to avoid penalty.

According to one tax professional, the need to reshuffle holdings could drag on fund performance and trigger capital gains taxes. While no penalties have been doled out yet this year, the implications surrounding a concentrated benchmark environment are a situation worth monitoring. This is actually mind-blowing; given the success of tech stocks this year, they might be dumped into the market to stay compliant with IRS regulations. I wonder if there is an arbitrage opportunity here, as the big funds seek to rebalance their portfolios. (Source: FT)

On Tuesday, Walmart said it will start delivering prescriptions and prescription refills along with groceries as a single order within 30 minutes. The new policy will be a major upgrade to the company’s existing efforts to mail prescriptions within 5 to 7 business days. The service will be free to customers with a Walmart Plus membership ($98/year) and available to non-members for a cost of $9.95. The new service will be available in 49 states by the end of January 2025 (the company’s year-end) and immediately available to customers in 6 states, including New York.

The announcement comes just two weeks after Amazon announced plans to offer same-day prescription deliveries in 20 new U.S. cities starting in 2025. Same-day prescription deliveries already exist in the U.S., with CVS Health and Walgreens being the most notable retailers currently offering the service.

Prescription delivery services are Walmart’s latest effort to expand its pharmaceutical footprint. Per the company’s 2024 annual report, ‘Health and Wellness’ broadly accounted for roughly 26% of the company’s net sales for the year. Prescription deliveries could also boost membership rates in the company’s Walmart Plus program, which accounted for just 0.85% of gross revenue in its last fiscal period. Online retailing is giving us yet another reason to never leave our homes. This is perfect for when you're in the mood and need your ED meds; just wait 30 minutes. (Source: Reuters, Walmart)

Have a fantastic weekend, and please don’t hesitate to forward this to friends and family.

Many thanks,
Sam