Cannabis Stocks Soar & Trump Challenges State AI Regulation Laws

0:01Stop waiting for customers to fall into your funnel. It's 2025, and the same old strategies are, well, just kind of old. That's where Amazon ads can make a difference. Brands using four Amazon ad solutions saw dramatically higher growth compared to limited approaches. Our latest Marketing Brew article breaks down how they can help you reach customers everywhere they are, from prime video to Alexa to shopping with consistent messaging. Read the whole thing at marketingbrew.com slash amazon dash ads. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, the obscure game console that's outselling the Xbox.

0:41Then a storm's a-brewin' over how to regulate AI. It's Monday, December 15th. Let's ride.

0:52This weekend delivered a wave of horrible news after horrible news, which we want to update you on before we dive into the business world. First, on Sunday, at least 15 people were killed in Australia when gunmen opened fire on a Hanukkah celebration at Sydney's Bondi Beach. Officials described it as a targeted anti-Semitic attack against a Jewish community who had gathered to celebrate the start of the holiday. The massacre could have been worse if not for the initiative of one bystander, a fruit shop owner who was being called a hero, after video footage showed him disarming one of the gunmen in a remarkable act of bravery.

1:25Then a shooting on the campus of my alma mater, Brown University, killed two students and injured nine others on Saturday. As of recording this, classes and exams have been canceled and the search for the gunman remains ongoing. After a person of interest was detained, then released because officials could not find enough evidence connecting him to the shooting. Law enforcement have not named any other suspects due to lack of video footage in the area. There just weren't a lot of cameras in that Brown building, the state's attorney general said. Finally, last night, Hollywood icon Rob Reiner and his wife were found dead in their Los Angeles home in what the LAPD is investigating as a homicide.

2:02Reiner was an actor in All in the Family before directing some of the most beloved movies ever made, including The Princess Bride, This is Spinal Tap, When Harry Met Sally, A Few Good Men, and Stand By Me. Responding to his death, the Screen Actors Guild called Reiner one of the most significant figures in the history of film and television. We're thinking of everyone involved in these tragedies and hope this week brings quiet and peace. Let's move on to the rest of the show, starting with a quick word from our new sponsor, Public. Toby, I don't know about you, but it is getting harder and harder to wake up every day with how cold and dark it is.

2:36Mornings just are not as easy. I am with you, Neil, but one redeeming part of my morning routine is checking my portfolio on Public. Seriously, on Public, you can build a multi-asset portfolio of stocks, bonds, options, and crypto. And now, generated assets, which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue 20 % year over year, you can literally type in any prompt and put the AI to work. Then you can invest in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's.

3:16Make your mornings easier. Get started at public.com slash morning brew and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash morning brew paid for by public investing, full disclosures and podcast description. Christmas might be coming early for the cannabis industry, with President Trump expected to substantially ease federal restrictions on marijuana as soon as today. According to reports, Trump will announce a push to reclassify marijuana from a Schedule 1 drug, where it's in the same camp as heroin, to the less dangerous Schedule 3, home to Tylenol and steroids.

3:50This does not mean marijuana would be legalized or decriminalized at the federal level. And as a consumer who regularly picks up gummies at a dispensary, you may not even notice a change. However, reclassification could be a game changer for the$32 billion cannabis industry. First, it'd give companies a big tax break since they're operating under a pretty oppressive tax regime by selling a Schedule I drug. Next, it could light up scientific research in the field as Schedule I drugs have strict limits on studies. And finally, it's a symbolic boost, legitimizing cannabis as part of the mainstream national economy and potentially foreshadowing more integration to come.

4:26Wall Street was enveloped in a haze of smoke on Friday following rumors that deregulation was imminent. Major cannabis producers Tilray and Canopy Growth Each jumped around 50%, while cannabis ETFs soared more than 54 % for its best day on record. Toby, they're calling it the biggest reform in federal cannabis policy since the 1970s. It is interesting that taxes are the biggest reason why these cannabis companies are celebrating. It's not necessarily something that you would associate with the cannabis industry, but right now the IRS has a code 280E that blocks cannabis businesses from deducting normal operating expenses because marijuana is a schedule one drug.

5:06So we're talking an effective tax rate as high as 70 to 80 % for a lot of operators. So if a schedule three drugs are not subjected to that 280E provision from the IRS, so you are looking at improved cash flow, you're looking at better margins, you're looking at finally a survivable business model for a lot of these companies. So yes, the, you know, people who are high are also very excited about taxes right now because of this potential reclassification. I see CPA in your future, Toby. You're like getting deep in the IRS tax code. Just want to run down what schedule one is versus schedule three for everyone.

5:44Now schedule one has, these are drugs that are considered to have no accepted medical use and a high potential for abuse. So marijuana is in that right now. It has been for decades, and this category also includes heroin and LSD. Federal law prohibits the cultivation and possession of these kind of drugs except for approved research studies. Now, if cannabis goes from one to three, it would be considered to have medical use and moderate to low potential for physical and psychological dependence. Now, the Schedule 3 drugs currently are anabolic steroids, ketamine, testosterone, Tylenol with codeine.

6:21So this is what the switch would mean going from that very restrictive schedule one to schedule three which is kind of considered to have medical use and very low risk of dependence and it does kind of put it into more of the mainstream medicine world as well where it's easier for doctors to prescribe there's less legal ambiguity around it but a lot of industry watchers said maybe this is a careful what you wish for moment because with that you know schedule three classification it also brings increased federal enforcement risk where, hey, if THC becomes a prescription drug under federal law, dispensaries and growers could be exposed to selling a prescription drug without a license, misbranding a drug, illegal distribution, these charges that right now they're kind of skirting away from because it's not as much regulatory attention on them.

7:11Also, maybe Big Pharma catches wind of this industry and says, hey, we could probably synthesize THC and sell it as an over counter drug, which leads to increased competition. So when you start to shift towards pharma grade standards, it brings a lot more drug quality, a lot more labeling, a lot more manufacturing standards to the industry that so far has operated a little bit in the gray area. And finally, this push for reclassification comes at a time when there's growing questions about whether medical cannabis actually does anything. This headline from the weekend caught my eye. There was this new review of 15 years of research.

7:45They looked at thousands of studies and surveys around cannabis. It was published in the very prestigious medical journal JAMA. It concluded that the evidence of medical cannabis's benefits is often weak or inconclusive. They also found that nearly 30 percent of medical cannabis patients meet the criteria for cannabis use disorder, which is the scientific way of just saying cannabis addiction. So these scientists looked at all of these studies and found that really there's not enough evidence one way or the other whether medical cannabis actually does anything. And there also is quite a bit of ignorance around medical cannabis in general.

8:23They found a 2021 review in which only 33 % of clinicians globally were confident in their knowledge about medical cannabis and 86 % said they needed more education. Maybe that is a symptom of the fact that cannabis was in this very restrictive drug tier and there wasn't a lot of research available to do because of these restrictions placed on marijuana. Now, this is not happening today, even with the announcement Trump can't do this unilaterally, needs to happen through federal agencies. And it's a process that might take until next summer if it does come to pass. But if it does, it is a huge win for this industry.

9:00Moving on, President Trump signed an executive order just before the weekend that aims to turn AI regulation from a group project into a solo one. The order blocks US states from enforcing their own AI regulations with the goal of creating a single national framework for AI rather than a patchwork of state-by-state rules. If there's fragmented regulation, the White House argues, then that's a recipe for slower innovation and reduced global competitiveness with China. That's the idea, at least. In practice, there aren't really any federal regulations for AI right now, so states have stepped in to create laws.

9:35Almost half of all states have some sort of rules around things like AI-generated deepfakes and misinformation, organization algorithmic discrimination in hiring in general consumer protection but the white house wants those horses held for the time being while they work with congress to create a federal framework neil the issue with this approach is that the cart appears to be in front of the horse by neutering what states can do without national rules in place the ai industry gets to continue on its merry way without any real oversight leading critics on both sides of the aisle to brand the order as a carve-out for big tech that dilutes states' rights.

10:10It's funny. This country is almost 250 years old, and we're still having the same arguments as we were when the country was founded. I mean, if you just have to go to see the music, Hamilton to see the fight between states' rights and federal government, we're still having those same debates today. And now when it comes to regulating this new technology with AI. Now, this is a big win for tech companies, companies like OpenAI, Google, Andreessen Hurwitz, which is the venture capital firm invested a lot in AI companies. They've been lobbying for the federal government to block states from regulating AI because they think that is cramping their ability to compete with China.

10:47It's the architect, this executive order, the architect of it is David Sachs, who's the White House's AI czar. He is a part of the PayPal mafia. He co-founded PayPal with Elon Musk a couple decades ago and has moved around the private sector and is now in this White House position. He is seen as the person who masterminded this particular order because he is very much against having states go ahead of the federal government and creating this patchwork of laws that companies have railed against because they think it's hamstringing their ability to compete. Yeah, the idea is if you have 50 different laws, it's much more difficult to step into the arena versus just one national framework.

11:26You are seeing some interesting divisions across party lines. So you would think that Democrats are advocating for greater consumer protection and that Republicans might advocate for things like streamlining regulations to promote corporate innovation. But then within ranks, there are people breaking from their party lines. None other than Florida Governor Ron DeSantis called the order a subsidy to big tech. He was one of those vocal critics that I mentioned. And Steve Bannon also has said AI needs more regulation, calling it the most dangerous technology in the history of mankind. So within the Republican Party, there are these very prominent voices that are saying, actually, we do need to start regulating this thing rather than take regulations away, which is a fascinating division in a party that you would think would have a more unified stance on this.

12:15Now, this order might not have any teeth, though, because only Congress has the ability to override state laws. So many legal experts that have been consulted on this particular order that President Trump signed last week said, I don't think it's going to deter states from continuing to make AI laws because they're just not scared of the threat because they don't think it's going to hold up in court. So you should see more states like California, Texas, New York, all of these states. You said half of all of them have made AI laws and there's a bunch more in the pipeline. They don't think that this order will bar them from continuing on.

12:48They don't think it has any legal teeth whatsoever. So it's just kind of both these sides staking out their positions in this very big, huge question of how do we regulate AI within the United States. Let's head to our winners of the weekend, the segment where Toby and I picked two things that managed to avoid slipping on the ice. I won the pre-show Who Made Crispier Latkes contest, so I get to go first. And my winner is Nex Playground, the hottest gaming console no one has ever heard of. Over Black Friday through Cyber Monday, the Next Playground outsold the Xbox, topped the toys and games category on Amazon, and sold out completely at Walmart, Target, and Best Buy in a pre-Christmas feeding frenzy.

13:29And the wildest part is, if you ask people, even analysts who cover the gaming industry, what the Next Playground was as recently as October, they'd say, the what? So here's the scoop on this best-selling toy. The console is a small, cute-looking cube that sits under your television and is controlled not by a controller, but by your movements. Think of it as the spiritual successor to the Wii or the Xbox Kinect. It's blown up through word-of-mouth and in parent group chats as a way to keep young kids entertained and sweating instead of handing them an iPad and headphones. And by blown up, I mean literal hockey stick growth.

14:03Two years ago, Nex sold about 5 ,000 units of this thing. Last year, that grew to 150 ,000. and this year it's on track for 600 ,000 units. Revenue has quadrupled from 2024 to reach a projected$150 million by the end of this year. And I haven't even gotten to the wildest part yet, Toby. This company was not even in the business of hardware before 2022, it made an app. What in the world? Yeah, this company came out of nowhere. We had never heard of it and you're right. The origin story is this. Nexus' first product was called HomeCourt, which was an iPhone app that used AI to track basketball shots.

14:41And unfortunately, despite some power users, there's only so many basketball obsessive out there in the world. So a very low total addressable market. So they actually pivoted during COVID. They used some of their machine learning. They used some of their camera tech to make a new app that kind of gamified some workouts, brought in some augmented reality. And then they started looking into the data of those usage rates and found that people who put their new app on the TV had the most retention. The bigger screen, you know, playing in front of the TV in kind of while you were stuck at home during COVID, they're like, wait a second, there's something here.

15:19So then they make the pivot into hardware. They had never built hardware before. That is a crazy thing to do. They didn't know where to source chips from. They didn't know where to do their manufacturing from. And yet they wanted to make a physical, you know, console that expanded on this idea of moving in front of your TV screen. So just a really interesting case study in following user habits and following user data to pivot into a different line of business that you never would have expected from an app that started tracking basketball shots. There's a lot of reasons for their success. And one of them is that they are laser focused on one market, and that is families with small kids.

15:55Now, this is a market that the gaming console industry has largely abandoned due to the types of games that they're releasing and the prices. Now, Xbox, PlayStation 5, those are upward, those cost upwards of$500. The next Playground cost$249. And a big reason for its success on Black Friday was it was heavily discounted to$199. So everyone was scrambling to get it for their kids. And just by focusing on this one particular market. They have licensed Bluey, they licensed Sesame Street, so they know exactly who their audience is. The market has literally abandoned the rest of the market. All their competitors have literally abandoned all these families with small kids, and then they are absolutely taking it to the bank.

16:38It is a great story into going into the data rather than listening to maybe your ego. You start this app, you think this is the next big thing, and then you have to pivot not once but twice into this final third iteration. It's letting the market tell you what to do and saying like, hey, we want this. And then you actually serving those needs. And then it's also just surviving long enough. I mean, the founder of this company was taking out loans against his own assets in order to keep this thing alive. So very cool story. I'd never heard of it. I want parents to weigh in because you're kind of ground zero for this thing.

17:10It's been circling around in group chats. Feels fun. I kind of want one for the office, Neil. All right. We're going to take a quick break and come back with my winner of the weekend.

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18:00The rewards are super straightforward. I earn up to 3 % daily cash back on my everyday purchases. There are no points to calculate, no limits or deadlines. Plus, it's super easy to access my card and make payments from the wallet app of my iPhone. If that sounds like the kind of simplicity you want in a credit card, apply for Apple Card in the Wallet app on your iPhone. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA Salt Lake City Brands. Terms and more at applecard.com. My winner of the weekend is mozzarella sticks and financial anxiety because diners are ordering way more appetizers than entrees these days to save some money when they eat out.

18:38Appetizer sales are up 20 % year over year through August. according to data from Buyer's Edge, who looks at over 200 ,000 restaurant locations. One VP at the company thought the 20 % spike was a data error because entree sales were flat and typically grow only around 3 % per year. But a hankering for pickle chips, egg rolls, and jalapeno poppers is leading to massive growth in appetizers because they feel like full meals sometimes with much less sticker shot for cash-strapped consumers. Restaurant chains are following the data too. Applebee's recently launched a$15 Ultimate Trio appetizer designed explicitly to replace an entree.

19:18And who can forget Chili's Triple Dipper appetizer, which has powered insane foot traffic, insane store sales increases for parent brand Brinker International throughout the year. Neil, you get the chicken wings, I'll get the sliders, and we each have a little bit of both. Let's run down the top growing appetizers too. So what a number one in terms of growth over this past year, according to Buyer's Edge. So the number one is mozzarella sticks, up 36%. Then pickle chips, up 35%. Cheese curds, 33%. You don't find cheese curds on the menu up in the Northeast, but if you go to other parts of the country, Wisconsin, it is there and they are delicious.

19:52Jalapeno poppers, up 20%, and cheese bites, up 17%. They are seeing explosive growth in part because of what you talked about with Applebee's. Restaurants are tying appetizers to promotions, and we know that the consumer is looking for value and various promotions. So when you see Applebee's come out and say, here's this$15 appetizer platter that you can order. Well, you look at the rest of the menu. A steak is$26. Pasta is$22. Salad is$18. You're saying, okay, well, that appetizer seems pretty appetizing. And that's why you're seeing all this growth in this particular area of the menu. And they're just American portions in general.

20:30You can absolutely order an appetizer and get away with it as an entree. This is the best move, too, when you're going out to eat. I was not being facetious when I said, you order this, I order this, we eat split. Everyone does that when they go out. I think at some point people realize, like, I'm getting enough food here. I don't actually need the$26 steak, the$46 burger, you know, with gold leaves on top. I'd rather just try more food and be, you know, financially comfortable throughout my meal rather than feel like going out is such a big burden on us and the family. What's interesting is the appification of food is also happening in the pizza realm as the average price of a large pizza heads towards$17 nationwide.

21:10And October, executives at Papa John's said they're seeing way more customers shifting from large pizzas to medium pizzas and adding fewer toppings. That's because pizza chain sales have been flat since 2023. Papa John's Pizza Hut, Domino's, they're all looking for ways to get more out of that very squeezed consumer. So it's happening in Applebee's and Chili's and the restaurant world, and it's also happening in the takeout pizza chain world. It's Monday, so here's what you need to know to stay ahead in the week ahead. Wall Street will be up to its eyeballs in data as reports that were delayed from the shutdown come streaming down in a gusher that will tell us a ton about the current economic situation.

21:48The two big ones are the jobs report for November arriving on Tuesday and the monthly inflation report on Thursday. We'll also be treated to retail sales, which should offer a gauge of early holiday shopping. Toby, these reports will be like putting on goggles when you've been swimming in murky water. The data dogs have almost too many bones to choose from at this point. I am really curious if the reports will drastically alter the path of the Fed post-December, meaning the dot plot showed a consensus for only one more cut in 2026. Maybe this will change now that we actually have some insight into what the heck has been going on.

22:24One of the most highly anticipated movies of the year, the third Avatar called Fire and Ash, hits theaters on Friday, and cinemas just love it when director James Cameron supplies them with content. Of the top 10 highest grossing movies of all time, Cameron has three, the original Avatar at number one, the Avatar sequel at number three, and Titanic at number four. Toby, you excited for a return to Pandora? Actually, yes. I am an unabashed Avatar lover. Give me blue alien people. Give me all the special effects and give me side characters who, despite existing in a franchise that have two of the top movies of all time, I still couldn't tell you the name of any of them.

23:04But it doesn't matter when you're having such a nice time at the theater. So yes, count me as an Avatar lover. I think the movies are great. All I got is Jake Sully. That's the only character you got. It's the side characters where you get a little lost. All right, in sports, the college football playoffs get underway with Oklahoma and Alabama kicking off the first round on Thursday, followed by three more games on Saturday. In basketball, the finals of the NBA Cup are on Tuesday. That's that in-season tournament launched a few years ago with the Spurs facing the Knicks. And the NFL reaches Week 16 featuring high-stakes games on both Saturday and Sunday.

23:37More importantly, your friends who are in their fantasy football playoffs are going to be a complete mess. That would be me. I really need a big game for Devon H.N. tonight to make it 3-for-3 and advancing in the playoffs. I didn't even listen to any other things you said. I'm fully locked in on fantasy. For anyone who's feeling lucky, the Powerball jackpot has swelled to$1.1 billion ahead of tonight's drawing after no ticket won the prize on Saturday night. It's the game's sixth largest payout ever and the second lottery to top a$1 billion jackpot this year. Toby, I'm already doing a SWOT analysis of whether I'll take the lump sum or the annuity.