In another state opens a door to legalize marijuana sales. We are looking at companies who will see profits go up in smoke. Bubble . At a burst of a welcome to Market Makers. News, ie we get to the are im glad to see them leave. I live downtown on the west side. That line wrapped around magnolia for those cup cakes. I am glad to know i am no longer the only one. Now we need to get to the news feed. These of the top business stories around the world. Germanys commerzbank is the u. S. Nvestigation of the they may have to play a penalty of half a billion dollars. Struggling retailer American Apparel is rejecting claims it has defaulted on a 10 million loan. The firm says American Apparel by oustinghe fall their ceo last month. They want the ceo reinstated. Pope francis a shaking of the vatican bank. He plans to replace the board and executives after profit dropped 97 . Last year the bank was tainted by the arrest of a clerk. The art of the deal. It is back for the First Time Since 2007. The values of mergers and acquisitions topped 900 billion. The expectation is that there is more to come, possibly much more. Here to talk to us is the m a catalyst. He is the senior manager director. He could be mistaken for a millennial. I dont think so. Good morning. It is nice to see you. Lets talk about the m a business. It is hot. Some people are drawing comparisons to 2007. I think the comparison is 2000 and one. The most interesting time in 14 of 15 years. Youve also got a couple more characteristics. Prices,only have share you also have much more muscular boards today than you had 15 years ago. 25 yearss today have more m a experience. Boards are willing to make hostile deals. Theyre willing to deal robustly. Does that make the transaction better . Boards are much savvier and more astute. You have the greek chorus of the activist in the background. The greek chorus is playing a very constructive role. The activist is playing a constructive role . We heard that from you before. Udc transactions like the one that sticks in my mind. Tyson buyingnt is hill shire. Aat was a deal that put blackstone interest in an awkward is edition. I keep saying this because i can hardly believe it. A 35 stock becomes a stock worth 60 plus dollars. Where were the activist there . Where is the sane conservative activists saying what you doing . Youve got a lot of people looking for longerterm brand demographics. People are looking for certain brands to sell certain demographic categories. Lets talk about this creative dealmaking process. If we are talking about tyson or bill ackman, what motivates companies right now . People are a lot more muscular. Theyre much more confident. I dont know what that means. Balanceave robust sheets. You have low Interest Rates and a lot of cash. For the last five Years Companies have had a lot of time to finetune their strategies. Boards of smell a lot of time listening to chief executives discuss the strategy and their implications. Do you get concerned when you say they are more muscular . In 2006 it seemed like they were super muscular, to confident. Would you be happier if i use the word center fitter . It means you are aerobic. Do we run a risk . People today are very confident. There is more checks and balances today, more than there has ever been. You have much more robust governance. The chief executive is not always sitting in the same seat. You have a senior independent directors who are providing a check and balance to the board. I would say that boards are functioning better today. , when people launch a hostile deal it is a much more informed investment. It is a more thoughtful situation. Lets talk about what is making those investments. What are the principal catalyst for corporate m a . Is it tax arbitrage . , oldstylexample corporate synergy . These companies are complementary and we can cut costs and grow our customer base. Sitting a ton of cash around and they need to do something with it or the shareholders will get angry . All of the above. There is no question there are a lot of deals driven by tax. Certainly in the last two years than men 11 or 12 taxbased transactions. We have seen a couple lately that have failed. I think on the other hand washington and the next president ial administration will with some type of assessment or reassessment of Corporate Tax. A lot of people hope so. Wouldnt it be interesting if it were bill clinton . He raise the Corporate Tax to raise the budget. It would be interesting to see if his other half lowered it. It would be ironic. In terms of national priorities, what countries are creating the best environments for risktaking . Companies to do in hong kong and singapore and new zealand and australia. People are still much more comfortable with the north american environment. North america has become toreasingly more cumbersome a d start a business. What do you see happening . That,he boards recognize not anticipating a change and taking steps in an m a deal or otherwise . Do they avail themselves of the opportunities through looser regulations and taxes . People will still be focused on their strategy. Onyll be focused demographics. They will focus on market position. Theyll deal with antitrust. They wont run a file of antitrust rules. They are going to be much more aggressive at redeploying capital. John, Morgan Stanley has an oped online in the wall street journal. It says that anchor going to get bigger. He may be referring to american banks. I think he is thinking globally. The response that they come up with as result, do you agree . I think it focuses on something to make use to do. It used to be the center of the community. The bank is are people went to find trust and empathy when youre looking for a loan of or to find a mortgage. Big has to berd defined in terms of capital structure and its role in society. I think they are trying to redefine the role of the bank. Banks, the the u. S. Get muchor five, will bigger. Once there is more transparency and more broadbased disclosure in europe therell be a wave of banking consolidation across the board era. Quicklyl happen pretty in the next two or three years. Opinions ofpopulist banksial industries, ken like jpmorgan can banks become a trusted advisor again . People want to see a human face. The reason why jpmorgan is so well respected is there are good people there the deal of customers. People trust the people they are dealing with. You have to translate that and figure out how to scale that. I think that is what james gordon is talking about. About the 97,000 bank franchises in america shrinking to 10,000. That is fewer human faces. It is like buying gucci online. To buy your gucci shoes online but you still want to go to the Flagship Store and see what they look like. You want the experience. You will go to the Flagship Bank of America Store to meet the people who have responsibility for your financial wherewithal. I think that is what he is talking about. Noiseu think it is just the young people who dont think they need banks anymore . We have to be careful. Adding there will be a reaction to dealing with bush won a, push two, bush three. People want to deal with people at the end of the day. They want to deal with them on an efficient basis. I take my kids to the bank. It is awesome traditional experience. Jonna, when we come back we will talk about stay with us. Israel is pounding gaza from the air. It may be on the verge of launching a ground offensive. Joins coloradoe in the sale of Recreational Marijuana. We are headed to seattle for opening day. Youre watching Market Makers. Also on your tablet or smartphone and streaming live on apple tv and amazon fire. Welcome back to Market Makers. I am Stephanie Ruhle with my fabulous partner Erik Schatzker. There is a crises breaking out all over the world the summer. We are seeing a major escalation in the battle between hamas and israel. Editor is here. How tense is a situation . It is incredibly tense. Life is going on as normal in tel aviv. When you get toward gaza which is just a short way down the coast from here and you are in range of the more revenue rockets that are being fired, things are impacted. That represents manufacturers in israel is putting up a war room. Impact on thehe stock market. We have had a decline of 1. 5 over the last couple of days. Bomb shelters are opening up just in case. Happeningl that it is although life continues as normal. Thingsto the gaza strip, are very much reliving the escalation which is the biggest we have seen since 2012. I would be curious, in the event of what is happening in respect to serious if jordan is further destabilized and it becomes the oft area beyond the refugees military intervention, how do you see the deked position of do youand jordan, how see the Israeli Government responding to that . Israel wants stability and jordan has been an island of stability in the arab world. There is so much turmoil in egypt and syria and lebanon and over in iraq as well. Is atability of jordan concern. That what isard it going on in iraq might spill over there. The situation is people are focused on the escalation and what might happen. Has reportedly gone with egypt and tried to focus on a ceasefire between israel and hamas. Certainly, it is just another headache for policymakers in this region and in the west. I suppose there are concerns that things could spill over into jordan. We have not seen that yet. Reassuring how unstable things are in serious and in iraq. One hopes there is another headache to deal with if jordan does become the stabilized by what is going on. Thank you for an update. Serious, talking israel, different parts of the middle east, how much are these affecting your business every day . Last five spent the years talking about domestic politics as it relates to stabilizing the u. S. Economy. Now everybody has this uneasy time flipping to geopolitics. I think what you see is a number of very successful American Companies that really wouldnt see the Business Model rise above geopolitical tensions. When you look at a cocacola or they have a, Business Model that wants to rise above any sort of shortterm lyrical or geopolitical aberration. How do you do that . Business goes on as usual in tel aviv. The israelis have seen countless come and go and live with it. How does that become part of the mindset of the corporate ceo . The successful ceo manages this global balance very successfully. The brand is very much a local brand and a local business country by country around the world. It might be a global strategy or it might be a global r d , that brand is managed as a local brand. Are pepsi in russia or cocacola in a number of parts you are not seen as an american brand but is a local brand. How do they evaluate that risk . When the Political Climate is so toertain, do Companies Start say it doesnt make sense to be there right now just because of the political uncertainty. How can you be a local brand when everything is up in the air . Its hard to generalize. People need food and beverage. People need consumer products. If you are a defense manufacturer, youre going to make a lot of money with what the Prime Minister is trying to india. Ish in japan or if youre in the u. S. Aerospace and defense space, you are looking forward to a much more robust business over the next five years. Recognition of geopolitical risk going back to what we start the conversation with . Driving more mergers and acquisitions . And is a funny combination of things happening at once. You have the geopolitical risk but 2 trillion in cash office the offshore. That is a great point. Thank you for staying with us. Up. Eve got more coming do yourant to hang 10 time off or do you want something a little less strenuous . We have a list of the worlds top vacation spots. It are watching bloomberg tv. Coming up, the home of microsoft and starbucks got a brandnew industry as of today. Recreational marijuana goes on sale legally in the state of washington. That is connected to this next story. Crumbs is going out of business. Live from bloomberg headquarters in new york, this is Market Makers with Erik Schatzker and Stephanie Ruhle. I am Stephanie Ruhle. Hotoday in Washington State becomes legal. Pot becomes legal. Regulated heavily with only 7 of retail licenses approved by the state. Jon erlichman is outside one of the approved pot stores in seattle. In the the only store washington largest city. Is conveniently located across the street from a dennys. We have watched the pot industry develop in colorado. It willxpectation that be similar in washington . I think there is that expectation. Context, both in of these states gave the thumbsup about 20 months ago. Case ofken in the washington a lot longer to get up to speed in part because they have a lot of work to do. At, itore where we are is not like there is the most luxurious retail location. We are basically in an industrial part of town. There are strict limitations on how much potsay, is mentioned outside the store. Additionally, there is the factor that you have to make and hott pot stores growers and the distribution is taken care of from a regulatory standpoint. I think there is the expectation that they will push forward the way they have in colorado. It sound like it is costing them a lot of money to be repaired for this. What do the Economic Impact be on the state . I think it is going to be interesting to watch. You were talking about a store owner who says the investment was 50,000. A lot of that is going into buying the pot. We will see how the demand plays out. High rated at a raises questions about how many people will choose to come legally to stores as opposed to ifng to the black market or youre approved for Medicinal Marijuana by it that way. To your point stephanie, colorado had high hopes for tax revenue. They are not generating as much as they thought. In washington they had to bring down their estimates as well. It is a new business. That is the key. That is why there is a lot of curiosity. Why is there a Security Guard behind you . He is not as tough as the other guy. Does this Say Something about the kind of business they expect . People who have been supporters of this argue that this industry has been unsafe. You dont really know what you are buying. Now there is regulation with respect to that. Youre supposed to be able to go into a regulated store and buy this safely. Having a Security Guard out front hammers at home. I think now they want to maintain some crowd control. They will open the doors around noon local time. I cant see past that. Is there a huge apple store type line . I was joking with betty liu about that earlier. This is not like opening an apple store so far. Maybe people dont know that this exists. This is something the media is covering closely. We are in industrial part of town. There is not of signage. Peoples this will get attention. That theylso the fact are concerned about how much supply they will actually have. Restrictions some on how much you can actually buy. May be dont wake up that early. Thank you so much. Jon erlichman is standing outside one of the first stores. I want to talk with one man who wants to cash in on this pot boom. He invests specifically in the canvas companies. He is also in seattle this morning. Brandon, what does this mean for you . We are excited about this experiment in democracy. This is unfolding before us today in Washington State. Give us specifics. Over a yearandahalf ago the residents of Washington State voted. Now we have 21 stores that had been approved and will be over 300 eventually. It is another migration from a black architect of illegal market. Just like alcohol to lace 75 years ago. Branding . Is have the you were saying it was difficult to find a bank to deal with. There was still a black cloud around. People did not want to be in the pot business. Now that it is legal, how much does that help . It helps a great deal. We have two operational retail states. This week we saw Governor Cuomo in new york legalize medical cannabis there. Legalizea we will see in november. We will also likely see oregon and alaska legalize recreational cannabis. It is a slow migration towards the end of prohibition. Out, therean points are number of states in america that allow for legal medical marijuana. You have two states were Recreational Marijuana is allowed. Does it make sense of the Financial Services industry is so reluctant to bank the marijuana business . Be . Hy should it this is probably going to get clustered in one of those sin industries. But we have bank tobacco. Lets be clear. It took some time to develop those track records. I think it is interesting to listen to brendans discussion. I think we need to see where this demand levels out. Where it is coming from demographically over the next six to 12 months in the state of washington. Im sure he has his own models and views about how this will evolve. Itd be interesting to hear him comment about that. The Banking Sector banks things that have a certainty of cash flow. There any questions in your mind about the certainty of cash flow from the businesses that you are investing in or the ones that are active . That is interesting. Currently we are in a situation where 58 of americans think cannabis should be legal. It should be taxed and regulated like alcohol and tobacco. It is far less harmful to individuals then alcohol and tobacco. You even mentioned the sugar. It is a safer product. People the been using for 5000 years and we will see a situation in colorado and washington where it will no longer have exp