🎙️ When the Dust Settles

You might be familiar with Novo Nordisk, the Danish pharma company behind weight-loss drugs Ozempic and Wegovy.

The company just crossed the $400 billion market cap threshold, surpassing Denmark’s annual GDP 😅 — Novo is so big that it’s now worth a similar amount to McDonald’s and Netflix combined.

It’s a fascinating rise for the 100-year-old company that has transformed from making diabetes drugs to revolutionary weight-loss drugs as obesity rates climb.

*Programming note: We’ll be off tomorrow & Monday for Labor Day Weekend, but we’ll still have our regular Weekend Editions — our normal markets coverage resumes Tuesday.

— Matthew, Shawn, and Weronika

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• Why marijuana stocks are zooming

• UBS is the most profitable bank ever, but it’s not what you think

• How the EV boom is remaking American towns

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

🌿 U.S. Health Officials Urge Moving Pot to Lower-Risk Category (Bloomberg)

Americans have embraced the same logic teenagers use when breaking their parents’ rules: Keep pushing the boundaries, and they might bend.

That may be paying off at a federal level: U.S. health authorities are advocating for relaxed marijuana regulations, removing it from the most restricted drug list after many states have decriminalized or legalized the drug.

New status quo? A senior official from the Department of Health and Human Services (HHS) sent a letter to the Drug Enforcement Agency (DEA), recommending marijuana be deemed a Schedule III drug under the Controlled Substances Act.

In other words, HHS recommends that marijuana be reclassified as a lower-risk drug.

• The DEA, which holds the final say on drug rescheduling, will begin its review.

More agency acronyms: The Food and Drug Administration (FDA) evaluated eight key criteria that influence the regulatory status of a substance and suggested marijuana should be reclassified as a Schedule III drug.

• The National Institute on Drug Abuse (NIDA) also agreed with the FDA's recommendation.

What’s old and new: The current classification of marijuana as a Schedule I substance suggests it has no recognized medical benefits, which is increasingly untrue. It also associates pot with drugs with a high risk of abuse, like heroin.

• Being reclassified as a Schedule III substance, like ketamine, would mean marijuana could be legally acquired with a prescription for conditions ranging from glaucoma to anxiety.

Why it matters:

Market perspective: While rescheduling wouldn’t provide a full-fledged regulatory framework for the industry, it would offer some financial relief to struggling cannabis businesses in the form of tax breaks and would ease restrictions on research.

• Under its current Schedule I status, cannabis companies cannot claim standard tax deductions and academic research on the substance has been severely limited.

Investors’ sentiment: Cannabis stocks, which tend to be primarily owned by individual rather than institutional investors, surged following the announcement.

• The MJ PurePlay 100 Index, a gauge of marijuana stocks, increased by 13% on Wednesday, reducing its year-to-date loss to 21%.

Analysts and cannabis activists agree that relocating marijuana to a Schedule III classification would mark the most significant change in federal cannabis regulations in decades.

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🤑 UBS Is the Most Profitable Bank Ever, Thanks to a Technicality (FT)

The Swiss banking giant, UBS, just reported the largest-ever profit for a bank. So why is it cutting 3,000 jobs?

For starters, the $29 billion profit is something of a technical anomaly.

Shotgun marriage: A few months back, the world stared down a banking system crisis following the collapses of Silicon Valley Bank, First Republic, and Credit Suisse. But our worst fears were avoided, and as part of the recovery process, UBS acquired its chief rival, Credit Suisse, at a massive discount.

• UBS’s record profits stem from an accounting difference between the value of Credit Suisse’s balance sheet and the $3.8 billion UBS paid for the bank, topping the $14.3 billion profit JPMorgan Chase made in Q1 2021.

• In other words, during the crisis, UBS swooped up Credit Suisse’s assets below market value and, as a result, recorded a substantial gain on paper.
  

• Without the accounting boost, UBS’s financial performance was much more modest, ringing in $1.1 billion before taxes.

Still, why the layoffs? The question sits at the center of this story. UBS wasn’t particularly eager to absorb its troubled peer but begrudgingly did so after regulators gave them a deal too sweet to pass up.

The plan is to fully integrate both banks by 2025, and by that time, UBS wants to have fully terminated Credit Suisse’s domestic business. It’s not a popular move, though — a recent poll found that ¾ of Swiss citizens don’t approve of UBS merging its domestic business with its former rival.

• As part of this consolidation, some 3,000 jobs will become redundant, according to UBS’s CEO.

Why it matters:

When the dust settles: Buying Credit Suisse has come with legal, regulatory, and managerial baggage. Yet, UBS has clearly come out a winner, and shareholders agree — the bank’s stock is up 40% since agreeing to rescue Credit Suisse in March.

• UBS + Credit Suisse is the biggest post-2008 bank merger. But the deal created a company whose assets dwarf Switzerland’s total economic output, while regulators had already struggled to rein in big banks.
  

• Although Switzerland offered to bankroll the Credit Suisse rescue (with guarantees and central bank funding), UBS has since ditched those state-offered financial assurances, leaving politicians with little leverage to protest its pending large layoffs.

MORE HEADLINES

👨‍👩‍👦 About 61% of Americans live paycheck to paycheck as inflation stings

🧑‍🔧 Engineer shortage may harm U.S. plan to turn Vietnam into chips powerhouse

🛍️ Dollar General sales fall after spending slump and theft

⛽ Labor Day weekend gas prices sitting near all-time highs

💳 Consumers continue to spend, per new Commerce Department data

🚗 EV Boom Remakes Rural Towns in the South (WSJ)

Detroit earned the nickname “Motor City” for being the global automotive industry center about a century ago. But today, the U.S. auto industry is moving South.

Bible EV belt: States like Georgia, Kentucky, and Tennessee have become hotbeds for the booming electric vehicle industry, driving an influx of new residents and jobs in rural towns.

The Mayor of one small town in Tennessee said, “it’s tremendously overwhelming” that Ford is opening a massive complex in his 400-person town. Once operational, the site will employ 6,000 workers, about 15 times the current population.

• American auto companies have announced more than $110 billion in EV-related investments since 2018. About half that sum, or $55 billion, is destined for southern states, with the rest reserved for more traditional “car states” in the Midwest like Michigan, Indiana, and Ohio.
  

• Just as the auto industry’s rise a century ago shaped Midwestern cities like Detroit, the industry’s move South could alter regional economies in warmer states.
  

• It makes sense: The South has plenty of cheap land for large manufacturing facilities, corporate tax rates are generally more relaxed, and there are usually enough railroads and airports to suffice.

South Carolina has been a leader in the U.S. auto industry for years. Georgia and Tennessee are entering the mix by welcoming large EV assembly plants and battery factories for big players like Hyundai, adding thousands of jobs to small towns.

Cheaper energy: Many Southern states have much lower energy costs, including renewable energy. That’s a big draw for EV makers that use enormous amounts of energy to make batteries.

Why it matters:

Only about 5% of all cars sold in the U.S. are electric today, but some estimates say that figure could jump to 40% by 2030.

To get there, we’ll need more EV automakers than Tesla. Ford CEO Jim Farley has wanted to turn Henry Ford’s company into an EV leader.

• One of Farley’s biggest moves: A manufacturing campus in Tennessee, home to one of the largest clean-energy providers in the U.S. and a state with low energy costs.

Zero-sum game: The South’s rise has coincided with the Great Lakes’ region demise. Detroit is a far cry from what it was during the peak of the auto industry’s rise. Auto employment in the Great Lakes region has slid 34% in the past two decades, a trend unlikely to reverse.

RECOMMENDED READING

AI is the Wild West right now. Lots of action. Too many updates. Massive potential.

It’s almost too much to keep track of. That’s when we turn to our friends over at Prompts Daily.

Their free newsletter helps readers get the latest news across AI (and why we should care).

It's written for busy professionals like you.

See you next time!

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