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Cryptokicks, weed & telemedicine

Legit.
Happy Monday. First off - thanks for the feedback on last week’s issue on artificial creativity! Lmk if deep-dives on trends are something you want to see more often.
Second - we hit 2k subscribers!
Let’s get into today’s issue:
  • Big Tech-healthcare M&A.
  • Nike’s cryptokicks.
  • Canada has too much weed.
  • An update on Citi’s $900m mistake.

M&A
Big Tech goes all in on healthcare
Image: New York Times
Image: New York Times
Microsoft is acquiring speech-to-text company Nuance for $19.7bn, it announced Monday.
Some context: the pandemic has changed the way we interact with our healthcare providers. Instead of getting into a car, driving to a clinic, sitting in a waiting room - patients have preferred the brevity of speaking to doctors over the phone.
From Nuance’s PoV: this boom in telemedicine is great. Doctors can use Nuance’s speech-recognition tech to transcribe notes during phone consultations, reducing the time spend on admin-heavy documentation.
From Microsoft’s PoV: the acquisition “fits like a glove” into its healthcare vertical. More telemedicine interactions = more health data, especially given 77% of US hospitals use Nuance’s tech.
  • “This could create a whole new level of health intelligence” per TechCrunch.
The trend: on the whole, tech titans have been elbowing their way into the nascent healthcare sector for a while.
  • Amazon recently launched an online pharmacy, Google recently bought Fitbit, and Tom Cook said Apple’s “greatest contribution to mankind” will be in healthcare.
THE TAKEAWAY
The pandemic cemented two things. First, Big Tech’s position at the top of the food chain. Second, the long runway for digitisation in the healthcare sector.
Combine the two, and you have Big Tech’s next battleground.
Further reading: this HBR article on how tech companies can fix American healthcare.
NFTs
CryptoKicks: Nike’s cool new thing
Nike's 'CryptoKick' patent.
Nike's 'CryptoKick' patent.
A few months ago, Scott Belsky wrote a great piece on NFTs. Among other predictions, he imagined a not-so-distant future where every ‘real world purchase’, from a Gucci bag to a new Chevy, is accompanied by an NFT establishing you as the owner.
Turns out, Scott was on the money. Brands are increasingly linking NFTs to luxury goods - and the implications, particularly in the sneaker industry, are pretty cool. Some examples, courtesy of The Fashion Law:
a) CryptoKicks. In 2019, Nike filed a patent for blockchain-based sneakers. It works like this:
  • Whenever a pair of sneakers is created by Nike, the company generates a corresponding cryptographic digital asset - i.e. a “CryptoKick” - which consists of a unique identifier (like a QR code) that confirms your ownership, and a digital version of the shoe.
Basically: buy a physical shoe, get a CryptoKick free.
Like Belsky imagined, CryptoKicks are a stamp of authenticity aimed at smothering the $450bn counterfeit sneaker market. But Nike’s taking it one step further.
The patent lets customers “breed” their digital shoe with another digital shoe to create “shoe offspring” – which, depending on manufacturability, can be custom-made as a pair of real, tangible sneakers.
Nike’s end-game, beyond building a digital community, is to edge its way into the resale market. According to TFL, provisions of Nike’s NFT smart contracts mean it could pocket automatic royalties each time Nike shoes or “shoe offsprings” are re-sold.   
b) Resale restrictions. Nike can also include provisions in its NFT smart contracts that restrict mass resales ouright. Unlike automatic royalites, this approach is a little fluffy:
  • NFT smart contracts can trigger automatic royalties, but they can’t enforce restrictions on who a shoe is sold to. 
THE TAKEAWAY
A few observations:
  • Nike-specific: the resale market is predicted to be a $6 billion market that, historically, has only benefitted resellers. If Nike successfully rolls out a royalties regime through CryptoKicks, it could claim a stake in the market for the first time.
  • Nike-specific: this whole ‘collect and breed’ digital shoes thing sounds like a sneaker version of CryptoKitties.
  • General: luxury brands are jumping on the opportunity to ‘twin’ the digital and the physical, bridging the gap between fashion and virtual worlds.
This quote from TechCrunch sums up my thoughts on fashion NFTs: “every once in a meme-ified blue moon, the wildly irrational cryptocurrency ecosystem gives birth to something that might outlive the hype.”
Zoom out. An NFT hoodie just sold for $26k.
WEED
The ‘green rush’ exists. Just not legally.
When Canada legalized marijuana in 2018, a “green rush” swept the country’s investment scene.
Abandoned greenhouses were renovated and sold for unprecedented prices, new indoor growing facilities popped up across the country - media outlets even hired new journalists to cover marijuana beats, per the Times.
It’s now two years later, and most marijuana producers are reporting losses. At the same time, weed sales have significantly increased. How can both of these sentences coexist?
The culprit, according to a pithy piece called Why don’t we want to get high off Ottawa’s supply?, is the black market. In Ontario alone, the illegal sale of recreational weed accounted for 80% of cannabis sales from 2019 to 2020.
Factors like price and potency have cajoled Canadians away from government-blessed dispensaries and into the arms of underground dealers, but a bigger factor is at play. Canada’s unforgiving marketing restrictions make legal weed seem kind of… boring? 
  • “The illicit market offers differentiation, personality and excusivity, while in the legal market, government cannabis products are interchangeable. By law, every brand is generic.”
THE TAKEAWAY
Laws don’t operate in a vacuum. The assumption that legalizing weed would wipe away the black market in one fell swoop is a naïvité that investors over-relied on in 2018.
To create a legal “green rush”, ancillary laws are also necessary - including flexible regulations on marketing that give brands the space to develop. People are drawn to the experiences attached to products more than the products themselves – even when that product is weed. 
Until Canada picks up on this, it remains a cautionary tale: “the investment craze produced a strong echo of the dot-com stock boom of the late 1990s. And it ended with the same collapse.”
BANKS
An update on Citi’s $900m mistake
Image: New York Times
Image: New York Times
Last month, I wrote about Citi’s case against hedge funds. If you missed that newsletter, here’s a recap:
Last August, Citi accidentally sent $900m to hedge funds to pay off a loan for Revlon. The key word here is accident. It was a back-office blunder; the loan wasn’t due yet, so Citi asked for the money back. Alas, at the time, many of the hedge funds were in a bitter dispute with Revlon and decided that pocketing $500m was a better idea. A New York judge agreed with them.
Citi’s now in the midst of an appeal, relying on a combination of shock-value and reasoning to reverse the decision:
a) Shock-value: Citi’s lawyer told a federal judge on Friday that another big bank made an even bigger payment error than Citi’s $900m one - and got the money back. The underlying logic is: if a bank sends money to people by accident, they usually send it back.
b) Reasoning: in the first instance, the court ruled in favor of the hedge funds under the ‘discharge for value’ doctrine: the hedge funds were owed money by Revlon, and they thought Citi was intentionally paying that debt, so they had a legal claim to the money.
  • Citi’s arguing this doctrine only applies if lenders are owed money and the repayment is due. That wasn’t the case here.
THE TAKEAWAY
Most commentators (a) were shocked the court let hedge funds pocket $500m after an accidental transfer; (b) think Citi should win the appeal.
Either way, Citi has more problems. The hedge funds that played nice and returned $400m to Citi are asking for it back.
(It doesn’t make sense to me, either - “we were mistaken in thinking we weren’t entitled to the money you mistakenly gave us, so please correct our mistake by re-doing your mistake”).
LEGIT ONE LINERS
  • Cook County prosecutor, James Murphy, is placed on leave after implying 13-year-old Adam Toledo was armed when he was shot and killed by a police officer.
  • Hong Kong pro-democracy figures are given jail terms of up to 18 months.
  • Colin vs. Cuthbert: the battle of the caterpillars.
  • The NEO Exchange launches a new listing vehicle geared towards mid-sized companies… SPAC 2.0?
  • The EU is considering an AI ban.
  • Squarespace files to go public via direct listing.
  • Detroit man sues police for wrongful arrest based on facial recognition tech.
  • Google’s secret ‘Project Bernanke’ is revealed in court filings.
  • Long read: this great paper by Mark Lemley and Andrew McCreary on how Silicon Valley’s ‘exit strategy’ shortcuts tech disruption. Highly recommend.
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Legit. | Legal News
Legit. | Legal News @anniamirza

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