What Has Warren Buffett Been Smoking?

shutterstock 573121573
shutterstock 573121573

NEW YORK – On Thursday morning, the esteemed cast of CNBC’s Squawk on the Street, Jim Cramer and David Faber, were mystified as to why Warren Buffett’s Berkshire Hathaway would invest in a dog named Teva Pharmaceuticals, out of Israel. Not our assessment. Cramer, who also hosts Mad Money on the same network, needed to understand the reasoning behind the $358 million investment by the “Oracle of Omaha.” Utterly baffled, Cramer even proffered a theory that didn’t quite work, but not once did he consider the possibility that Teva’s new cannabis inhaler might have been the thing that piqued Buffett’s notoriously long-term interest.

“It’s funny; you know what Warren Buffet invested in?” the voluble host asked Faber shortly after the market opened. “Teva Pharmaceuticals. And that’s interesting, because I regard Teva to be a very second-rate generic company that’s trying to be better run.”


Cramer continued, “I was trying to get a tie-in, David, develop a thesis, among Buffet, [JPMorgan Chase CEO] Jamie Dimon, okay, and [Amazon founder] Jeff Bezos, putting together that coalition that I think is so important. That is a coalition that could rely on generics to bring down [drug] pricing. I don’t think the tie-in necessarily works, but it is interesting that Warren Buffett goes with what I largely regard as the worst of the worst. It made me think, okay, reopen that file. Maybe they had more than we thought, because Buffet does not approach any large buy lightly.”

“No, he does not,” replied Faber. “This is a company that as we well know has gone through just years of difficulty.”

“Years!” affirmed Cramer.

“Management changes galore,” continued Faber. “Credit rating downgrades. A terrible [decision to] purchase the generics business from Allergen. Nothing has gone right for such a long period of time.”

“Absolutely nothing.”

“And such an important part of the Israeli economy,” added Faber. “Employment—they’ve had to cut a lot of jobs, which is anathema in that country. All right, so maybe it’s turning a little.”

Cramer had nothing to add. “So those are the two buys (Teva and Apple) that are resonating with the market today,” he said, ending the segment and moving on to another subject.

Berkshire Hathaway’s Teva buy was consummated in December but reported late yesterday, resulting in a 7-percent increase in Teva shares during aftermarket trading. By this morning, the stock had risen more than 10.5 percent, per CNBC, all of it attributable to Buffett’s investment.

Last September, however, in an article about cannabis stocks to watch, BusinessInsider.com reported, “Teva Pharmaceuticals (NASDAQ: TEVA) is an Israel-based company which develops, manufactures, and markets a variety of specialty medications. The company is the world’s largest generic drug maker and is represented in markets across the planet. Teva has recently joined the cannabis race with a product designed to treat pain using cannabis administered through an inhaler.

“Teva’s substantial market share and motivation to grow, in addition to its innovative drive, make it a very appealing stock for investors,” continued the article. “The company is one of the few on this list which pay out dividends to investors, and with its incredible marketing strategy, it offers great value to those who hold shares.”

Who knows? Maybe cannabis had nothing to do with Berkshire Hathaway’s decision, but it is interesting that such an influential suitor called on Teva so shortly after it joined the cannabis industry.