U.S. Cannabis stocks with potential

QUESTION: I agree that the U.S. has a larger growth potential than Canada now. Yet you basically recommend two Canadian and two U.S. stocks 1933 Industries (CSE: TGIF) and Sunniva (CSE: SNN).

Don’t you see other opportunities in the U.S. with all the companies and the large growth potential?

E.G., from Pennsylvania

ANSWER: Thanks for your question. Here are some thoughts your email stir up:

1. I must add Lexaria (CSE: LXX) (OTCQX: LXRP) to the list of U.S. stocks. Although LXX is a Canadian domiciled company, their DehydraTECHTM technology is international in scale. It has issued or pending patents in forty countries around the world. For at least the next couple of years, investors will probably look at LXX as a U.S. company. After all, it has signed a major agreement with Altria (NYSE: MO) that is the largest tobacco company in the world based substantially on the Marlboro brand.

2. What I have really tried to communicate, not always successfully, is that I am providing guidance away from the Canadian cannabis stocks because I feel many of them have become highly valued based on two or three years of investor attention being focussed on what is going on in Canada. So what I really favour is companies with operations concentrated on U.S. and international markets. That is why regular readers know I have favoured Khiron Life Sciences (TSXV: KHRN) (OTCQB: KHRNF), a company based in Colombia but that is rapidly expanding into other Latin and South American markets and more recently Europe.

3. When I think about adding value for investors, I have to bring something to the table that others don’t. I bring analytical and portfolio management experience, the training and a tried and true investment philosophy. I have lived and worked through every kind of stock market cycle and I have learned what to do when you’re hit with the unexpected. So I’ve come to depend on is quality management. When things go off course, it is the people who figure out what’s wrong and fix it. What I often tell people is “I would rather invest in good people with a bad idea than bad people with a good idea.” I’m always looking for good people with a good idea and that is hard to find. But I’d rather wait than just add another name for the sake of having another name in the portfolio.

4. Finally, if you think of a portfolio starting with one stock, the one stock you would like that to be is the one you think will perform the best given the parameters of the portfolio. When you add a second stock, it probably isn’t quite as attractive to your way of thinking as the first one so from a strictly performance point of view, you have diluted the outlook a bit and so on. Now there are benefits to diversification but I guess what I’m trying to say is more stocks isn’t necessarily better than fewer stocks.

Conclusion: I guess the bottom line is there are a lot of good cannabis stocks out there. But I need to meet and be convinced of management before I recommend them. Then I try to get to know each company really well so I am likely to have fewer rather than more recommendations. Finally, I have an investment philosophy that has worked well over four decades going on five decades that I have confidence in so I am not likely to change.