CANNABIS CORNER: A Well-Balanced Pot Portfolio

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

I always urge investors to respect diversification. No portfolio should ever reflect an all-or-nothing bet on any stock, no matter how strong your conviction about it happens to be.

That’s been true this year in cannabis. Those who picked the wrong one or two cultivators have had to absorb catastrophic losses.

Aurora Cannabis Inc. (NYSE:ACB) has come a long way back from the brink, but it’s still down 64% year to date. Tilray Corp. (NASDAQ:TLRY) has been cut in half over the past 11 months.

Move down the food chain and the losses can be even more severe. Remember CannTrust Holdings Inc. (OTC:CNTTQ), which temporarily lost its licenses and has yet to recover its Nasdaq listing? If that was the only cannabis stock you liked, you lost a harrowing 84% of your investment.

But we’ve seen a few massive rallies as well. Canopy Growth Corp. (NYSE:CGC) has managed to gain ground across this rollercoaster year and is currently on track to deliver a 27% win for 2020 as a whole.

Medical marijuana leader Aphria Corp. (NASDAQ:APHA) is up over 30%. And then pot products packager Green Thumb Industries Inc. (OTC:GTBIF) has delivered a seven-fold return (700%) as investors catch on to the power of next-generation business models.

This demonstrates what I’ve been saying all along. The industry is not in trouble. Sales across North America are as robust as ever. We’re still in a “green gold rush” situation where cash is flowing.

The only problem is that too much cash flowed into some of these companies too early. Now they’re having a hard time growing into their valuations before investors get frustrated.

Meanwhile, ambitious and innovative competitors keep emerging. We’re invested in a few of them in my IPO Edge now. I have high hopes for their ability to turn green into gold.

But, as IPO Edge subscribers have learned, diversification is essential. Admittedly, IPOs are hot right now and I’ve picked six 100% winners so far this year, but every early-stage investor expects a few losses along the way.

That’s why we follow a full-portfolio approach where subscribers buy a little bit of everything and trust the home runs to outweigh the missed swings. It’s working. We’re up nearly 38% year to date across the current portfolio.

And similar logic applies in the cannabis universe. I track 10 key stocks in that space. Some are still nursing those deep losses I mentioned while others are making shareholders extremely happy.

Why roll the dice on one or two concentrated positions when you can simply buy the group and do well overall? You have to swallow a few losses, but you’re guaranteed to own the ultimate winners.

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