Buy This Retail Stock for “Safe” Cannabis Exposure

For newcomers to investment in legal cannabis, is Alimentation Couche-Tard Inc. (TSX:ATD.A)(TSX:ATD.B) a good entry for low exposure?

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Entering the cannabis race at this moment in time is not for the faint-hearted, that’s for sure. That’s why today we’ll be taking a look at a reduced-exposure route to investing in the green stuff for the long term: Alimentation Couche-Tard (TSX:ATD.A)(TSX:ATD.B) — a company popular with consumer retail investors and which recently bought a stake in cannabis retailer Fire & Flower (TSX:FAF).

Here’s what you need to know about both stocks before taking the plunge.

A low-exposure route to the cannabis market

The stock also works as a low-exposure play in the cannabis space, and could satisfy investors looking for a low-risk, indirect investment in legal marijuana. However, for the casual investor simply seeking access to the grocery store sector, Alimentation Couche-Tard ticks all the right boxes there, too.

While it’s not much of a dividend payer, yielding just 0.59% at the stock’s current valuation, there is tangible long-term upside potential.

A revenue miss back in July may have had stock market observers turning their noses up, though the deal with Fire & Flower has certainly put the ticker squarely back on investors’ watch lists.

With a strong record of growth, the company has been consistent in outperforming its industry. Most recently, its 12-month return of 29% beat the Canadian consumer retail average of 22.1%. Looking at a three-year average of 31.1%, Alimentation Couche-Tard trounces its peers’ 19.5%.

The pure-play option for short-term upside

Fire & Flower is (for the time being at least) an independent retailer, providing cannabis products to the legal market in two provinces: Alberta and Saskatchewan. While its business is comprehensive as it stands, with the influx of cash from the deal with Alimentation Couche-Tard, the cannabis retailer is on track to develop its platform and break out beyond the west to become a major player on the legal pot scene.

It’s a rare pot stock that is looking like a buy while fear stalks the markets, but we have a contender in this cannabis retailer. Up 11.45% in the last five days, Fire & Flower is already making investors rich and could be one of the breakout success stories of the marijuana space on the TSX — a stock exchange to which Fire & Flower has only very recently ascended.

With Alimentation Couche-Tard coming through with the cash, it’s looking like a surefire bet.

Investors looking to pad out an existing cannabis portfolio would do well to add Fire & Flower shares, though given the possibility that Alimentation Couche-Tard increasing its stake or even buying the cannabis retailer outright, momentum investors may have to judge their window of opportunity. Meanwhile, casual long-term investors who fancy a flutter on the green stuff have an excellent option in Alimentation Couche-Tard.

The bottom line

For newcomers to investment in legal cannabis, Alimentation Couche-Tard could be one of the best entry points for low exposure to the green stuff. The company is geographically diversified and perfectly situated in the market for investors currently recession-proofing their portfolios.

Fire & Flower can offer investors some swift positive momentum in the pure-play cannabis space.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Couche-Tard is a recommendation of Stock Advisor Canada.

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