My Big Miss in 2020

The Pain of Watching TerrAscend’s 200% Move

I knew that TerrAscend (Canada: TER.A, OTC: TRSSF) had the perfect set up and story for a significant re-rating of the stock. I did the work and research on the company for a few months and watched. And then I didn’t pull the trigger and have been on the sidelines while the stock has soared 200% in the past four months. This has been painful, and it sure is painful to write about. Despite that, I want to review the situation to see what I can learn from my inaction.

TerrAscend is a cannabis company that was started in Canada, but quickly shifted to the U.S. It grows and sells cannabis in a bunch of limited license states like Pennsylvania and California, and it is expanding into New Jersey as well.

As I have written about before (Cannabis is the new Saas), I am bullish on the prospects for cannabis and have been looking for ways to invest in the sector. Here is what I liked about TerrAscend.

1.     Significant financial backing from Canopy Growth (NYSE: CGC) and from JW Asset Management (run by TerrAscend’s Chairman of the Board, Jason Wild). TerrAscend simply has great financial backers with enormous pockets, so there was little risk of the company running out of money.

2.     TerrAscend had a new CEO with a great operational background. Jason Ackerman was the CEO of Fresh Direct and helped build the company from scratch to $600 million in sales over 18 years. My thought was and continues to be that if you can figure out online grocery, you should easily be able to figure out cannabis.

3.     Valuation. While TerrAscend looked expensive on 2020 numbers at 12 times cash flow. Looking out to 2021, it looked very compelling at a 4 times 2021 EBITDA estimates.

But I was hesitant to invest for the following reasons:

1.     I had already had a big stake in AYR Strategies (Canada: AYR, OTC: AYRSF). I take concentrated positions in stocks. Did I really want 15-20% of my portfolio in cannabis?

2.     The Trump administration has not been too favorable towards cannabis. Did I want my portfolio to be a bet on the election coming up?

3.     Timing. I thought that I could wait until later in the year with better polling and more data that I could time when I entered the stock to have more confidence.

And this is why I’m writing this post. It is clear as day what is a good reason and what is not a good reason for buying or not buying a stock. Trying to time a stock or the stock market in general is a poor idea that has been shown time and time again. Here is where I made my mistake. I tried to be too cute around the timing of when I wanted to invest instead of just investing. If you believe in a company’s long-term future and the valuation is compelling, worrying about whether the stock will go down in the short term is a recipe for disappointment in my experience.

Further compounding my error were the multiple opportunities I had to buy into the stock as it rose, but my anchoring to the past low price held me back. It is a painful lesson for a value investor to relearn not to be afraid to buy a stock that has increased in price.

Instead of investing in TerrAscend, I invested in another stock that is up only 5%. Missing out on that 200% return hurts as they don’t come around every day.

P.S. Don’t be too sad for me, despite missing TerrAscend, my fund is up approximately 28% for year to date. That said, I would much rather be up 38% or more for the year instead!