This leading convenience store operator already sells lottery tickets, beer, wine and tobacco products in many of its nearly 10,000 North American stores. While Canada legalizes recreational cannabis this week, the company will hold off on any plans to enter that retail market. Instead it continues to work on integrating new acquisitions, with its earnings climbing 31% in the most recent quarter.

ALIMENTATION COUCHE-TARD INC. (symbol ATD.B on Toronto; www.couchetard.com) operates 12,740 convenience stores across North America and Europe.

The company plans to hold off for now on pursuing licences to sell cannabis in its Canadian stores.

One of the main reasons is the reluctance of many of its employees to sell the drug. They are concerned about the buyers of cannabis—how they will act in the store, and safety and security.

But just as important, Couche-Tarde says that if it’s going to change the successful format of its stores, it would have to be on a large enough scale to make it worthwhile.

The use and sale of recreational marijuana will become legal across Canada on October 17, 2018. Most provinces will allow some form of private retail, while Quebec and many Atlantic provinces have opted for full government control of sales.

Couche-Tard, the retailer behind Circle K stores, already sells lottery tickets, beer, wine and tobacco products in many of its nearly 10,000 North American stores.

In the three months ended July 22, 2018, sales jumped 50.2%, to $14.79 billion from $9.85 billion a year earlier (all figures except share price in U.S. dollars). The jump was mostly due to acquisitions, including convenience-store chain CST Brands (symbol CST on New York).

Earnings per share, excluding one-time items, climbed 31.3%, to $0.88 from $0.67.

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Growth by acquisition adds risk, especially with a string of deals as big as that for CST Brands. However, Couche-Tard has a long track record of successfully integrating those businesses. What’s more, its balance sheet remains strong: its long-term debt of $8.4 billion is just 23.9% of its market cap, and it holds cash of $739.4 million.

The recent gains came even though the switch to the PC Optimum loyalty program from Aeroplan hurt sales at its Esso-branded convenience store locations. While fuel volumes grew in most of Canada, they were hurt by a two-month gap between the end of the Aeroplan affiliation in June and the start-up of the PC Optimum in early August.

Meanwhile, the company’s outlook remains positive. Its earnings should keep rising as it continues to integrate acquisitions. Rising employment and consumer confidence levels, especially in the U.S., should also boost sales. Couche-Tard continues to launch initiatives at its newly purchased chains—including a variety of new drinks and improved fresh and takeout foods. In addition, the company should be able to pass on its rising labour and transportation costs to its customers.

Couche-Tard pays a dividend of $0.10 a share. The annual rate of $0.40 yields 0.6%.

Recommendation in Stock Pickers Digest: Alimentation Couche-Tard is a buy.

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