Sundial Growers: Should You Buy this Cannabis Stock?
Canada is one of the largest hubs for the cannabis industry. It has also become one of the largest producers of cannabidiol (CBD), and other cannabis-based medications. As with any emerging industry, we tend to see substantial volatility. Cannabis stocks seem to soar and then tank in the span of a few days. However, there are a few stocks in this space that manage to garner interest from investors. Sundial Growers (NASDAQ: SNDL) is one such cannabis stock. Based out of Alberta, Sundial is a licensed cannabis producer that produces a range of strains and varieties of cannabis derivative products. The stock was trading $1.14 on February 5 before touching $3.35 on February 11 and then fell sharply to ( ) where it is trading today. But should you buy this cannabis stock?
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Sundial Growers: Improving Financial Stability
Sundial spent 2020 improving its financial stability. The company decreased its principal debt amount by $23 million in Q3 of 2020. A total of $100 million of debt has been eliminated year to date and cash on hand at the end of Q3 of 2020 stood at $60 million.
General and administrative costs were reduced by 7% from $7.7 million to $7.2 million in the third quarter of 2020 when compared to the previous three months ended June 30, 2020. Capital raises provided gross proceeds of $26.4 million during the quarter and $48.1 million subsequent to the end of the quarter.
On December 15, Sundial paid another $50 million of the outstanding principal of the credit facility of the company. Sundial also raised money. On February 4, the company announced that it had closed $74.5 million in a registered offering. This is good news, but should you buy this cannabis stock?
Growth Plans and Compliance for Sundial
As a part of its expansion plans, the company announced a $22 million strategic investment in Indiva Limited. This will not only improve the financial health of the company in the future but will also help the company to hold a significant market share in the industry, over time. The decision also opened an exposure of the company in the cannabis edibles category.
The edibles category is important for Sundial. For Q3 of 2020, 77% of total Sundial sales came from branded cannabis. The company also reported an increase of 120% in sales and marketing expenses for the quarter. Clearly, Sundial is focusing on widening its brand reach. With luck, this should translate into increased revenue in the next few quarters.
In the first week of November, Sundial also announced that it entered into a sales and distribution agreement with Choklat for cannabis-infused chocolate bars, infused sugar, and drinking chocolate. The new collaboration between the two Alberta-based companies provides Sundial the opportunity to continue to expand its product portfolio and enter the edible market.
Previously the company faced compliance issues with Nasdaq regarding its minimum bid requirements. On 17th February 2021, the company regained its compliances with Nasdaq’s minimum bid-rule requirements to continue being listed in the Nasdaq. This indicates that the management of the company is trying to improve its position regarding the compliance rules in the market.
In the third quarter of 2020, the company held 3.3% of the adult-use market share. It has taken steps to improve its supply chain management. In March 2020 where only 21% of the customer’s complete orders were duly shipped on time, by September 2020 the figure jumped to 96.1%. That also shows the improvement in the efficiency level of the management. But is this cannabis stock a buy?
Sundial’s Recent Developments
From the above data, it is evident that the company is looking to improve its performance, both organically and inorganically. It is getting its house in order and establishing a proper base to chase growth.
All that being said, Sundial management has also indicated that it is open to a merger. This line from its Q3 analyst call puts things in perspective: “Sundial’s Board has authorized management and its external advisors to consider a broader range of strategic alternatives, including a potential sale of the Company, merger or other business combination, investments in other Canadian cannabis companies.”
Bottom Line: Should You Buy Sundial Growers Cannabis Stock Right Now?
If Sundial attracts the interest of larger companies, expect its stock to zoom up again. That being said, the company continues to lose money in a very challenging and competitive Canadian Cannabis Market. While there may be an eventual upside, there are too many other lucrative cannabis and hemp stocks to buy right now.
Sundial Growers: Should You Buy this Cannabis Stock?
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