On paper, the case for cannabis firms like Sundial Growers (NASDAQ:SNDL) should be a robust, positive one. Previously maligned and depressed by severe legislation, the North American cannabis market has made significant progress toward legalization and mainstream acceptability. However, the industry suffered from too much of a good thing, resulting in unsubstantiated hype and extreme competition. Still, the current novel coronavirus in a way could offer surprising upside for Sundial Growers stock.
How so? As many weedpreneuers in Canada are discovering, the pot-smoking niche isn’t quite big enough to justify the expansion in the industry that we’ve witnessed. Instead, the key to success could be in the edibles department. Although attitudes toward cannabis have shifted dramatically over the past two decades, there still exists a sizable swathe of the population that is against botanical solutions, if you will.
To help bridge the gap, many companies are turning toward cannabis-infused edibles. In this case, it’s easier to evangelize the benefits of weed through the cloaking mechanism, similar to what parents do to trick their kids into eating their vegetables. Therefore, Sundial’s initiative with Choklat to produce cannabis-infused chocolate bars and beverages seems like the perfect catalyst for Sundial Growers stock.
Yes, chocolate always sells, so that’s one aspect in favor of SNDL stock. But as it relates to the coronavirus pandemic, many people have felt stressed out from the crisis. For instance, researchers from University of North Carolina Chapel Hill and Harvard Medical School discovered that 55% of Americans reported being more stressed in May than January.
That’s hardly surprising, given that the coronavirus is essentially a two-pronged attack: one against our health and the other chipping away at our livelihood. Add the stress of worrying about our family members and it’s reasonable to assume that throughout the globe, anxiety reigns supreme.
But what has been a remedy for stress? Weed, for one. But the other is chocolate. Combine the two and potentially, you have a real winner for Sundial Growers stock. But is that enough reason to take a shot on SNDL?
Could Politics Drive Sundial Growers Stock Higher?
As InvestorPlace’s William White reported recently, Sundial Growers stock surged on the Nov. 6 session despite the lack of any news about the company. Therefore, White reasoned that, at the time, the markets were buoyed at the anticipation of Joe Biden winning the presidency.
And that’s a reasonable assumption. As you know, this election and the months leading up to it were nothing short of bizarre. Further, the race was much tighter than the polls suggested, with Biden really squeaking out a narrow victory. That definitely shocked people because the federal government’s handling of the pandemic was less than ideal.
So, when President Trump appeared to have the edge on election night, Democrats feared for the worst. But later in the week, it became apparent that Biden was on the cusp of victory, which boosted Sundial Growers stock.
Of course, the assumption is that Biden would be far more open to full legalization of marijuana. If that did occur, it would open doors for greater partnerships between Canada and the U.S. As well, Canadian firms could potentially export cannabis-infused products to the U.S., establishing a stronghold in this pivotal market.
Although the surface-level argument seems to favor Sundial stock, historically, Biden has opposed marijuana legalization. I think it’s very significant that he and running mate Kamala Harris have promised to decriminalize marijuana. But that falls short of full legalization.
Moreover, the 2020 election was a massive disappointment for Democrats. While control of the Senate will come down to two runoff races in Georgia, it’s unlikely they will win both races. Also, the Democrats lost some seats in the House. That tells you that despite an awful year in America, a substantial number of voters prefer conservative values.
Biden may be old but he’s not stupid. He can’t afford to rock the boat too much when unity is one of his primary objectives.
A Speculative Bet for Now
At the current juncture, I’m not sure if a political catalyst is enough for Sundial Growers stock. Primarily, competition is one of the biggest counterarguments. Other companies, such as Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON), are much more entrenched in the U.S. legal cannabis market via cannabidiol (CBD).
Thus, for the political angle to work for Sundial Growers stock, the U.S. would have to legalize marijuana (which is not guaranteed) and SNDL must compete with bigger rivals. These are tough variables for most conservative investors to ignore.
However, I admit that I like the technical momentum for SNDL. If you have some risk money burning a hole in your pocket, I wouldn’t begrudge a speculative bet. But please keep in mind that this is still a crowded sector and further volatility could be ahead.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.