Some Air Is Coming Out of Sundial Growers’ Balloon

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There’s no doubt that Sundial Growers (NASDAQ:SNDL) is in serious trouble. The Sundial Growers stock price keeps going lower and lower, no matter what management tries to do to stop the bleeding.

Image of marijuana leaves growing on a plant.
Source: Yarygin / Shutterstock.com

Sundial was a $3 per share at the beginning of the year, but now trades at less than 70 cents.

There was some hope last week that Sundial would begin to turn things around, particularly as sentiment in the U.S. is beginning to grow on hopes that President-elect Joe Biden will support marijuana legalization.

But those losses were short-lived, and Sundial Growers stock heads into December looking like one of the worst cannabis stocks on the market.

Why are investors fleeing?

Sundial Growers Stock at a Glance

Sundial Growers produces, distributes and sells cannabis products in Canada. The United States’ northern neighbor is home to a host of cannabis companies as the industry grew after Canada legalized recreational marijuana products in 2018.

But it hasn’t been easy. While Sundial enjoyed a market capitalization of $1 billion earlier this year, now the company is valued at less than $500 million.

Third-quarter earnings were a mess, with revenue coming in at only CAD$12.9 million. That was a drop of 36% from the previous quarter.

That’s also a drop of 54% from the same quarter a year ago, when Sundial reported revenues of CAD$28 million.

InvestorPlace’s Mark Hake reports that Sundial is cash-poor, having only CAD$26.3 million in cash. And that was after the company raised more than CAD$21 million through share sales.

That cash problem is likely why Sundial moved last week to raise more cash. Unfortunately, investors weren’t impressed with the moves.

Some Bullish Action

To be fair, last week looked like it was going to be a good one for Sundial stock. Share prices rose from 28 cents to as much as 80 cents as the U.S. House of Representatives took up the Marijuana Opportunity Reinvestment and Expungement Act. The MORE Act would decriminalize cannabis on a federal level in the U.S. and would clear the way for nonviolent federal marijuana convictions to be erased.

The act would also allow physicians at the Department of Veterans Affairs to prescribe medical cannabis products, and would help building out the burgeoning cannabis industry in the U.S.

While the act was passed on Friday by the House – a historic vote, to be sure – its unlikely the bill would be considered by the Senate unless Democrats are able to take control of that body. (That’s one of many reasons why people are watching the two Georgia Senate runoffs so closely.)

Sundial Growers Takes Advantage

Sundial hasn’t seen 80 cents per share since August, so perhaps it wasn’t a surprise that the company moved so quickly to take advantage of the elevated share price.

Sundial on Friday announced it made an F-3 Securities and Exchange Commission filing to offer various securities for up to $200 million. The SEC has not taken any action on the filing.

In addition, Sundial said it has filed a preliminary prospectus supplement to sell up to $150 million in shares. Proceeds from the sale could be used for anything from retiring debt to acquiring new equipment or for working capital, the company said.

Taken together, investors weren’t impressed. Sundial’s stock fell more than 14% after the announcements, which took some air out of the sails from the company’s big week.

The Bottom Line on Sundial

Sundial is far from being the only game in town. There are plenty of other cannabis companies that look to be able to profit from Biden’s Election Day win. And those companies are on better financial footing than Sundial.

Hake rightly calls a “death spiral situation,” in which cash-poor companies try to raise capital and hurt their stock price as a result.

Sundial stock is a poor option for investors looking to buy into a cannabis company. It has a “D” grade and sell recommendation in my Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/air-out-of-balloon-sundial-growers-stock/.

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