Cannabis Investors Shouldn’t Get Too Excited about Sundial Growers

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There are plenty of Canadian cannabis cultivators out there already. But if you have a compulsion to add more to your watch list, then you can take a look at Sundial Growers (NASDAQ:SNDL). It seems that Sundial Growers stock has gained in popularity and trading volume lately because of a recent big price move.

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There are other marijuana stocks on the market with larger market capitalizations and wider brand-name recognition. And, there are Canadian cannabis companies that have a greater market share than Sundial Growers.

The thing is, marijuana stock investors are in a buying frenzy now because they’ve got their hopes set on a particular pro-cannabis bill. That factor may provide a catalyst for Sundial Growers stock in the short term.

In the long run, however, we may find that the pro-cannabis bill, and Sundial Growers stock, could be destined for failure.

A Closer Look at Sundial Growers Stock

One thing I’ll admit is that Sundial Growers stock is cheap. Actually, it might be too cheap as it’s classified as a penny stock — defined by the U.S. Securities and Exchange Commission (SEC) as a stock that trades under $5 per share.

Very cheap stocks are often susceptible to sharp price moves in both directions. Therefore, cautious investors might choose to avoid Sundial Growers stock because it’s highly volatile.

I’ll give you an example of what I’m referring to. On Dec. 4, Sundial Growers stock closed at around 66 cents per share, for a 14.13% loss. Believe it or not, we’ve witnessed moves with that magnitude, and even greater, in this stock recently.

For nimble traders, the volatility might be exciting. For instance, in late November and early December, Sundial Growers stock shot up from 28 cents to 89 cents.

Still, we need to temper our enthusiasm with caution as this stock can fall just as quickly as it rises.

Legal Weed?

The financial message boards have been in celebration mode lately, especially in the area of cannabis stocks.

What are the traders celebrating? Reportedly, the U.S. House of Representatives passed legislation that would, if it became a law, legalize marijuana at the federal level.

This bill is known as the MORE Act, and it’s a two-fold bill. First, it would would remove marijuana from the federal list of controlled substances. Second, it would expunge some marijuana-related criminal records.

Granted, there is a historic aspect to the MORE Act as it’s the first time that either chamber of the U.S. Congress has voted on a full-scale federal marijuana legalization bill.

The implications for Sundial Growers investors are obvious here. A full passage of the MORE Act into law would lift the cannabis sector generally, and hence Sundial Growers stock in particular.

Don’t Get Your Hopes Up

Now, it’s time for a reality check. Sorry if I have to be the bearer of bad news.

The MORE Act is doomed for failure. This is not a commentary on whether I support it or not. I’m just saying that the MORE Act doesn’t stand a chance of getting through the Senate.

Senate Majority Leader Mitch McConnell practically controls the floor of the U.S. Senate. And earlier this year, McConnell slammed what he called House Democrats’ “huge new bill” which, in his words, would “mandate two separate taxpayer-funded studies of diversity in the cannabis industry.”

Without McConnell’s support, the MORE Act is effectively dead in the water. But even if you’re not pinning your hopes on the passage of the MORE Act, Sundial Growers stock isn’t necessarily your best choice.

As InvestorPlace contributor Ian Bezek summed up, Sundial’s fiscal standing is on shaky ground:

“For the most recent quarter, Sundial only generated 13 million Canadian dollars (CAD) in revenues. Revenues plummeted more than 36% quarter-over-quarter and fell a mile short of expectations. Incredibly, Sundial lost 71 million CAD for the quarter in the course of bringing in that paltry revenue number.”

The Bottom Line

If you’re planning to invest in Sundial Growers stock because of the MORE Act, don’t get your hopes up.

Not only is the MORE Act likely to fail, but Sundial Growers stock doesn’t represent a stake in a company that’s on solid financial footing.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/cannabis-investors-shouldnt-get-too-excited-about-sundial-growers-stock/.

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