In light of recent investor enthusiasm for the marijuana market, it might be tempting to take a position in Canadian cannabis contender Sundial Growers (NASDAQ:SNDL). After all, Sundial Growers stock is among the cheapest cannabis stocks on the market today.
I love a cheap stock as much as anybody, but let’s not get confused here. To butcher a famous Warren Buffett quote, price is what you pay but value is what you get.
In other words, a low stock price shouldn’t be automatically equated with a good value. Moreover, enthusiasm for the cannabis market generally need not translate to a bullish argument for Sundial Growers stock.
This isn’t be my first warning about Sundial Growers stock, and it might not be the last one, either. Hopefully, some folks will think twice about parking their hard-earned capital in a pot stock that’s going nowhere fast.
A Closer Look at Sundial Growers Stock
On Dec. 8, InvestorPlace kindly allowed me a soapbox to voice my bearish outlook on Sundial Growers stock. At that time, the share price was hovering around 52 cents.
So, was I right in my dire prediction of doom and gloom? I hate to be the bearer of bad news, but as of Dec. 18, the Sundial Growers stock price had declined to approximately 48 cents.
The longer-term picture looks even bleaker. Keep in mind that the 52-week high for Sundial Growers stock is $3.88. Thus, the loyal shareholders are really struggling now.
Even with the price decline, Sundial Growers stock remains quite popular. The average daily trading volume is in the hundreds of millions. Still, this doesn’t mean that the bulls will retake control of the price action any time soon.
Not a Reason to Celebrate
This past November, pot stock holders cheered as five U.S. states (Arizona, Mississippi, Montana, New Jersey and South Dakota) voted in favor of some form of cannabis legalization. In total, the U.S. now has 15 states which have approved cannabis for adult use.
These victories, in part, may account for the persistent popularity of Sundial Growers stock among traders. Yet, I wouldn’t consider the regulatory wins as a reason to lean bullish on this particular stock.
CIBC analyst John Zamparo certainly doesn’t seem to be on the bullish side of the fence. That’s perfectly understandable, as Zamparo expected Sundial Growers to post $24.5 million in third-quarter revenues, yet the actual result was just $12.9 million.
Zamparo’s reaction may be characterized as disappointment tinged with shock.
“While Canadian retail cannabis sales are growing ~25% Q/Q… For SNDL to move backward by 29% Q/Q on branded product sales is fairly remarkable.”
A Temporary Lifeline
Another source of misplaced hope in Sundial Growers stock came from the Nasdaq Exchange recently.
Reportedly, the company announced that it had been granted approval to transfer the listing of Sundial Growers’ shares to the Nasdaq Capital Market.
As a result, Sundial will have an additional 180 days to satisfy the requirements to be listed on the Nasdaq Exchange. Those requirements include maintaining a minimum share price of $1.
This is really just a temporary lifeline for Sundial Growers. The company had already been notified by the Nasdaq on May 12 regarding Sundial’s failure to meet the minimum bid-price requirement.
So now, in order to regain compliance, Sundial Growers stock will have to stay above $1 for 10 consecutive business days. The deadline to achieve this will be June 26, 2021.
Maybe Sundial Growerswill manage to stay on the Nasdaq, or maybe it won’t. There are other cannabis stocks that don’t involve this type of drama. Why not just stick with a comparatively safer pot play like Canopy Growth (NASDAQ:CGC)?
The Bottom Line
A sense of false hope can be devastating to a trader’s bottom line. The arguments in favor of holding Sundial Growers simply aren’t convincing.
It’s perfectly fine to feel optimistic about the cannabis market generally. Just don’t place your hopes, or your capital, on a struggling contender like Sundial Growers stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
