Since the start of the year, Sundial Growers (NASDAQ:SNDL) has run into regulatory troubles and C-suite changes. Sundial Growers stock has witnessed a massive 94% decline in its share price since August last year.
Several months later, the Canadian cannabis producer finds itself fighting to stay listed on the stock exchange. Sundial Growers stock is worth just 50 cents and is one of the riskiest bets in the growing marijuana market.
This has been tough on most companies, but for many it just exacerbated their underlying troubles. Sundial’s brands have failed to resonate with customers, and it’s hard to see it differentiate itself from its competition in the near-term.
Moreover, indebtedness remains a problem, as its net debt stands at a mighty $127 million. Add to that are its regulatory troubles that recently obliged a recall of all its herbal products in distribution since 2014.
There’s a lot on Sundial’s plate at the moment, which will further diminish its value.
Another Weak Quarter for Sundial Growers Stock
Sundial recently reported its lackluster third-quarter results where it missed revenue estimates by $7.11 million. It missed revenues in the past three previous quarters and earnings per share in three out of the past five quarters.
Additionally, revenue was down 54% year-over-year, pushing its net loss to $71.4 million. On the flipside, EPS of 6 cents per share beat estimates by 15 cents. Adjusted EBITDA of $4.4 million improved sequentially from $3.9 million in the second quarter.
Non-cash charges, including inventory and asset impairment provisions, weighed down earnings a fair bit. The improvements in its net loss were down to reductions in cultivation and production costs and costs per gram. After the adjustments, the quarter’s gross margins improved to 20% from 14% in the second quarter.
One of the positives for Sundial during the quarter was its liquidity position, which significantly improved with the management efforts. Cost-cutting measures were well underway before the pandemic became a reality.
As a result, its debt burden is reduced by $72 million. Additionally, it reduced annualized debt service costs by $31 million and raised $93 million in cash. It also received government subsidies of $4.1 million in the quarter. However, the conversion of debt to equity has heavily impacted its stock price, which has almost its entire value.
Strategic Change
Sundial’s CEO, Zach George, recently talked about how the company was pursuing s strategic shift, despite a weak capital structure and ineffective business model. The company aims to make significant changes to its sales strategies, targeting more retail channels. Hence, the goal is to have an 80% branded and 20% wholesale mix.
Additionally, George said Sundial aims to focus on beefing up pre-roll production, which has been a hit with its customers. Capacity constraints have held back the company in the past, but it will focus on expanding production with a stronger liquidity position.
Moreover, it has also launched its dried flower brand Palmetto across Canada, which has been extremely successful so far.
Marketing and sales appear to be at the heart of the company’s new strategy. It has recently signed a sales agreement with a chocolate company, Choklat, in distributing its products in various areas across Canada.
It will be interesting to see how these initiatives bear fruit and how they impact Sundial Growers stock price. For the time being, Sundial needs to ensure it complies with Nasdaq’s minimum bid price of $1 to stay listed.
The company said that it might go through a reverse stock split to meet the requirement.
Final Word on Sundial Stock
Sundial’s management is making some bold claims about its future, but I doubt whether it will be able to stand out from the crowd.
Its stock has lost virtually all of its value, and further dilution could render it worthless. It has done well to solidify its balance sheet, but it will continue to burn through cash without healthy revenue growth. Hence, avoid Sundial Growth stock.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
