Sundial Growers (NASDAQ:SNDL) has a math problem that goes beyond the share price of SNDL stock, which remains in the penny stock range.
The specific issue I’m referring to is the lack of interest from institutional investors. As of the first quarter of this year, the “smart money” only owns about 3% of SNDL stock.
Whether or not institutional ownership is a good thing or a bad thing depends on several factors. But one thing that’s not in question is that low institutional ownership means that SNDL stock is going to carry a risk premium. And with the company being in the cannabis sector, that’s two strikes against it.
But that didn’t matter much to the determined retail investors who bid up Sundial Growers stock in a similar fashion to GameStop (NYSE:GME). However, SNDL has given up about 60% of those gains. On the other hand, the stock is still up 135% for the year.
Retail investors have had their share of successes since the pandemic began. But at this point, maintaining the growth of SNDL stock looks like a big ask without institutional support.
Sundial Still Has Work to Do
On a year-over-year basis, Sundial’s revenue was down 5%. But bullish investors would say that is looking at the glass as half empty. They would quickly point out that the company may have momentum on its side. Revenue was up 8% from the prior quarter. And the company’s net loss was significantly lower than in the prior year.
But even Sundial’s CEO said the company had more work to do if they are to increase revenue to its past levels. The Canadian company is making an effort to focus on its portfolio of retail brands including getting into high-end products such as vapes. However, it faces a lot of competition in its home country.
A potential path to revenue growth would be for Sundial to turn its focus south of the border. The United States is becoming the epicenter of the cannabis resurgence.
However, that will be easier said than done.
The United States Is Opening For Business
The cannabis sector is having a rebound. And the biggest reason for that is because the white whale is beginning to surface. It’s too early to tell if the Biden administration will move forward with a plan to lift the federal ban that classifies marijuana as a controlled substance.
But that may become less of an issue. On election night, five states voted to legalize marijuana on some level. And more are on the way. The reason is a tale as old as time. They need the money. Many states were already struggling with budget shortfalls prior to the pandemic. With a year of partial to full shutdowns of entire segments of their economies, these states need revenue.
And that means the sin stocks are coming to the rescue. Sports betting and cannabis are two “easy wins” that several state legislatures are hoping they can pass via ballot initiatives.
SNDL Stock Offers Little Reward For Your Risk
Whenever I’m researching a stock where the majority of opinions are decidedly in one camp, I reflexively look for contrarian opinion. I don’t do this because I’m a natural contrarian. I just believe that I’m a more informed investor when I understand all points of view.
It’s fair to say that the consensus of InvestorPlace contributors are bearish on SNDL stock. But David Moadel offered a more optimistic take. And I don’t disagree with Moadel that Sundial Growers may make for a profitable trade. The same could be said of many stocks.
But for the company to enjoy a meaningful recovery that sparks the interest of the institutional investors, it needs to have a plan for generating revenue in the United States. That looks like a heavy lift for Sundial Growers. And that leaves SNDL stock with little reward for retail investors’ efforts.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.
