I continue to stand by Canadian cannabis company Sundial Growers (NASDAQ:SNDL), but I admit it’s been getting tougher to defend my position. SNDL stock has continued to decline, providing ammunition to critics.
Low-priced cannabis stocks are speculative. There’s risk involved with an investment in Sundial Growers, and this will remain true for the foreseeable future.
That being said, I’m going to defend the idea of holding your SNDL stock shares through thick and thin.
I’d even consider holding them through the upcoming earnings event – which could be terrific, disastrous or none of the above.
A Closer Look at SNDL Stock
If we were to compile a list of 2021’s most popular “meme stocks” targeted by Reddit and Robinhood traders, SNDL stock would probably have a place on that list.
Short-squeeze speculation was most likely a contributing factor as Sundial shares rocketed from 56 cents in late January, to a 52-week high price of $3.96 printed on Feb. 10.
In hindsight, it’s easy to conclude that SNDL stock went too high, too fast. By mid-April, the stock was below $1 again and I considered it a bargain.
If the shares were a bargain in mid-April, then they’re extra-cheap now. On the afternoon of May 3, the stock had declined all the way down to 83 cents.
In reality, the SNDL stock bulls don’t need to rely on Reddit-fueled hype. Nor do they have to lose their cool just because an earnings event is coming up soon.
Cultivating a Cannabis Giant
Here’s where people tend to get confused. Some folks assume that because the share price is low, Sundial must be a non-entity in the cannabis cultivation space.
That’s completely not true. I invite anyone to carefully read through Sundial’s investor presentation and still dismiss the company as a lesser competitor. You’ve probably heard other companies boast about having “mega-factories” and “giga-factories.” Well, Sundial Growers has a giga-factory of its own.
I’m referring to the company’s 448,000-square-foot, purpose-built indoor cannabis cultivation facility. In what might be considered an innovative process, Sundial Growers uses modular, small-batch grow rooms to cultivate the cannabis.
The company points out that many of its peers in the industry are moving away from internal cultivation. Instead, they’re relying on micro-growers and the wholesale spot market.
I really like Sundial’s hands-on approach to cannabis cultivation. This allows for more complete vertical integration – which means greater control over the cannabis production.
Loving the Low Expectations
Impressively, Sundial harvested an estimated 60 million grams of cannabis product last year.
It’s fair to conclude that the company’s giga-factory is running smoothly and providing value for clients and stakeholders.
And yet, the market has beaten down SNDL stock as if the company lacks value. That’s a shame – or an opportunity, depending on how you choose to look at the situation.
This is a company that successfully “restructured the entire organization by repaying all outstanding debt” in 2020, as reported by Sundial CEO Zach George.
Somehow, this accomplishment (which not all cannabis companies have achieved) hasn’t really been appreciated by the investment community. Think about it: in 2020, the company eliminated $227 million in its aggregate principal amount of debt. Plus, Sundial Growers managed to accumulate $719 million in unrestricted cash on hand as of March 15, 2021.
So, the company is in a strong capital position. As Sundial heads into its first-quarter 2021 earnings release, investors should brace for positive results, even if expectations are muted.
SNDL Stock: The Bottom Line
When the investing community doesn’t expect much, that’s not necessarily a bad thing.
There are reasons to believe that Sundial Growers is a cannabis-market giant in the making.
Therefore, SNDL stock could very well be a cheap ticket to pot-stock wealth, and shares might become more expensive after the upcoming data readout.
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 Crush the Street, Market Realist, TalkMarkets, Finom Group, 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.