Sundial Growers Decline Reflects a Zero-Confidence Environment

After jumping to ridiculous heights earlier this year, the auspicious start for Sundial Growers (NASDAQ:SNDL) stock looks to be fading in the worst way possible.

marijuana stocks Hand gently holding rich soil for his marijuana plants
Source: Jetacom Autofocus /

At its intraday peak for 2021, SNDL stock was on the cusp of $4. Now, stakeholders are hoping it won’t drop to 40 cents. Maybe the end result won’t be that bad but I’m going to be blunt: I’m staying far away from this situation.

To avoid the intense criticism that awaits authors who write one-sided stories, let me present the optimistic case for SNDL stock first.

For one thing, we’re in an unusual period in market history where speculation — driven largely by social media — levers outsized influence. Seemingly, equity units are moving back because they’re cheap. Whatever catalysts exist, this is a train you don’t want to step in front of.

Second, there might be a technical argument that supports bullishness for SNDL stock. Currently, Sundial shares are straddling their 200-day moving average (which by the way is 32% below the 50 DMA). On paper, this is a sign of worrying weakness. Nevertheless, the 200 DMA also coincides with a long-term support and resistance line.

Back during the initial onslaught of the novel coronavirus pandemic last year, this level acted as support for SNDL stock. But in late July, shares stumbled below the critical threshold. Toward the end of the year, this level acted as resistance, with Sundial breaking through in late January of this year.

Because of the history associated with where the 200 DMA stands now (73 cents), you can make the argument that SNDL stock can bounce off this line and swing higher. While intriguing, I believe investors and even speculators are best served avoiding this tempting thesis.

SNDL Stock Taking Cues from the Inside

Admittedly, I believe there’s plenty of merit to the technical approach. Basically, this type of analysis studies market psychology. You can frenetically study a company’s financials all you want. Whether those numbers mean anything, the market will represent the ultimate arbiter. With SNDL stock, you can say the market is sending a message loud and clear.

But it’s what management is doing that leads me to think that SNDL is merely taking its cues from Sundial insiders. In my last take on the cannabis specialist, I borrowed from David Moadel’s thesis, which stated that Sundial slashing its debt and reducing expenditures indicated that the leadership team was aiming to become a leaner and more efficient operator.

From a cursory perspective, the strategy shift sounds like a rational one. But my argument was that it’s perhaps too rational. While corporate executives can wax poetic about synergies and verticals and whatever meaningless buzzwords they want to throw out, you almost always cut costs because you have little to no confidence in extracting meaningful return on investments.

And isn’t that what’s really going on in this presently sinking ship? You have several major factors that support the broader cannabis argument. In my opinion, the pivotal ones include:

  • Political will to push for full legalization in the U.S., opening doors for a robust “canna-conomy.”
  • Growing public support for marijuana legalization.
  • Influx of demand for holistic solutions for stress and mental health pressures, among other needs.

I’m not going to trash SNDL stock or any other cannabis investment. But it’s very curious that Sundial’s management team is taking a deflationary approach — slashing debt, cutting expenditures — when the opportunity is incredibly inflationary.

No, it seems to me that management is acting very rationally. But for obvious reasons, it can’t just admit it has no confidence in the foreseeable cannabis market trajectory.

Read Between the Lines

To be clear, I’m interpreting what management might be thinking. I don’t have any more insight into the strategy making than you do. But again, it just seems odd that a supposedly viable market for cannabis is turning SNDL stock into a basket case.

Unless of course, the cannabis market isn’t really that hot, at least not as hot as advertised. I’m going to take the Occam’s Razor approach on this. Management is reducing their risk exposure, as are SNDL shareholders because they don’t anticipate a robust growth narrative for botanical products.

If that’s the case, you don’t want to play hero with Sundial Growers.

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

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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