The main catalyst for Sundial Growers (NASDAQ:SNDL) — U.S. pot legalization — may still be a work-in-progress. However, there’s something else at play here, which some are seeing as a possible short-term driver for SNDL stock.
As you may know, enthusiasm for “meme stocks” has made a comeback in recent days — and it’s not just top short-squeeze plays like AMC (NYSE:AMC) and Gamestop (NYSE:GME) that are benefiting. SNDL, a favorite penny stock of the Reddit trading community, has also seen a meaningful run-up in price.
Trading for around 72 cents on May 24, SNDL stock is now currently changing hands at around $1.14 per share. That’s a jump of more than 58%. To some, this may look like a short-lived bounce back. Yet, it appears this latest round of mania is gaining momentum rather than peaking. There may be room for shares to make another leap higher.
So, does that make the stock a buy? Maybe, maybe not. If you’re looking to bet on how long this meme-stock resurgence lasts, buying now could be worth it. But if you want to invest in marijuana stocks as a bet on eventual federal legalization? Wait for lower prices instead.
SNDL Stock and the Latest Meme-Stock Mania
The recent mania has not had as major of an effect on SNDL as it has with other short-squeeze stocks. However, Reddit’s post-crypto return to stocks has still helped Sundial shares get back above $1. Now the question is can this continue?
It depends. On one hand, SNDL stock doesn’t really have the squeeze factor on its side. It has a moderate amount of short interest, at around 13.8% of its outstanding float. But this is nothing compared to the high short interest seen with names like Clover Health (NASDAQ:CLOV), which have really popped in recent days.
Another factor that could impact how much more Sundial rallies is its vastly increased share count over the past few months. As InvestorPlace contributor Mark Hake discussed in both April and May, the stock has gone from having 918.8 million shares outstanding to 1.86 billion shares since the end of 2020.
With so many more shares floating in the public markets, it may be harder for Reddit traders to bid up this stock as high as they did back in February — back when it nearly hit $4.
Of course, this doesn’t rule out another meaningful short-term leap from today’s prices. However, it all depends on how long this latest wave of enthusiasm lasts.
Legalization Remains the Main Needle-Mover
Most folks looking at SNDL stock may be interested in it as a fast money trade. But, a longer-term case remains in play, too. That would be the U.S. legalization catalyst. Many U.S. states have legalized marijuana for medicinal and recreational use, but it’s still a controlled substance on the federal level.
This is what’s preventing Canadian companies like Sundial from entering the American market. After the “blue wave” presidential and congressional election results, investors were hopeful that the U.S. government would fast-track reforms. Yet, that rapid change in federal-level pot laws wound up not happening.
This was mainly due to President Joe Biden and Vice President Kamala Harris being more supportive of decriminalization rather than legalization. And now with more pressing issues at hand, the pot debate has fallen to the back burner. However, while not likely happening this year, legalization is not exactly off the table.
As I’ve stated before, fears that we are years away from legalization are overblown. And, while Sundial’s current valuation more than reflects the legalization catalyst, it will likely result in an outsized effect on the SNDL stock price.
Is SNDL Stock a Buy? It Depends.
So, based on the latest developments and the longstanding factors on its side, should you go out and buy SNDL stock? It depends on your objective.
If you’re looking to speculate on this month’s latest round of meme-stock mania lasting longer than a few trading days — even with factors limiting Sundial’s potential to get back to its high-water mark — this could still wind up to be a profitable trade.
But if you’re looking at this as a risky legalization play? Buying right now may not be worthwhile. Yes, legalization could happen much sooner than expected. However, it’s likely not going to play out in the coming weeks. With the potential for the stock to fall again after this near-term boost wears off, investors with longer time horizons should wait before buying in.
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On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.