I never had much faith in Sundial Growers (NASDAQ:SNDL). Back in February, when SNDL stock was trading near $3 per share on support from Reddit’s r/WallStreetBets, I urged readers to take profits and walk away. And when Redditors pounded the table for Sundial in May? I repeated the call.
Redditors will certainly lambast me for the second story. The stock is up 28% since then. But I stand by it. Why? Because there’s a difference between investing and what Redditors are doing.
Here’s what you should know about SNDL stock and the Reddit trade moving forward.
SNDL Stock: You’re Not a Corporate Raider
On Reddit, investments are a game. It should be easy to pound the table for any name, no matter how woebegone, as long as you and your friends buy in and ride it to glory.
This is the kind of cynical view that always precedes a fall. Always. The ploy worked with AMC (NYSE:AMC) and Gamestop (NYSE:GME) because management took the opportunity to change those businesses. I don’t think it will work in SNDL stock’s case, however.
Sundial is a pot grower. It also wants you to believe that it’s a pot investor, through an arrangement with its banker. That commitment was increased in April, but it doesn’t change the fundamentals.
For 2020, Sundial’s sales were down and now look to be down again. That’s based on a March quarter take of $7.8 million, down 26% from the previous quarter and down 54% from the year before. Over the last four quarters, Sundial has managed to lose over $230 million while generating sales of just $42.7 million.
In my view, this company lives because it keeps raising money from the gullible. At the end of March, SNDL had about $721 million in cash and securities on the books. The market capitalization as of Jun. 17 was about $1.8 billion. That means you’re paying $1.1 billion, net of cash, for what exactly? A company that drops $6 for every $1 that comes in?
Are You High?
There are two fundamental facts facing marijuana growers right now.
First, marijuana is still a Schedule 1 drug in the United States, like heroin. You can predict an end to that status, but until it ends that’s the fact.
Second — and more importantly — buyers often prefer Dealer McDope to Corporate Pot. In every state where marijuana is legal, there’s still a thriving illegal market. Cops turn away when they smell smoke. States that have legalized pot have also strangled it in regulation. The result is that consumers still buy the illegal stuff, which is just as good and cheaper. Dealer McDope delivers.
You can wish that away all you want, but until people start getting punished for evading pot taxes, I don’t see a way out.
Instead, hope for Sundial and SNDL stock lies in the hype — in people telling you that things are going to turn around, that the down earnings were good or that Sundial is a bargain at these levels. As you can tell, I don’t agree.
The Bottom Line on SNDL Stock
I have simple rules for stock investment.
I look at the business, at the management, at the books and at the market. Only when all of those things align do I buy or suggest that anyone else do so.
I don’t time the market and I don’t do psychology. I also don’t care much what anyone else thinks. If the business is sound and management can make money with my money, I buy the stock. If not, I walk away.
Why am I confident in my investment style? Because I’ve spent 43 years covering technology and business. My knowledge is hard won and I’ve lost often, too.
If you’re in names like SNDL stock, my guess is that it’s just your turn to lose.
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On the date of publication, Dana Blankenhorn 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.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.