After another 18% slide in its stock price over the past month, things appear to be going from bad to worse for Canadian cannabis company Sundial Growers (NASDAQ:SNDL).
After spiking at a 52-week high of $3.96 per share in February, SNDL stock has fallen 78% to its current price of just 88 cents per share.
The stock is now over 90% lower than its all-time high of $11.50 per share reached in August 2019, shortly after Canada legalized cannabis use nationwide for recreational purposes. With the share price inching down towards its all-time bottom of 14 cents, investors have to seriously wonder if there’s any reason to risk their money on this troubled company and its stock.
Holding Out Hope
At this point the bull thesis surrounding SNDL stock revolves around hoping the company gets acquired by or merges with a larger, more stable cannabis company. This is not a sound strategy, especially since no suitors have come forward or shown interest in acquiring struggling Sundial Growers. Consolidation is happening in Canada’s cannabis sector, notably, there was a merger between Tilray (NASDAQ:TLRY) and Aphria that concluded a few months ago and created North America’s largest cannabis company. However, Sundial Growers has not been targeted to date.
Fans of Sundial Growers also like to point out that the company has 750 million CAD ($600 million) of cash on hand, which they say can help keep it afloat while it works to turn around its operations.
But that money likely won’t go as far as the bulls think, given that Sundial Growers is burning through about Cdn$35 million per quarter and recently spent 131 million CAD to acquire Inner Spirit, a retail chain consisting of 86 cannabis stores. Sundial has also invested in various edible and cannabis extraction companies as it seemingly tries to spend its way out of trouble.
Bad Earnings and a Banking Initiative
The main issue impacting Sundial Growers right now is poor sales and dismal earnings. For this year’s first quarter, the Calgary, Alberta-based company posted a net loss of Cdn$134.4 million from continuing operations. Its revenue for the first quarter amounted to 9.9 million CAD, down nearly 30% from the previous quarter. Over the past 12 months, Sundial’s sales totaled just 57 million CAD. Sundial Growers says it is working to diversify its cannabis products in an effort to stop the decline.
While Sundial Growers still primarily sells cannabis products for both medicinal and recreational use, the company has been flirting with offering banking services to other cannabis companies, a move it says will help put its cash on hand to good use.
Banks in the U.S. are currently prohibited from extending loans to cannabis companies because the drug remains illegal at the federal level. Sundial Growers is hoping that it can provide banking services to cannabis companies in the U.S. when and if the drug is legalized nationally south of the border.
However, legalization on a national scale in America looks to be far off and, so far, Sundial Growers’ investments and loans have raised only about 15 million CAD for the company.
Run Away From SNDL Stock
There’s absolutely no reason for investors to put money into SNDL stock. Given the company’s poor financial situation, steady cash burn rate and hazy turnaround plans, the best that can be hoped for is that the shares get targeted again by retail traders. The latter group has been treating it as a meme stock throughout the year and pushing it up higher before quickly dumping it.
But that hardly seems like a practical approach. There are many other more successful Canadian cannabis companies for people to invest in. No one needs to get burned by Sundial Growers.
On the date of publication, Joel Baglole 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.
