Sundial Growers’ Mixed Business Model Provides Diversity But Also Risks

Editor’s Note: This article was updated on July 26, 2021, to correct which aspect of the cannabis sector Valens is involved with.

The investing world has certainly changed in recent decades. If I had proposed to my partners at my former firm in the 1990s that one day we could buy stock in a company that grows marijuana, I would have been fired on the spot. Canadian based Sundial Growers (NASDAQ:SNDL) is just one of the many recognizable names in the industry, though, and SNDL stock is a hot commodity.

marijuana stocks Hand gently holding rich soil for his marijuana plants

Source: Jetacom Autofocus /

SNDL produces and markets various marijuana products for the adult-use market throughout Canadian territories. The company’s primary focus is on inhalable products and brands (flower, pre-rolls, and vapes). Sundial’s top brands include highly evocative names like Sundial, Top Leaf, Palmetto, and Grasslands.

As I started research, in order to access their investor relations I had to tell them which Canadian province I live in (I live in Nunavut). Make no mistake, this is not a biotech or pharmaceutical company using marijuana to advance medical science — these guys grow pot so you can get high.

The company operates a state-of 448,000 square foot indoor growing facility in Alberta. The company claims this facility can grow small batch consistent product, but at a scale that is necessary to support its long-term growth goals.

Spiritleaf Retail Stores

In May, SNDL announced it was buying retail marijuana company Inner Spirit Holdings in a cash-and-stock deal worth 131 million CAD ($104 million). Inner Spirit operates approximately 86 retail stores under the brand Spiritleaf with the goal of reaching 100 units in 2021.

Retail sales in 2020 exceeded 100 million CAD ($80 million). Inner Spirit Holdings was EBITDA positive in Q1 2021. This retail presence gives the company an integrated supply chain model that will help with future growth and quality control.

SNDL Stock in Growth Mode

Sundial is still in start-up or growth mode as reflected in its past 2 years financials. Net revenue was 60.9 million CAD ($48.5 million) in 2020 and 63.6 million CAD ($50.6 million) in 2019, while net losses were 240 million CAD ($191 million) and 272 million CAD ($216 million) respectively. A big chunk of the 2020 losses were a 45.9 million CAD ($36.5 million) inventory obsolesce charge and 79 million CAD ($63 million) in asset impairment charges. Regardless of those two items, operating losses were still significant.

The company is still expected to continue burning cash for the foreseeable future. The good news is that after a share and warrant issuance in Q1 2021, the company now has 873 million ($695 million) in cash on the balance sheet and no debt (that was before the Inner Spirt transaction).

The bad news is the share issuance was highly dilutive as fully dilutive shares stood at 1.77 billion at the end of Q1 2021 which increased from 913 million at the end of 2020. If you see reasonably good companies with no debt and their stock is selling for less than a dollar per share, it’s usually related to highly dilutive share offerings.

SNDL Stock and Investments

The company has been actively using its cash for investments and strategic partnerships, so much so that accounting guidelines in conjunction with management decisions dictate that they now have two segments going forward — marijuana and investments. These investments include forming a joint venture through a new corporation, SunStream Bancorp:

“The Joint Venture will leverage a strategic financial and operational partnership to generate asymmetrically enhanced risk-return opportunities in the cannabis industry to provide exposure to a portfolio of attractive debt, equity and hybrid investments.”

Other investment include a $22 million investment in an edibles company call Indiva and taking a 10% stake in Valens (OTC:VLNCF), a manufacturer of cannabis products.


It will be an enormous undertaking for SNDL stock to grow into its highly dilutive $1.5 billion market cap. All those investment and strategic partnerships may pay off, but they should be recognized for what they are — investments. So does that diversify the risk, or does it increase the risk by allocating cash to risky or unproven business models? It likely increases the risk.

Therefore, in order for SNDL stock to perform steadily over time, the core business needs to be profitable and generate free cash flow. Until that happens, or a clear path can be seen for that to happen, SNDL stock is entirely speculative and risky.

On the date of publication, Tom Kerr did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Tom Kerr has worked in the financial services industry for over 25 years. Currently he is a Senior Portfolio Manager at Rocky Peak Capital Management. Prior to that he was Chief Investment Officer and Director of Research of SGL Investment Advisors, and has served in a number of positions at other investment related organizations. Mr. Kerr has also been a contributing writer to, and He’s a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University.

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