Sundial Growers (NASDAQ:SNDL) stock is attempting to pull off a second act. Sundial, in its original mission, aimed to become a mass-market Canadian marijuana producer and brand. This effort failed in spectacular fashion, and SNDL stock crashed from $11 to as low as 14 cents at one point.
But then SNDL stock enjoyed a revival powered by Reddit. Given Sundial’s huge short interest, it was a logical pick that surged during the short squeeze excitement this past winter.
Sundial was able to use that big run in its stock price to raise a ton of capital. It paid off its debt and ended up with nearly $1 billion left over. The management team has now been putting those funds to work in a variety of new investments that are broadening and diversifying the company’s revenue streams.
However, the shareholder base may have less patience; SNDL stock has been in a downtrend for months now. So how do things look for SNDL stock going forward?
Tilray Gives Sector a Jolt
The most exciting recent development for pot stocks was from Tilray (NASDAQ:TLRY). That marijuana firm, like Sundial, has been a chronic underperformer. However, its shares leapt 26% in a single day last week following an upbeat quarterly earnings report.
Tilray, you may recall, just merged with Aphria. The combined firm is a leader in the Canadian marijuana space. With the two of them together, Tilray expects to build a large cost-competitive outfit that can finally reach profitability.
Judging by its first quarterly results post-merger, the company is making progress. Regardless, TLRY stock quickly gave back its earnings gains. The company still has a lot further to go in its turnaround efforts.
Regardless, this is a positive for Sundial. Sundial, after all, has one of the largest cash balances in the industry. It can make large acquisitions or mergers, such as Tilray just did, and achieve operating scale as well.
Sundial’s current operating business isn’t particularly compelling. But with the right deal or set of acquisitions, Sundial could turn things around. The company is fortunate to have an amazing balance sheet, and that gives it a lot of options in a rapidly-shifting cannabis industry.
No Short-Term Catalysts
The issue for Sundial is that nothing is going to happen overnight. As our Stavros Georgiadis recently explained, Sundial’s near-term prospects rely on the unlikely chance that the U.S. legalizes marijuana at a federal level soon. Georgiadis rightly points out that the Canadian marijuana market simply hasn’t been large enough to support all the companies trying to operate there.
Sundial needs a bigger playing field on which to operate. That’s particularly true now that it is loaded up with cash and is looking for opportunities to put it to work. U.S. legalization would give Sundial a fast track to pivot its business model. Otherwise, it will continue to be a lengthy and gradual process that is bound to disappoint traders with a limited time horizon.
SNDL Stock Verdict
The Sundial story will take a while to play out. The company’s greatest strength is its cash balance. And, ideally, management will take its time finding the best places to invest that capital. That should produce better results than simply rushing to invest in anything as quickly as possible. Sundial’s creative financing deal with Clever Leaves (NASDAQ:CLVR) shows the possibilities that management can come up with if it has time to make strategic plans.
Unfortunately, this runs against a meme stock’s priorities. The folks trading SNDL stock on a day-to-day basis want to see a short squeeze happen now. That, in turn, would likely require Sundial making an aggressive corporate action.
Instead, management is taking its time building a durable long-term cannabis operation and financing platform. That’s the smart move for generating investor value, but it isn’t likely to do much for SNDL stock in the short term.
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On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.