The Cannabis Administration and Opportunity Act, floated by Senate majority leader Chuck Schumer, Finance Chairman Ron Wyden, and New Jersey Senator Cory Booker, is on the table. The bill aims to legalize cannabis, a move that would allow adult Americans to buy and possess up to 10 ounces of marijuana without facing criminal penalties. This is major news for the cannabis sector. And that is why it is not surprising Sundial (NASDAQ:SNDL) stock is looking like a good short-term play.
Despite weak fundamentals, Redditors have shown they are firmly behind this one. And therefore, with all of the talk surrounding potential federal decriminalization, retail traders will be in firm control now. But the long-term issue remains. SNDL just hasn’t done enough to justify its premium valuation. But with positive news emanating from Washington, the cannabis producer will continue to do well in the near term.
Schumer Bill Is a Big Deal for the Industry
On July 14, Senate Majority Leader Chuck Schumer proposed legislation that would legalize marijuana at the federal level in the U.S., removing it from the Controlled Substances Act. Suffice to say; this is massive. With the Democrats in full control of Congress and the White House, the odds for full federal legalization have never been higher.
There has been much debate on the subject over the last few years. But the writing is on the wall. Legalizing the substance will help create jobs and generate tax revenue. And for the American people, it is already a bipartisan issue. More than 91% of adults favor legalizing cannabis for either medical or adult recreational use.
President Joe Biden has said that he supports decriminalization and the legalization of medical cannabis.
But despite all the enthusiasm, there has hardly been any momentum at the federal level to legalize cannabis. But there is a chance all that could change moving forward.
Schumer has discussed his strategy for getting enough votes to pass the bill, describing the process of soliciting feedback on the legislation from colleagues and working to incorporate any requested “modifications” because, in his words, “I want to get this done. And I think we will get it done because it’s so, so overwhelmingly supported by the American people.”
Understandably, with these developments, it is important to watch cannabis stocks. These securities tend to be very news-sensitive. So, any positive developments will inevitably lead to spikes.
SNDL Stock: Fundamentals Remain Unchanged
Apart from the positive developments in the wider market, SNDL stock has few other catalysts. It has completed its acquisition of Spiritleaf Retail Cannabis Network and boosted its commitment to SunStream Bancorp by 350 million CAD.
Spiritleaf owns more than 100 stores across six provinces expanding Sundial’s overall retail network. However, it is still more exposure to the Canadian cannabis market. There have been many column inches dedicated to highlighting how and why the Canadian market is a massive disappointment. I do not want to tread old ground. But until we see substantial growth, all eyes are on the U.S.
The boost in capital commitment is more cause for cheer. SunStream is a joint venture between Sundial and the SAF Group looking to invest to finance global cannabis opportunities. As I touched upon in my previous article on Sundial, income from strategic investments is higher than from cannabis sales. SNDL has the cash from its equity sales and putting it to good use will encourage investors.
Diverging Investment Strategies
On a TTM basis, sales are still down 36.4% and EPS is down 43.3%. Yet, despite this performance, shares are up 66% year-to-date, underlining the significance of Reddit support.
How long that will remain is anyone’s guess. Redditors are a force to be reckoned with on Wall Street. Stimulus check money found its way to the stock market and some analysts believe now that the economy is opening up it will become less of a factor. However, there is a flip side to the argument. Redditors have won several key battles this year, leading to savings and confidence. So, they may lose some strength. But they are here to stay.
SNDL stock therefore will continue to benefit from this trend, particularly in this environment, where every new day can bring further news and insight on the federal legalization of marijuana. Long term though, the company needs to start delivering top-line and bottom-line growth.
On the date of publication, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.