Canadian marijuana producer Sundial Growers (NASDAQ:SNDL) stock has climbed a healthy 73% since the beginning of the year. A lot of it is due to the meme stock mania induced by the infamous r/WallStreetBets forum on Reddit.
The company has taken advantage of the bump in its stock price through multiple stock offerings to safeguard its finances. However, there are no significant growth catalysts for SNDL stock, making it an unattractive bet in the growing marijuana space.
Sundial has a forgettable 2020, to say the least, marked by crippled margins a massive reduction in sales. In the past three quarters, for instance, its year-over-year revenues have tanked by double-digit percentages. Moreover, the company has looked to ditch its oversupplied wholesale channel to focus on its retail sales.
However, the major Canadian marijuana producers have failed to impress in the past few years with their performance. The industry as a whole has fallen short of expectations compared to the U.S. marijuana market.
It’s tough to get excited about SNDL stock. With that being said, let’s dig a little deeper to get a better grip on Sundial’s position.
Though Sundial doesn’t need cash at this time, its management will likely make another stock offering if its price rises again. As of December, its unrestricted cash balance was at more than 60 million CAD. In the past year, it burnt through almost the entirety of that money to run its operations.
Its stock soared to a high of $1.36 on Jan. 18 this year, after which it announced an offering of 128 million CAD. Later in February, it announced another share offering for approximately 95 million CAD. The management acted swiftly on the activity that came from the retail trading frenzy. It was a wise move in order to fortify its balance sheet by raising cash at an inflated price.
However, the concern for investors is that whether this money would be enough for the foreseeable future. If there are more offerings ahead, it could lead to more dilution. As of May, its unrestricted cash balance is up to 753 million CAD. Although it appears that the cash balance is enough, the company has been spending its money at a strong pace and may need more of it soon.
Lack of Growth Catalysts
For things to turn around for Sundial in a major way, it needs to improve its top- and bottom-line results. It recently acquired Inner Spirit, which is a franchise operator of recreational cannabis with a strong footprint in Canada. The deal will give Sundial the much-needed boost it needs to alleviate its margin problem.
Regardless of that, the Canadian pot industry has underperformed in the past year, marked by a strong uncertainty in demand. Results have across different states have had considerable discrepancies on a month-to-month basis.
However, you cannot rule out growth down the line for SNDL stock, as the marijuana industry is on the verge of a breakthrough in North America. It is naturally the most important market for Sundial to tap into. It is the easiest foreign market from a logistics standpoint and can become the largest market in the world.
Final Word On SNDL Stock
Sundial Growers has had a tumultuous 2020, and the first half of 2021 hasn’t been much different. Its management has done well to fortify its balance sheet through secondary offerings but has done little to boost its revenue growth.
It has no catalysts which can meaningfully increase its revenues, apart from the potential legalization in the United States. However, everything is premature at this stage, and it’s tough to see SNDL stock offering anything for the long-term investor.
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On the date of publication, Muslim 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