Afghanistan Disaster Will Be a Headache for Sundial Growers

Though we’re rivals, we Americans often appreciate the forward-thinking nature of Canadians, particularly in regard to personal liberties. With cannabis legalization, the U.S. still holds tightly to antiquated thinking. Yet at some point, this stronghold could break, which would be beneficial for Sundial Growers (NASDAQ:SNDL) stock.

multiple jars of different sizes carrying marijuana
Source: Shutterstock

Sure, SNDL stock is currently tied exclusively to the Canadian botanical market. But that could change with American rescheduling.

Beyond Sundial attracting traders on social media forums for its potential to spark a short squeeze, the company specializes in manufacturing high-quality cannabis products – solutions that don’t just cater to hardened connoisseurs but those who are canna-curious. Some might say that Sundial represents an attractive brand to break into the U.S. market should federal legalization occur.

Indeed, my InvestorPlace colleague Stavros Georgiadis argued about a month ago that unless “cannabis gets an all-clear on the federal level, SNDL stock has very little to offer.” That’s a tough statement but not an entirely unjustified one, if I’m being honest.

As Georgiadis stated, Sundial’s first quarter of 2021 earnings report weren’t that encouraging, featuring a “net loss of $134.4 million as a result of $130.0 million of non-cash amounts reflecting the impact of share price volatility on accounting valuation of derivative warrants.”

For fairness sake, Sundial cut down on its net losses for the most recent Q2 report. However, the bottom line remains the company is losing money. Since it’s competing with other Canadian cannabis firms who’ve already had a head start – and in a small market to begin with – the proposition doesn’t look too hot for SNDL stock.

That’s why speculation runs rampant that if the U.S. would legalize marijuana, Sundial could really fly. Likely a long shot prior to the Afghanistan disaster, the political fallout makes legalization a non-starter.

Biden Has Other Things to Worry About Than SNDL Stock

On paper, the circumstances for not only SNDL stock but other northern cannabis players look fantastic. For one thing, the U.S. already legalized hemp or cannabidiol (CBD) via the Agriculture Improvement Act of 2018, colloquially known as the farm bill. Second, the law-and-order proponent in President Donald Trump did not win the 2020 election.

Before you start typing, I only mention the last sentence as a segue to establish a point of contrast: President Joe Biden never had an overtly “tough sheriff” image throughout his election efforts. By promising to decriminalize personal marijuana use, he seemed to be toying with the idea of full federal legalization. Of course, that would be the catalyst that SNDL stock is looking for.

While the narrative made sense, on the other hand, I’ve recently argued that at his advanced age, Biden probably cares about his legacy as much as he does his life. Frankly, I’m not sure if he wants marijuana legalization to occur under his watch.

Would you if you were in his shoes?

Then again, the Afghanistan disaster probably made this question a rhetorical one. According to Reuters, Biden’s popularity dropped to the lowest point of his presidency after Taliban took over Afghanistan.

As you’ve undoubtedly heard, we also tragically lost U.S. service members during the chaotic pullout at the Kabul airport. Clearly, the Biden administration is on the ropes, with a majority of Americans disapproving of how the White House handled the withdrawal process.

Logically, the disaster and human tragedy has deep implications for the Democrats. Ironically, this is not the time for them to push controversial agendas but rather to be conservative.

Marijuana legalization in the U.S.? Not a chance, at least not during this political crisis.

Sundial in a Holding Pattern

Although an exciting equity unit, SNDL stock has basically been in a holding pattern since around mid-April, if you discount the extreme ebb and flow during the spring season. Fundamentally, this dynamic makes sense. While the financial and political backdrop doesn’t provide encouragement, a single rumor can send social media into a frenzy.

But in light of present circumstances, there may not be enough credible rumors to spark mass enthusiasm as before. With the U.S. having much bigger problems on its hands, cannabis legalization is going to take a back seat. As such, I’m going to watch SNDL stock from afar.

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On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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