It’s been a weird, wild year so far for investors of Canadian cannabis company Sundial Growers (NASDAQ:SNDL). It appears that SNDL stock got the meme-stock treatment in mid-February, only to get dumped soon afterwards.
As we’ll see, the $1 level will be significant for Sundial’s shareholders. Maybe Reddit users will start a short squeeze, but there’s no need to sit around and wait for that to happen.
SNDL stock can appreciate in value based on the company’s evolution and diversification. With that, the investors don’t have to pray for a meme-stock rally to happen.
Indeed, as we delve into Sundial’s recent ventures, you might be surprised to see what the company’s been up to lately. The company is still a cannabis company at its core, but broadening its investments could turn out to be a very smart move.
A Closer Look at SNDL Stock
So, let’s talk about how SNDL stock earned a reputation for being a meme stock.
Back in February, the Sundial share price spiked from around $1 to a 52-week high of $3.96. There wasn’t any news-based catalyst which would have justified a price move of that magnitude.
Besides, meme-stock traders tend to target low-priced stocks. Therefore, it’s entirely possible that SNDL stock was on the radar of the Reddit crowd.
That crowd can be fickle, though. By mid-April, the Sundial share price had plunged back below $1, leaving some traders in a difficult position.
It’s not fun to hold the bag, but there’s no need to give up hope. As SNDL stock still trades below $1, there’s a window of opportunity to pick up some shares before the next rally.
What could precipitate the next big move? Hopefully, a couple of strategic investments could do the trick.
Generating Interest Income
You might think of Sundial as a cannabis grower, but the company also sources a revenue stream from lending money.
Half of that 22 million CAD was an equity investment, and the other half was a term loan which Indiva would pay back with interest.
Moreover, Sundial amended that deal this month by providing an additional 8.5 million CAD to Indiva.
The updated arrangement provided for an increase in the interest rate on the loan, from 9% to 15%.
That definitely sweetens the deal for Sundial. Plus, there’s a provision that “100% of accrued interest is payable in cash and accrued on a monthly basis.”
With all of that, Sundial stands to generate monthly interest income of roughly 246,899 CAD, which equates to around $197,519 in U.S. currency.
Of course, this depends on Indiva’s ability to repay the loan with interest, so Sundial’s investors should stay tuned for further developments on that.
Getting Into the Alcohol Business
Would you consider it a natural progression for a cannabis company to expand into the alcohol market?
Impressively, Alcanna has over 25 years of experience in retailing regulated products, and is Canada’s largest private liquor retailer.
Furthermore, Alcanna operates 171 locations, predominantly in Alberta. The company’s retail brands include Wine and Beyond, Liquor Depot and Ace Liquor.
The press release touts Alcanna’s “longstanding liquor business provides,” which should provide Sundial with “stable cash generation through a mature and proven business model.”
That cash generation would be based on Alcanna’s built-out retail platform, which exhibits trailing twelve-month free cash flow of $16.4 million.
The Bottom Line
Adding revenues from 171 liquor shops could boost Sundial’s top and bottom lines in a big way.
Also, the new terms of the Indiva loan ought to provide a substantial revenue stream for Sundial Growers.
With all of that in mind, there’s no reason to worry about SNDL stock, which deserves to be $1, and perhaps much higher than that.
On the date of publication, David Moadel 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.