The marijuana products market was unstoppable — or so it seemed in late 2017. Fast-forward to early 2022, and a perfectly solid business like Canadian cannabis company Sundial Growers (NASDAQ:SNDL) is disappointing investors as SNDL stock struggles to find its footing.
It might seem unfair that Sundial’s shares are underperforming, but that’s the name of the game in the financial markets. Sometimes, you just have to form a long-term thesis and stay in the trade through thick and thin.
If your thesis happens to be that SNDL stock deserves a re-rating, then you’ll have to flex your contrarian muscles and brace for continued volatility. After all, market sentiment can be unreasonable for a surprisingly long time.
That being said, it’s encouraging to know that Sundial Growers is preparing to significantly expand its business model. The company has reaffirmed this in a recent update, so 2022 just might be the year when Sundial turns a corner.
SNDL Stock at a Glance
Even amid a prolonged bear market in cannabis stocks, SNDL stock was a sensation for a short time in early 2021. In February of that year, the Sundial share price rocketed to a 52-week high of $3.96. This probably happened as a result of a meme-stock short squeeze, courtesy of Reddit sub-group r/WallStreetBets.
At that time, going above $5 seemed more likely than falling back below $1. Yet, unfortunately, SNDL stock wasn’t destined to surpass $5 in 2021.
Not long ago, the Sundial Growers share price hovered near 44 cents. Reasonable investors have to ask themselves: is such a severe drawdown justified, or is this a prime buying opportunity?
If you see a bright future the global cannabis legalization movement — and if you’re a dyed-in-the-wool contrarian — then the answer should be obvious.
Diversifying the Business Model
In 2021, Sundial Growers took bold steps to expand its scope beyond the company’s already broad array of products. First of all, in July, Sundial branched out into retail operators with the company’s purchase of Canadian cannabis retailer Spiritleaf.
That’s exciting in itself, but there’s an even bigger headline story to tell. In October, Sundial Growers announced its pending purchase of Canadian liquor retailer Alcanna (OTCMKTS:LQSIF).
This has game-changing potential, as Alcanna is Canada’s largest private liquor retailer. Impressively, Alcanna operates 171 locations predominantly in Alberta under three retail brands.
“Alcanna’s value-focused model in liquor retailing has created market stability and we believe that the replication of this playbook in cannabis has strong potential to drive a similar result,” Sundial CEO Zach George commented at that time.
George’s enthusiasm is understandable. After all, Alcanna has a history of generating strong cash flow. Indeed, the company had generated $16.4 million in free cash flows in the last four quarters, as of October 2021.
A Timely Update
It’s been a while since that announcement, and it’s possible that SNDL stock’s continued slide is partially due to some investors losing patience.
It really is unfortunate that some folks will just give up on a company because a business transaction takes a while. This is perfectly normal, and the value proposition of the Sundial-Alcanna deal hasn’t changed.
Besides, it’s not as if there’s been radio silence from Sundial Growers. In December, the company issued a press release to reiterate its commitment to the proposed plan of arrangement with Alcanna.
Then, on Jan. 6, 2021, Sundial provided a timely update regarding what Alcanna’s shareholders should expect to receive upon the closing of the proposed business transaction.
Among other things, it’s an affirmation that the acquisition can and will move forward as planned. There might be adjustments to make along the way, but that’s not unusual with complex business deals.
The Takeaway
There’s no denying that SNDL stockholders’ patience has been stretched. Still, selling out of boredom or panic isn’t a sensible strategy now.
Consider the value that Alcanna’s business will bring to Sundial Growers. The benefits won’t be seen in a day or a week, so patience is required.
That patience could pay off handsomely, in due time. If SNDL stock finally finds a bottom in 2022, the upside recovery may be prolonged and powerful.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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