As has been the case in recent months, Sundial Growers (NASDAQ:SNDL) continues to languish under $1 per share. This is in sharp contrast to a year ago, when SNDL stock, and similar plays, were on a tear.
At the time, with political changes in the U.S., many saw an increased chance of pot becoming legal on the federal level. That would enable this Canada-based operator to enter the American market, in turn, more than making up for the challenges it was facing back home.
Unfortunately, this failed to play out. As this catalyst faded, the market once again soured on Sundial. It also didn’t help that the company, taking advantage of its popularity, severely diluted shareholders through secondary stock offerings.
However, despite all the disappointment last year, this year things could play out a whole lot differently. It’s low-priced as cannabis plays are for now out of favor, if its latest game plan to create value pays off, high times could return for this former hot stock.
SNDL Stock and Its Diversification Efforts
Possible game-changers like entering the U.S. market may be off the table for now. But the strategy it’s focusing on today could be its ticket to better results. It hasn’t completely changed its business model, as it continues to be a purveyor of branded cannabis products.
Yet in recent months, it’s moved into other related lines of business. This diversification may be what finally gets it out of the red. With this, the market may just well warm back up to SNDL stock, which today treads water at around 60 cents per share.
Sundial has diversified in two ways. First, through branching out into retail operators with its purchase of Canadian cannabis retailer Spiritleaf. It is adding to this, via its pending purchase of Canadian liquor retailer Alcanna (OTCMKTS:LQSIF). Alcanna also owns a majority stake in Nova Cannabis (OTCMKTS:NVACF), another cannabis retail chain.
Second, the company has become a sort of merchant bank for the cannabis industry. Directly, and through its SunStream Bancorp joint-venture, it lends money to other cannabis companies. Targeting a 13% annualized return, it has put 489 million CAD (around $386.6 million) into debt investments. It plans to put more of its cash to work (up to 571 million CAD, or around $451.5 million).
Why Sundial’s New Ventures Could Move the Needle
So, how could this pot company’s move into other areas of the cannabis sector pay off for SNDL stock investors? Thanks to both its moves into retail and investments, it could see big improvement in its operating performance.
With the Alcanna deal, Sundial is getting a business that’s already profitable. Not only that, there’s another value-add element to this deal. By combining Spiritleaf and Nova, the company will be able to cut operating costs, helping to improve profitability. It’s important to note that this is on top of the steadily improving results from its existing cannabis operations.
When it comes to its investment business, like I mentioned above, Sundial’s projecting a solid return on investment from its cannabis lending operations. For 2021, it generated 20 million CAD ($15.8 million) from its portfolio. Given that investment business didn’t get into full swing until the second half of the year, it will likely generate a much higher amount of investment income in 2022.
In short, both of these new ventures stand to improve Sundial’s operating results. If this plays out in the quarters ahead, SNDL stock could really start to make a recovery.
Earning a “B” rating in my Portfolio Grader, keep in mind this is still a speculative play. If you are interested in buying it, I would dig deeper into its lending operations. It may appear set to produce a solid return on its investment. However, if too many of its borrowers default, much of the cash it’s put into this venture could go up in smoke.
That said, there’s big potential with these changes to the “story” behind Sundial. For now, shares could continue to stay stuck at around 60 cents per share. The sector is still out of favor, so the stock likely isn’t going “to the moon” out of the blue anytime soon.
But if in the next few quarters its new ventures really start to pay off, we could see it break out once again. While the market is skeptical about its future, investors on the prowl for risky plays may want to consider SNDL stock.
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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