Any good news is welcome news for Sundial Growers (NASDAQ:SNDL) at the moment. That’s because SNDL stock is days away from being delisted by Nasdaq.
InvestorPlace’s Brian Paradza recently discussed the delisting issue. Essentially, on Aug. 9, 2021, Nasdaq gave the company 180 days to get back in compliance with the exchange’s rule that a stock’s bid price must not trade below $1 for 30 consecutive days.
Those 180 days end on Feb. 7. That’s less than a week from now.
Other than the revised terms of the Sundial acquisition announced on Jan. 6, there’s little excitement in the way of news so far in 2022.
That might have changed on Jan. 24. Here’s why.
SNDL Stock and Its Sunstream Bancorp Joint Venture
Most of the chatter about Sundial these days has been about it buying Alcanna, a Canadian liquor and cannabis retailer, which generated $509 million in revenue and $72 million in net income in the 12 months ended Oct. 25, 2021.
As I wrote in November, the combination of Alcanna and its Spiritleaf cannabis stores would make it a legitimate business and not just a holding company with many disparate investments and assets.
So, that’s where the latest news comes in.
Assuming that Sundial’s business model continues down the pot version of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) road, the Sunstream Bancorp 50/50 joint venture with Calgary-based SAF Group, a leading alternative credit provider, must also gain traction if it is to become an Omaha-esque wannabe.
On Jan. 24, Sundial issued a press release that said Sunstream Bancorp affiliate Sunstream Opportunities LP received an investment grade rating of BBB+ from Egan-Jones, an unaffiliated rating agency.
“The investment grade credit rating assigned from Egan-Jones is a testament to the strong track record of Sunstream Opportunities LP’s existing credit portfolio, which comprises over 375 million CAD ($295.6 million) of investments thus far,” said Zach George, CEO of Sundial.
Sundial initially committed 188 million CAD to Sunstream Bancorp in March 2021. It added 350 million CAD to the kitty in July.
Assuming both Sundial and SAF committed equal capital to the joint venture, and the 375 million CAD mentioned in the Sunstream Opportunities press release is the total credit investments made to date by the joint venture, it has 701 million CAD in dry powder.
The details of what’s been done to date and what’s to come in the future would undoubtedly help investors decide for themselves whether this side of the Sundial story is living up to its hype.
The BDC Cometh
On Dec. 2, 2021, Sunstream Bancorp affiliate Sunstream IVXX said it confidentially submitted a draft registration statement to the Securities and Exchange Commission (SEC) to go public as a business development company (BDC).
The BDC will operate as a specialty finance company providing debt capital to U.S. cannabis companies. It’s expected to do an initial public offering sometime in the first quarter.
Under the Investment Company Act of 1940, BDCs must payout 90% of their income.
The intriguing part of the equation is where Special Opportunities LP fits into all of this. Were Sunstream Bancorp to roll the credit fund into Sunstream IVXX, the IPO could be popular with institutional investors looking to play the cannabis angle through higher-yield income investments.
In addition, with Sundial’s joint venture assets held within the BDC, the transparency of a BDC would help investors evaluate its credit investments to date.
The important part about BDCs is that as interest rates rise, so will the rates at which it borrows funds to invest out to borrowers. But unfortunately, it also increases the risk of default.
However, in theory, the move makes a lot of sense.
The Bottom Line
I continue to view Sundial Growers as an attractive speculative stock. That said, it absolutely has to get its house in order vis-a-vis Nasdaq. To go over-the-counter would be counterproductive at this point.
It makes sense to get the reverse split done and then complete the Alcanna acquisition afterward.
As for the investment-grade rating, every little bit helps.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.