Shares of Canadian marijuana producer Sundial Growers (NASDAQ:SNDL) had a horrible run at the stock market last year. That is saying something, considering how Sundial has struggled ever since it went public. Trading in the penny stock territory, it faces a potential delisting if it can’t bump its price to $1. Considering its track record, its underlying business seems unlikely to drive SNDL stock higher.
Sundial became a popular meme stock last year, with its share price reaching as high as $3.96 back in February 2021. However, since then, the stock has shed more than 80% of its value and now trades firmly in the penny stock territory. Retail interest in the stock has waned significantly
It has, however, acquired multiple companies through the truckloads of cash it generated from the extreme dilution of its stock. Nevertheless, its underlying business remains a major concern and the potential delisting could be a massive blow to its long-term prospects.
Potential Delisting for SNDL Stock
Last month, Sundial was given a six-month extension by Nasdaq to fulfill its minimum $1 price requirement. The company will need its share price to close at or above the $1 mark for ten consecutive days before Aug. 8. Though it gives some breathing room to investors, the likelihood of its business driving the bump in its stock price seems unlikely at this point. The most likely scenario is a potential reverse stock split, which will result in further shareholder dilution.
The state of the Canadian cannabis market isn’t looking too pretty either. New Cannabis Ventures reports that sales grew 28.5% from the prior-year period in December. Though an impressive figure, it came in well below expectations. However, a slowdown was predicted in the following month, with forecasts at least 6% below December’s sales growth.
The Canadian marijuana market has been up and down in the past year, which hasn’t helped Sundial’s cause. On top of that, prices have been falling and the rising competition further exasperates its problems. Retail cannabis prices dropped by double digits across the board for all cannabis products last year.
Sundial will be releasing its fourth-quarter results later this month. It reported its third-quarter results back in November, where it posted an EBITDA profit of 10.5 million CAD compared to a 4.4 million CAD loss in the same period last year. However, its sales growth was significantly less impressive, with net sales rising 12% on a year-over-year basis to 14.4 million CAD.
All eyes will be on Sundial continuing its form into the fourth quarter, especially in terms of its adjusted EBITDA numbers. Moreover, it is closing in on its acquisition of liquor store chain Alcanna. Additionally, Alcanna also has over a 50% stake in Nova Cannabis (TORONTO:NOVC.TO), which is one of the top marijuana retailers in Canada. This is likely to strengthen the company’s long-term revenue prospects.
In terms of price metrics, SNDL stock still trades at highly unattractive multiples. It currently trades at over 25 times forward sales, over 370% higher than the sector average. Its peers Canopy Growth (NASDAQ:CGC) and Tilray (NASDAQ:TLRY) are performing significantly better than Sundial, but trade at much lower price multiples.
Bottom Line on SNDL Stock
Sundial’s investors are in a major spot of bother at this point. The company faces a delisting from the U.S. stock markets while its domestic market is growing at a snail’s pace.
It is improbable that its business will have the firepower to push its price past the minimum requirement. Hence, more dilution is in the cards. The upcoming earnings results will be important as the management sheds more light on the delisting process and growth trajectory.
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On the date of publication, Muslim Farooque 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