- Federal-level marijuana legalization is going nowhere in the U.S.
- Until it does, shares of cannabis producers like Sundial Growers (SNDL) will go nowhere.
- Avoid SNDL stock as the status quo prevails.
Sundial Growers (NASDAQ:SNDL) stock has been a bummer for bulls. Since going public at the end of July 2019, SNDL stock has lost more than 90% of its value. It opened April 14 as a true penny stock, with shares valued at about 57 cents each.
In theory, Sundial can prolong its agony with a reverse stock split. But that’s all such a split would do — prolong things. SNDL stock is dead money. Here’s why.
Legalization Is Not Happening
Despite enormous popular support, federal-level pot legalization isn’t happening anytime soon in the U.S. Even when states make it legal to smoke, marijuana remains a Class 1 drug under federal law, alongside heroin. It means even the businesses of legal growers and dealers are, in practical terms, no different than dealers who operate outside the law.
In a business sense, that means there are few benefits and enormous downsides to doing business legally. Legal marijuana pays taxes, but illegal marijuana does not. Legal pot has paperwork, but illegal pot has none. Legal marijuana can only be sold in specific places, while the black market delivers.
These problems wind up making the argument for those who want to keep pot illegal. At the same time, they take the steam out of arguments by those who want legalization.
That’s easily seen in Washington, where marijuana legalization has become a partisan issue. This dooms its chances of passage in the Senate, although the House voted for it along party lines. With Republicans unified, but a small numbers of Democrats peeling off on this and other issues, nothing can get done.
No News Is Bad News for SNDL Stock
Meanwhile Sundial, which is based in Canada, is stuck. The company completed its acquisition of Alcanna at the end of March. The price was 320 million CAD in stock, which works out to $255 million. Sounds like a bargain, but Sundial’s market cap is just under $1.4 billion.
Bulls have been hopeful about Sundial because it did report a small profit for the September quarter. But those results didn’t include Alcanna, which is supposed to bring the company more retail distribution.
Sundial was able to blame the acquisition for a delay in filing its results for 2021. The result is an order that keeps managers from trading their stock until the filing is done. That was expected to happen on April 14, but Sundial filed an extension and the numbers are now due April 29.
None of that is good news. Analysts expect the company to report $44 million in sales for all of 2021, and don’t expect a profit in 2022 either.
There was a flutter of trading as the legalization bill moved through the House, but those who bought were the greater fools. Nothing happens in Washington until it happens, and right now, nothing is happening. Analysts aren’t even giving forecasts to TipRanks anymore.
This can result in misleading headlines. Shares rose 4% on April 13, then fell 4% on April 4. That may sound like action, but we’re talking moves of 2 cents per share.
The Bottom Line on SNDL Stock
Once earnings come out, Sundial stock could move up or down. For those who would willingly place a bet on the weekend’s United States Football League (USFL) games, this is worth anticipating. For investors, it’s a nothingburger.
Both sides of the debate seem satisfied with the status quo. Supporters of legalization see lower enforcement costs and fewer people in jail. Opponents of legalization can point to the illegal market and call it a gateway drug.
Any big tax windfall from legalization would require strict enforcement of a new legal regime with all its attendant costs, and you can’t tell legal from illegal pot. It’s just not happening, so stay away from SNDL stock.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.