On March 31, Sundial Growers (NASDAQ:SNDL) announced it had completed its acquisition of Alcanna. The deal gives Sundial Growers a much improved retail footprint that spans not only cannabis retail but also includes significant retail alcohol operations. In fact, Sundial is now the largest private-sector liquor retailer in Canada, with 171 locations.
As part of the deal Sundial Growers also increases its retail cannabis operations by 78 stores through Alcanna’s majority-owned subsidiary, Nova Cannabis (OTCMKTS:NVACF). Early indications are that this does little to reverse the downward slide of SNDL stock.
Management has highlighted the “synergies” that this increased retail operation is expected to bring. The idea is that Nova Cannabis retail operations are congruous with the company’s own Spiritleaf retail operations. The firm estimates that the combination of the two should lead to $15 million in additional EBITDA (earnings before interest, taxation, depreciation and amortization) on an annual basis.
Unfortunately for Sundial Growers and owners of SNDL stock, this probably won’t matter much. And that’s what investors should be particularly aware of. Beyond the flashy headlines is the bigger truth about the company. $15 million in EBITDA does little. That’s because EBITDA measures earnings before all of the major deductions occur. And once those deductions do occur the company has shown that it loses a lot of money.
In both the first nine months of 2020 and 2021, the firm posted similar net losses of approximately $175 million. It’s fair to assert that $15 million won’t do much to put a dent in investor sentiment with losses of that magnitude.
The closing of the acquisition hasn’t helped the company’s stock. It has slid from 70 cents per share down to around 50 cents since. And that’s part of a sustained trend in which Sundial has consistently remained under $1 for the vast majority of the last year.
Cannabis companies have expanded in an effort to increase their reach in the future. In May of 2021 Tilray (NASDAQ:TLRY) merged with Aphria to become the world’s largest cannabis firm. That merger has done little for investors as prices cratered about a month later.
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On the date of publication, Alex Sirois 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.
