Shares in the marijuana grower and marketer rose 8% on Nov. 11, the day earnings came out. They rose nearly 10% more over the weekend. Sundial was due to open on Nov. 14 at about $2.85/share, a market capitalization of nearly $700 million.
Sundial said it lost $74.4 million, or 98.8 million CAD, on revenue of $173.6 million, or 230.5 million CAD. During the quarter the value of the Canadian dollar fell from 78 cents to the U.S. dollar to 73 cents. It’s currently at about 75 cents.
What They’re Smoking
In addition to its cannabis operations, Sundial owns a chain of wine and liquor stores in Alberta, Canada. The liquor stores represent two-thirds of its revenue. Sundial trades on the hope of growing marijuana sales, with alcohol delivering a small profit and steady operations.
Before earnings analysts hinted at good news with a bullish sentiment score, for all of 2022 shares are down 55%.
All cannabis stocks are down for the year, but they rose recently on hopes for U.S. legalization. Canopy Growth (NYSE:CGC) is also down 55%, while Tilray Brands (NASDAQ:TLRY) is down 40% and Curaleaf (NASDAQ:CURLF) is down almost 28%. The average S&P 500 stock is down 16%. On the other hand, more liquor-centric stocks have held up with Constellation Brands (NYSE:STZ), which has a huge stake in Canopy, only down 2%.
Sundial CEO Zach George said this spring there was “a reckoning taking hold” in the industry, with capital harder to come by and consolidation on the way.
Sundial has been part of that, using revenue from stock sales to buy other companies. Most recently it bought Zenabis, a large indoor pot farm in New Brunswick, Canada. Zenabis was acquired after declaring bankruptcy.
SNDL Stock: What Happens Next?
While bulls have hope for Sundial’s pot operations, bears point to continuing dilution from stock sales and operating losses as reasons to stay away.
The marijuana business remains difficult. There’s little to distinguish legal pot from the illegal variety. There’s little appetite for government to spend the billions of dollars it would take to police the industry on behalf of legal growers. Without a change in the fundamentals, I expect little change in the market.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.