The producers of sundials go back in time
The cannabis industry heading into 2021 continues to thrive. Producers, clinics and entrepreneurs of recreational use spaces should look forward to a boon in the years to come. That’s not to say that every business has benefited from smooth sailing, especially Producers of sundials (NASDAQ:SNDL) Stock.
Since falling in August 2019, SNDL stock has masqueraded as a setting sun, dropping from $ 11.70 to 49 cents per share.
It has been an ugly and relentless descent. Those at the company’s Calgary headquarters are in the throes of financial restructuring and have undoubtedly done some soul searching. If the pot is hot and marijuana is where it is for investors, how did things go wrong?
The same can be said: Sundial isn’t the only Canadian cannabis company to weather the recent turmoil. Canopy Growth Corp. (NYSE:CCG) missed its way through weak demand and uneven distribution, issues that led to the ouster of co-founder and co-CEO Bruce Linton.
The good news is that Canopy’s stock has since found its way. Can Sundial Growers’ stock do the same?
SNDL stock takes a new start
On December 21, Sundial announced that it had completed a financial restructuring and achieved debt-free status. If you’ve recently paid off all of your credit cards, you know the feeling of relief. And if you were to cash those same cards to get through the novel coronavirus pandemic, you also get a feel for how Sundial got into trouble in the first place.
Just two quarters after the Sundial Growers IPO, the company started to run out of cash and eventually racked up more than $ 200 million in debt. That might not seem like much until you consider the company’s market capitalization – its total value as a public entity – to be only $ 363 million. It took a combination of asset sales, debt-for-equity swaps, capital increases and cash repayments to put Sundial back on solid footing.
But where does the sundial go from here? A restructuring of this order takes most if not all of the financial bunnies out of the mix. Fortunately, SNDL’s stock has a second chance to tap into the formidable tailwinds that are driving the cannabis industry.
Enter the Ancestry of a Sector
While most of us found ourselves caught up in the drama of election season, a fairly low-key bill arrived days after a September vote in the U.S. House of Representatives. The Marijuana Opportunities Reinvestment and Removal Act (MORE) is expected to be easily passed by the House in 2021 and possibly the Senate as well. The co-sponsor of the bill was none other than Vice President-elect Kamala Harris and more than a few Republican senators could see the business sense behind the legalization of marijuana at the federal level.
Regardless, four other states have legalized recreational use on election day: New Jersey, Arizona, South Dakota, and Montana. If you look at the long term, consider pot to be a banned substance in the United States until Colorado fully legalized it in 2012.
No matter how fast the Marijuana Express runs from now on, the train has definitely left the station. We think that the sector could generate up to $ 130 billion per year in the U.S. economy by 2024.
Still, it’s hard to know where the SNDL stock fits in all of this. On the one hand, wiping off the debt slate should count for something. Meanwhile, the company’s revenue is expected to increase by 20% in 2021. But on the other hand – and don’t choke on your cockroaches, folks – the five analyst firms covering Sundial agree that the planned $ 69.4 million should look more like $ 82.6 million.
Does Wall Street need a reset too?
In other words, the rise depends on these analysts and the consensus is therefore gloomy. They lowered their Sundial Growers share price target from 43% to 31 cents per share, while the stock is only trading at 49 cents. So to recap, 20% rise equals 43% decline and an expected 35% drop in the stock price. Isn’t Wall Street math fun?
Well, maybe it’s off. For people who pride themselves on the numerical precision and pyrotechnics of the Fibonacci curve, these analysts like many have cast their net ridiculously wide. The stock price projections range from 16 to 79 cents, which is either a huge gain or a huge loss. Additionally, all of this action took place in November and therefore ignores Sundial’s announcement of its debt-free status just days ago.
I also wonder if pessimism betrays more than a hint of bias. Experts have protested against projected 20% income hike in 2021 does not match historical growth rate of 52%. Ah, I know. The technical investment term for this is “Crier-au-Sprinter-Qui-Juste-Survived-Successful-Leg-Surgery-Because-He-Can’t-Get-Up-and-Run-Around-the-Hospital Syndrome . “
Here’s how I see it: A company that struggles so hard to regroup and join a dynamic industry deserves our attention. Not our money right now, unless penny stocks are your pitch. But let’s see where it is six months from now, (hopefully) after the pandemic and (maybe) in an America where marijuana is legal. Maybe those same analysts, as they so often do, will bend like hemp plants in the wind and hail the SNDL stock.
Too bad we can’t move forward in time. All we know is that for now, Sundial has set back its doomsday clock, and that’s a good thing.
At the date of publication, Lou Carlozo had (directly or indirectly) no position in the securities mentioned in this article.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.