As the legalisation of cannabis has been gaining momentum around the globe, the sector has seen burgeoning growth, so much so that the global legal cannabis market size in 2019 stood at $17.5 billion. And as the sector is predicted to reach a market value of around $65.1 billion by 2027, expanding at a compound annual growth rate (CAGR) of around 17.8%, both cannabis companies and investors are tapping into what they consider is a major opportunity.
Meanwhile, a little-known Canadian company by the name of Sundial Growers has become one of the hottest cannabis stocks of 2021. With a valuation at over $2 billion and its shares soaring 174% since the start of January, the company has a shot at harnessing the tremendous tailwinds driving the industry and making the most of the cannabis boom.
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Who are Sundial Growers?
Founded by Stanley J. Swiatek and headquartered in Calgary, Canada, Sundial Growers is a licensed cannabis producer which cultivates and distributes flower, pre-rolls and vapes, while it operates through three primary segments, namely Cannabis, Ornamental Flowers and Corporate.
The Cannabis sector includes the legal cultivation and distribution of cannabis products under federally regulated licenses by Health Canada, the department of the Government of Canada responsible for national health policy, while the Corporate sector represents the company’s corporate activities. Up until recently, the Ornamental Flowers segment covered the legacy operations of its subsidiary Bridge Farm, a producer of ornamental plants, flowers and herbs, however, in 2020, the company decided to sell its UK asset to a consortium of private investors for $90 million.
Boasting 448,000 square feet of modern, state-of-the-art indoor facilities serving as growing, as well as research and development spaces, Sundial Growers’ flagship facility in Olds, Alberta is centred on growing craft cannabis at scale which is then sold in the Canadian market. Through purposely-built modular rooms featuring optimised light, temperature and humidity, the Olds facility is expected to produce approximately 60 million grams of cannabis annually. On the other hand, the company’s Rocky View facility is where all the advanced research and development takes place and where new cultivars are tested and eventually selected. In 2019, the company purchased 20 acres of land earmarked for cannabis production in Merritt, British Columbia, with the aim to sell its products, including its BC Weed Co, to consumers in the province.
Partnering with the likes of the University of Calgary, University of Saskatchewan, Implanta Biotechnology and Plantbiosis, Sundial Growers employs experienced growers, researchers and quality assurance specialists to grow a select range of cannabis strain. Its brand portfolio includes Sundial Cannabis, which sells flower, oil, vape and pre-rolls, Top Leaf, Palmetto and Grasslands.
Fun fact
Canada has provided legal access to medical marijuana since 1999, however in 2018 the country also established the legalisation of cannabis for recreational purposes in all provinces, becoming the first G7 nation to legalise marijuana nationwide for recreational use and the second nation in the world after Uruguay.
When did Sundial Growers go public?
Sundial went public on the Nasdaq stock market on August 2019, selling 11 million shares for $13.00 per share in a $1 billion IPO. However, its debut was not met with much enthusiasm and the stock lost about 35% of its value on the first day of trading. Then, its shares plunged even further, trading below $1 and losing 87% of its market value in just six months, while the stock faced the risk of being delisted from the Nasdaq.
Is Sundial Growers a buy?
Up until recently, the company was one of the lesser-known publicly traded cannabis growers, however, things changed after the stock and the cannabis sector as a whole started attracting investors’ attention. And just as it hit rock bottom, it started gaining traction, growing by more than 160% over the last three months. According to the Wall Street Journal, the stock was the seventh most highly traded security between the end of 2019 and January 7, 2020 with 69.2 million securities traded on average daily, trumping the likes of American Airlines and Bank of America whose average daily trading volume was that of 67.8 million and 67.9 million respectively.
With a market cap as of March 9, 2021 standing at $2.17 billion, what exactly has driven the stock to soar? For one, it is considered a meme stock, in other words a stock that combines the following traits - it has high short interest, it is small capped, it has a depressed price, while it is backed by small retail online investors. In fact, Reddit investors cite Sundial Growers’ stocks for its low stock price, its popularity among young retail traders and its presence in a growing market as reasons to buy.
The cannabis sector itself is another crucial factor. Made up of companies that either support or are engaged in the research, development, distribution and sale of both medical and recreational cannabis, the industry has gained momentum in recent years. In the U.S. alone, where the plant is illegal under federal law as a Schedule I drug, the legal marijuana industry was estimated at $13.6 billion in 2019, with around 340,000 jobs devoted to the handling of plants. And according to analysts, the industry could reach $16.8 billion by 2025 and $200 billion by 2029. As a result, many of these cannabis stocks, just like Sundial Growers, have dramatically outperformed.
Mainly competing in Canada and holding 3.3% of the adult-use market share as of the third quarter of 2020, Sundial Growers face stiff competition, yet its market share has been steadily increasing, boosting the stock’s rapid run-up that we’re seeing today. And despite, the company not reporting earnings since November 11, 2020, when its third-quarter numbers were released, while net revenue for the period ending September 30, 2020 was down 54%, the company has made great efforts to turn things around.
Through a combination of asset sales, debt for equity swaps, capital raises and cash repayments, Sundial Growers managed to eliminate $177 million in debt this year, which in turn created a dilution of existing shareholders. As of December 21, 2020 the company confirmed that it has backing from investors with 840 million outstanding common shares, an impressive 527% increase from the 134 million shares outstanding available at the end of September.
What’s next for Sundial Growers?
With its debt out the door, the company has managed to increase significantly its financial strength, while it has also raised a large amount of money recently, which it could help fuel its expansion plans and pave the way towards profitability. In February 2021, the company announced that it had closed a capital raise round which added C$610 million to its balance sheet, while it made an additional C$61 million in securities investments. Indeed, as recently as February 2021, the company made a C$22 million investment in Indiva, another Canadian cannabis company. Having that kind of cash in a cash-strapped industry can be beneficial.
Sundial Growers has also announced the launch of premium concentrates products under its Top Leaf Brand in response to what the company said is a rising consumer demand for solventless cannabis extracts. More specifically, its new bubble hash product, together with pressed hash and live rosin merchandise can help it expand its product offerings further in the near future through the different Sundial brands, which in turn may power the company’s share of this rapidly expanding market segment.
How to invest in Sundial Growers (SNDL) stock with Moneybase Invest
Ready to buy a share in Sundial Growers (SNDL)? Your first step to tapping into a world of investment opportunities with Moneybase Invest is to sign up and open an account.
To do so:
- Download the app from either Google Play or the Apple App Store. Alternatively, you may access Moneybase Invest on your desktop by visiting https://live.cctrader.com/
- Once you’ve onboarded successfully and have funded your account, head over to the search bar at the top of your screen and input either the company name or ticker symbol.
- Select the instrument of your choice from the list and then click on the Buy button on the window located at the bottom of your screen.
- On the New Order page, input the number of shares you would like to purchase and hit the Place Buy Order. SNDL has been added to your portfolio.
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