Demand Results, not Excuses, from Sundial Growers

Headquartered in Canada, Sundial Growers (SNDL) produces and markets cannabis products for the country’s adult-use market. I am neutral on the stock.

After topping out in late 2018, the enthusiasm surrounding cannabis stocks waned and this was reflected in subsequent steep share-price declines. Consequently, investors in Sundial Growers haven’t enjoyed a pleasant ride during the past several years.

Still, this hasn’t deterred risk-tolerant traders from giving SNDL stock a try. Perhaps they’re hoping for a major positive catalyst — anything to boost the prospects of a share-price comeback.

Two potential catalysts are the hopes of federal-level cannabis decriminalization in the U.S., and Sundial Growers’ Q4 2021 earnings data release. Good news on these fronts could possibly propel SNDL stock back to $1 – a very important price point, as we’ll discuss in a moment.

Yet, there may be no turnaround in sight as hope seems to be devolving into disappointment for Sundial’s embattled backers. Ultimately, it might be time to cut and run as Sundial Growers serves up excuses, instead of the hard data that so many stakeholders are craving.

Why $1 Is So Important

First things first: SNDL stock is below a price point which has some technical and psychological significance, yes, but there’s more to the story than that.

For two full years, the Sundial Growers share price has usually stayed below $1. That’s undoubtedly a hard pill for some investors to swallow, as SNDL stock once traded much higher than $1.

Not long ago, the sellers were even threatening to push SNDL stock below 50 cents. Imagine that: having to double the share price just to reclaim the $1 level.

Plus, here’s where it gets really problematic. NASDAQ listing rules stipulated that companies need to meet a $1 minimum closing bid price for 30 consecutive trading days. Otherwise, the company could trigger delisting procedures, typically starting with the issuance of a deficiency notice.

What would happen next if SNDL stock gets delisted from the NASDAQ exchange? That’s hard to predict, but it could result in Sundial Growers being re-listed on an over-the-counter exchange, which many traders would probably consider to be a demotion.

Don’t Count on Decriminalization

As a potential delisting threat looms, Sundial Growers’ loyal investors might be counting on U.S. federal-level lawmakers to come to the rescue. After all, one piece of positive news on the marijuana decriminalization front could propel SNDL stock back over $1.

To that end, cannabis advocates have pinned their hopes on the full passage of the Marijuana Opportunity Reinvestment and Expungement Act, also known as the MORE Act. If the MORE Act were to pass from a bill into law, it would effectively decriminalize marijuana in the U.S.

There was a win for pro-cannabis advocates when the U.S. House of Representatives passed the MORE Act. Don’t start celebrating just yet, though.

Alliance Global Partners analyst Aaron Grey called the scenario of the MORE Act successfully passing through the U.S. Senate “unlikely,” and he’s 100% right about that. Sixty votes would be required for the MORE Act to pass the Republican-controlled Senate, and that’s not a result that informed investors can count on.

Lots of Words, but No Numbers

If Congress won’t come to the rescue, could Sundial Growers’ Q4 2021 earnings results give SNDL stock the jolt that it so desperately needs now?

That’s a question that should have been answered in March. Reportedly, Sundial Growers was supposed to release the company’s Q4 earnings and 2021 annual report nearly a month ago, on March 29.

Obviously, that didn’t happen as planned – otherwise, I’d be glad to relay the results to you right now. Coming into the final week of April now, we’re all still waiting for Sundial Growers to deliver its much-anticipated fiscal data.

Some folks might consider this tardiness to be unacceptable; at the very least, it’s a cause for concern. Oddly enough, though, Sundial Growers CEO Zach George still managed to spin the delay as a good thing, claiming, “This has been a function of rapid-pace of growth for the company that has put our auditors and finance team under a significant amount of stress.”

For what it’s worth (probably not much), Sundial did promise to file an annual report via a Form 20-F by April 29. With that, Sundial Growers echoed the CEO’s excuse, citing the “significant amount of additional work and in-depth procedures required to be performed by the Company and its external auditor.”

Meanwhile, SNDL stock just keeps flailing around, more than a stone’s throw from $1.

Takeaway

Each investor is free to judge the validity of Sundial Growers’ reasons for delaying its financial filings. Overall, though, it’s hard to deny the frustration that some shareholders are probably feeling right now.

At the same time, U.S. Congress isn’t likely to pass federal-level marijuana decriminalization legislation anytime soon. So, that won’t be the impetus of a huge near-term rally in SNDL stock.

In the final analysis, it’s perfectly fine to be bullish on the cannabis industry in general. Choosing SNDL stock in particular, however, could expose investors to delisting risk in the future, and that’s not a hazard that many people should want to deal with.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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