It is an interesting quirk that shares of Sundial Growers (SNDL) are currently down by 80% from the year’s February highs yet are still up by 55% on a year-to-date basis.
But that is just one of several quirks this Canadian cannabis producer exhibits. Another is the fact the shares soared so high earlier on the year on the promise of U.S. cannabis legislation although it’s questionable how much the company really stands to benefit from weed’s change of legal status in the U.S.
Another oddity is the fact the company has a two-pronged approach, with one half of its business focused on cannabis growing and the other part using its ample capital for investment purposes.
The company began reporting standalone results for its strategic investment business in F1Q21 and has so far invested ~C$351.5 million in cannabis-related ventures, which in the latest quarterly results – for FQ2 – generated $5.7 million.
Looking at the cannabis business, Sundial reported gross revenue of ~C$12.7 million (net revenue of C$9.2 million), representing an ~8% quarter-over-quarter uptick. All in all, in Q2, Sundial reported a net loss of C$52.3 million.
While the results were slightly above Canaccord’s Shaan Mir’s estimates, they nonetheless reflect a “challenging operating environment” for the company’s cannabis operations.
This is due to Sundial’s continuous move away from the discount segment to focus more on the cannabis market’s premium sections. Sundial is looking to bring to market high potency (22%+ THC) strain releases by the end of the year and enter “higher margin product verticals.”
Over the longer term, the company expects higher-margin derivatives offerings and B2B wholesale markets will provide the company with “stable positioning” in the market. In the meantime, the company will use its balance sheet as leverage.
Whether the strategy works remains to be seen, although Mir believes that management’s decision to limit discount offerings “will challenge brand awareness in the short term.”
So, interesting times ahead for Sundial, but what does it all mean for investors? Mir rates SNDL a Hold and his $0.7 price target suggests shares will stay range-bound for the foreseeable future. (To watch Mir’s track record, click here)
One other analyst has reviewed Sundial’s prospects over the past 3 months, agreeing with Mir’s assessment, and with the extra Hold in tow, the stock has a Hold consensus rating. The average price target sits at $0.75, more or less the same price for which the shares are currently trading. (See SNDL stock analysis on TipRanks)
To find good ideas for cannabis stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
