Shares of Sundial Growers sank more than 14% after the Canadian cannabis company filed a shelf prospectus to raise up to $200 million from the sale of securities.
Specifically, Sundial (SNDL) filed a “universal shelf” registration with the US Securities and Exchange Commission (SEC) to allow the company to raise capital via various securities. In addition, Sundial has also filed a preliminary prospectus supplement with respect to a new at-the-market equity program for up to $150 million of its common shares.
Headquartered in Calgary, Sundial produces several lines of high-quality lines of cannabis for the recreational and wellness markets.
The company stated that it “intends to use the net proceeds to continue to retire its indebtedness and for the financing of possible acquisitions of, or investments in, equipment, facilities, other businesses, products or technologies and for working capital and general corporate purposes.”
The announcement comes after SNDL shares popped 78% over the past five days, taking the advance over the past month to 165%. However, the stock is still down 78% since the start of the year.
Canaccord Genuity analyst Shaan Mir last month initiated the stock’s coverage with a Hold rating and a $0.30 price target (55% downside potential), arguing that capital constraints overshadow Sundial’s “promising” operations.
“Although the company’s ability to secure a top-10 market share within the space is encouraging, we believe that uncertainties around SNDL’s capital position and cost structure may strain resources as it continues to scale its operation, and we would therefore caution investors to remain on the sidelines until there is more clarity on the capital structure,” Mir commented in a note to investors. “We believe the company will still need to secure additional capital in order to service >C$120M of debt due in less than two years while scaling operations to profitability.”
“The company has $65M in available equity financing that would result in the issuance of >250M shares at current prices – a non-ideal resolution for its capital needs,” the analyst added. (See Sundial Growers stock analysis on TipRanks)
Overall, Sundial has picked up two Hold ratings from the Street over the past three months, which add up to a Hold analyst consensus. That’s with an average price target of $0.35, implying investors might be looking for another 47% downside potential in the shares over the coming year.
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