SNDL Stock: Undervalued Pot Company Reports Record Net Revenue & Cash Flow

Why There’s Optimism About SNDL Stock

SNDL Stock

SNDL Inc (NASDAQ:SNDL) is one of those great under-the-radar marijuana stocks that sort of just jumped onto the radar of Wall Street. The company (formerly known as Sundial Growers) is the largest private-sector liquor and cannabis retailer in Canada.

Until recently, SNDL was a small player in the Canadian cannabis industry, but then it set its eyes on U.S. and Europe. A number of blockbuster acquisitions over the last few months have turned the company into one of the biggest players in the North American marijuana sector.

In March, SNDL Inc completed its $320.0-million acquisition of Alcanna Inc., one of the largest private-sector retailers of alcohol in North America—and the largest in Canada.

Advertisement

In August, SNDL announced it was buying Valens Company Inc (NASDAQ:VLNS) for $138.0 million, giving it a position in the U.S. cannabis market. The acquisition turns SNDL Inc into an industry leader in terms of net cash balance per share and overall revenues. This transaction is expected to close in the first quarter of 2023.

SNDL Inc also announced plans to acquire Superette for $2.1 million. The deal will give SNDL six retail locations in Toronto and Ottawa. Moreover, the acquisition will further leverage SNDL’s leading position as a multi-banner cannabis retailer.

Subsequent to the end of the third quarter, SNDL completed its previously announced acquisition of the assets of Zenabis Global Inc., a Canadian medical marijuana and recreational marijuana company.

SNDL also recently expanded its international operations, sending its first export of dried marijuana flower to Israel.

The new acquisitions have helped juice SNDL Inc’s quarterly financial results. The company reported impressive second-quarter and third-quarter results and announced a new share-repurchase program.

Although there’s a lot going on at SNDL Inc, it isn’t reflected in its share price yet. But Wall Street is starting to wake up.

As of this writing, SNDL stock is up by 21% month-over-month, but it’s still down by 55% year-to-date and 64% year-over-year.

Chart courtesy of StockCharts.com

There’s reason to be optimistic about SNDL stock. Analysts’ average 12-month share-price target for SNDL Inc is $3.43, and their high estimate is $5.79. This points to potential gains in the range of 30% to 120%.

SNDL Inc Overview

As mentioned earlier, SNDL is the largest private-sector liquor and marijuana retailer in Canada. It has 355 stores across the country.

The company has 169 liquor store locations. Its three liquor retail store banners are “Wine and Beyond” (largest liquor store in western Canada), “Liquor Depot” (liquor convenience outlet in Alberta), and “Ace Liquor Discounter.” (Source: “Liquor Retail Banners,” SNDL Inc, last accessed November 30, 2022.)

SNDL has 183 marijuana dispensary locations. The company’s cannabis retail banners are “Spiritleaf” and “Value Buds.”

SNDL Inc also has Canada’s largest indoor purpose-built marijuana cultivation and processing facility (448,000 square feet of total available space).  The company cultivates small-batch cannabis using an individualized “room” approach.

SNDL has a diverse portfolio of marijuana products ranging from value to premium, with an emphasis on premium inhalable formats. Its cannabis brands include “Grasslands.” “Palmetto,” “Spiritleaf Selects,” “Sundial,” and “Top Leaf.”

Record Revenue & Cash Flow

SNDL Inc’s financials continue to impress.

For the second quarter ended June 30, the company announced that its revenue soared by 2,344% year-over-year to a record $223.7 million. (Source: “SNDL Reports Second Quarter 2022 Financial and Operational Results,” SNDL Inc, August 12, 2022.)

Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter were $25.9 million, compared to an EBITDA loss of $200,000 in the same period of last year.

For the third quarter ended September 30, the company announced that its net revenue increased by 1,501% year-over-year and three percent sequentially to a record CA$223.7 million. (Source: “SNDL Reports Third Quarter 2022 Financial and Operational Results,” SNDL Inc, November 14, 2022.)


In the third quarter, SNDL’s liquor retail revenue was CA$152.5 million, its cannabis retail revenue was CA$66.2 million, and its cannabis operations revenue was CA$11.8 million.

SNDL Inc reported a third-quarter net loss of CA$98.9 million, largely due to non-cash charges for impairment of CA$86.5 million. Its adjusted EBITDA went up by 74% year-over-year in the third quarter and 169% sequentially to CA$18.3 million.

The company reported record net cash provided by operating activities of CA$8.6 million for the third quarter of 2022, compared to a loss of CA$56.2 million in the third quarter of 2021.

SNDL ended the third quarter with CA$988.00 million in cash, marketable securities, and long-term investments—and no outstanding debt! The company also has CA$278.0 million of unrestricted cash.

Thanks to its solid financial position, SNDL announced the renewal of a CA$100.0-million share repurchase plan.

Zach George, SNDL Inc’s CEO, noted,

Our regulated products platform has shown resiliency in the face of stiff industry and macroeconomic headwinds, and our vertically integrated cannabis business is in the early stages of providing the scale and results that we believe are required for SNDL to be a strong member of a future oligopoly in Canada.

(Source: Ibid.)

Analyst Take

It wasn’t all that long ago that I first profiled SNDL stock, but a lot has been going on at the company. In addition to reporting rock-solid financials, SNDL Inc continues to announce (and integrate) acquisitions, with cost-control initiatives continuing into 2023.

Despite all the big moves at SNDL Inc, its transformation is far from finished. With the company’s improving product portfolio, cost discipline, and continued organic and acquisitive business growth, management believes it’s “well-positioned to reach [SNDL’s] objectives, including the generation of sustainable free cash flow and long-term shareholder value.”