Will This Pot Stock Make a Comeback?
Do you ever get frustrated when a pot stock is so small that you can’t find enough information about it? Well, that’s not unusual when it comes to investing in the cannabis industry.
Because many pot companies are just starting out, they tend to have relatively small market capitalizations and trade over the counter rather than on major stock exchanges. As a result, these companies don’t get much attention from Wall Street.
And that’s why Sundial Growers Inc (NASDAQ:SNDL) might be a bit special. The company is very new to stock-market investors; it only completed its initial public offering (IPO) in August.
What’s interesting about Sundial Growers stock is that it doesn’t just trade over the counter or on some smaller Canadian stock exchange; it went public on the Nasdaq Global Select Market.
That’s right. Sundial Growers, which has a market capitalization of around $388.6 million, is actually listed on the Nasdaq.
Compared to over-the-counter stocks, being able to list its shares on a major U.S. stock exchange could give SNDL stock a lot more exposure—as well as liquidity.
Still, given what has happened to the cannabis stock market recently, the timing of Sundial Growers Inc’s IPO seemed rather unlucky.
You see, for the past six months, pot stocks listed on North American stock exchanges have been experiencing a serious sell-off. Unsurprisingly, Sundial Growers stock took a beating during this industry-wide share-price downturn.
The company made its debut on the Nasdaq with an IPO price of $13.00 per share on August 1. Today, SNDL stock has a price of $4.13, marking a staggering drop of 68%.
Sundial Growers Inc (NASDAQ:SNDL) Stock Chart
Chart courtesy of StockCharts.com
While the Sundial Growers stock chart looks pretty disappointing, I don’t think pot stock investors should cross the company off their watch list.
The reason is, despite its stock-price downturn, Sundial Growers actually runs one of the fastest-growing businesses in the legal cannabis industry.
Sundial Growers Inc Recent History
As a producer headquartered in Calgary, Alberta, Canada (yes, despite being listed on the Nasdaq, this is a Canadian company), Sundial Growers Inc currently operates two locations in the province: a flagship facility in Olds and another one in Rocky View.
The company also has plans to build a third facility in the province of British Columbia.
Sundial’s commercial pot sales started in the first quarter of 2019. During that quarter, it harvested 1,896 kilograms (4,180 pounds) of cannabis from 30 crops. (Source: “Barclays Global Consumer Conference September 2019,” Sundial Growers Inc, last accessed October 17, 2019.)
In the second quarter of 2019, the company harvested 9,551 kilograms (21,056 pounds) of pot from 94 crops. (Source: “Sundial Reports Second Quarter Results as Operations Ramp Up,” Sundial Growers Inc, August 13, 2019.)
So in just three months, SNDL’s production increased by more than five-fold.
What’s more impressive than Sundial’s production growth is the amount of pot it managed to sell. In the second quarter of this year, the company sold 4,741 kilograms (10,452 pounds) of cannabis. Compared to the 323 kilograms (712 pounds) sold in the first quarter, that’s a sequential increase of 1,368%!
As you’d expect, this kind of expansion in Sundial’s operations gave a huge boost to the company’s financials. In the second quarter of 2019, the company generated CA$20.3 million of gross revenue, which was 12 times higher than in the first quarter.
At the same time, the company managed to operate more efficiently and reported the second-quarter cost of sales of CA$2.20 per gram. This was a solid improvement from its first-quarter cost of sales of CA$2.41 per gram.
Thanks to strong top-line growth and more efficient operations, Sundial Growers Inc reported adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) loss of CA$500.0 million in the second quarter.
While that figure has yet to turn positive, it marked a big sequential improvement. In the first quarter, the company incurred an adjusted EBITDA loss of CA$5.5 million.
When the cannabis industry was blowing up in popularity in early 2018 and early 2019, many pot stocks shot through the roof.
Because Sundial Growers Inc made its debut on the stock market this August, the company missed out on those industry-wide rallies.
Still, given the rate of growth in Sundial’s business, SNDL stock could see some upside once investors warm up to the pot industry again.