Sundial Growers Stock Is in the Penalty Box

Stock Market

Sundial Growers (NASDAQ:SNDL) soared 745% right out of the 2021 gate. Then it lost more than 80% within two months of topping out on Feb. 10. SNDL stock has recovered some as it sits 73% from the highs.

marijuana stocks image of marijuana leaf on top of several one-hundred dollar bills, ACB stock

Source: Shutterstock

Somewhere between the bottom on May 13 and now, SNDL stock rallied 130% then lost another 30%. Clearly it is not one for the average investor. Those in it better have a strong stomach for risk and a poker mindset.

Before we go any further, I will disclose that I wrote about the upside opportunity on Feb. 5. Clearly I have no issues talking positively about it. But today my decision is to avoid it for personal taste. It has the flare of Vegas and poker rooms and that doesn’t fit my trading mantra. Besides, in the longer term, SNDL stock is lagging Canopy Growth (NYSE:CGC) and Tilray (NASDAQ:TLRY).

SNDL Stock and the Fundamentals

We could pretend that today we want to talk about fundamentals, but clearly this is pure stock manipulation. Almost nothing about such price action is due to changes in business outlooks. This is unfortunate because it detracts from what management is trying to do.

The company’s CEO is confident in their financial position. They currently have a decent balance sheet and a strong operational setup. They noted deploying strategies to deal with declining prices, especially in the Canadian markets. Management sounds aware and on point to tackle challenges.

But all of this means almost nothing to the stock price. The self-labeled “Apes” don’t consider much of anything except squeezing hedge funds. What they don’t realize is there are thousands of innocent retail investors that are also victims. Consider the ViacomCBS (NASDAQ:VIAC) stock debacle. It too spiked from a Reddit squeeze in March. The Redditors won and a hedge fund called Archegos folded. Part of dealing with the financial blight, Archegos had to fire-sell their assets. This crashed VIAC by 60%.

The social media traders hijacked the opportunity away from traditional investors. This is the byproduct of the shenanigans that started with GameStop (NYSE:GME). Now there are a set of tickers like GME, AMC (NYSE:AMC) and SNDL that are part of meme stocks. Trading them now is more gambling than anything else.

From an investment perspective, I would put SNDL stock in the penalty box. If I need to invest in cannabis I’d use CGC. It has earned its fundamentals stripes on Wall Street. Besides, its stock still has a much stronger position relative to its 2019 levels. This relative strength situation is comforting to a lot of retail investors. SNDL stock spikes look like opportunities to exit and book profits.

Sundial Needs a Headline

Sundial Growers (SNDL) Stock Showing Lower high Trend

Source: Charts by TradingView

Although I have been bullish on cannabis stocks before, I am now avoiding the sector. In turn, I would also pass on SNDL stock anyway. The Biden White House trade is over. It is a waiting game for the legalization talks. Until we have tangible signs of that process starting, it’s a binary investment. I would rather have a bit stronger edge than 50/50.

I understand the attraction of a low-dollar SNDL stock. Penny stocks are exciting but they are just killers in disguise. Their low face value cost makes them appear harmless. In reality, they can still lose investors half of their bet. They are also easier to manipulate.

The fact that I opt not to invest in penny stocks is not a knock against those who do. Not all traders have the same goals or methods. An important part of being a successful investor is knowing your skills and likes. Sticking to what you know and enjoy is a win in its own right.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.

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