In addition to being a penny stock, Canadian cannabis producer Sundial Growers (NASDAQ:SNDL) has been one of this year’s most-popular meme trades. That, of course, is a recipe for volatility. So far this month, we’ve seen SNDL stock shoot up nearly 50% in just two weeks, only to give back more than half its gains.
The recent run-up was due in part to the release of the company’s third-quarter results last week.
It’s not without justification either, as so many of these speculative spikes have been. Recently, Sundial disclosed a favorable earnings performance in the third quarter, reporting net income of 11.3 million CAD ($9 million) and positive adjusted EBITDA of 10.5 million CAD (about $8.3 million). Given that prior poor quarterly performances have dogged SNDL stock, this was welcome news.
Another factor to point out is that Sundial has been acquisitive lately. Sundial acquired Inner Spirit Holdings in July. In October, it announced it is purchasing Canadian liquor retailer Alcanna.
Ordinarily, the buying spree might not be what you’d want to see from a company struggling to make a name for itself in a highly saturated and competitive market. However, consolidation has become the name of the game in the adult liberties sector, so to speak.
Cantor Fitzgerald analyst Pablo Zuanic mentioned that the cannabis retail market will consolidate, with two or three players accounting for the majority of sales and profits. The thinking might be that the liquor companies that Sundial acquired could also transition to their slice of the botanical pie.
Treat SNDL Stock as a Canadian Trade
Of course, at least some of the enthusiasm toward SNDL stock is geared toward the holy grail of cannabis ambitions: the decriminalization, descheduling and full legalization of marijuana. It could open up the floodgates of our economic machinery, which is just raring to go. Heck, it could even reverse a troubling trend in the agricultural industry.
But don’t hold your breath.
There’s certainly a possibility the U.S. government could legalize weed but I don’t think the current political climate makes it likely. Democrats hold a razor-thin majority and have more pressing concerns at the moment. While a Republican member of Congress recently introduced legislation to federally decriminalize marijuana, the party has nothing to gain by supporting it.
Anyone considering investing in SNDL stock should base their decision on the strength of the company’s Canadian market rather than pinning their hopes on an American botanical renaissance.
For those who wish to speculate, the developments in the home Canadian market are welcome ones. That’s really where the focus needs to be. Back in 2020, the country’s cannabis market was valued at 2.6 billion CAD. By 2026, industry experts project that this figure could hit 8.62 billion CAD.
The Bottom Line on SNDL Stock
Could Democrats get serious about descheduling marijuana, thus bolstering SNDL stock? Anything is possible. I just don’t view this as probable.
With the left scrambling to stem the red tide, now is not the time to legalize anything. Imagine, the Republicans will pounce on that every which way to Sunday. You won’t support the American people but you’ll support Canadian cannabis companies?
That’s probably the least of the bad-faith arguments heading toward any politician that greenlights the green stuff. Besides, the folks in Washington can simply agree on the contentious issues of the cannabis dilemma — particularly criminal justice reform — without going all the way toward full legalization.
Therefore, if you must buy SNDL stock, do so because you’ve performed your due diligence on the Canadian market and wherever regions the underlying products are viable. As for the U.S., consider it a bonus if it opens its doors but don’t bet on it.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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