Sundial’s Dilution Strategy May Pay Off for Investors in 2022

The Motley Fool called them a “dilution machine” last August, warning investors to “tread carefully.” Share prices are down 12.5% over the past twelve months. The company is on the cusp of being delisted by Nasdaq. On the surface, Sundial Growers (SNDL) looks like a disaster. Dig deeper. It’s my pick of the month in the cannabis space. 

The cannabis sector has been plagued by legalization problems and limited funding options for growers. Sundial has positioned itself to address both as they prepare to expand their operations in 2022. The formation of SunStream Bancorp last March made them a funding provider. Their pending acquisition of Alcanna (CLIQ:TSE) adds legal liquor to their product line.     

Alcanna Acquisition is All About the Booze

The Canadian cannabis market is oversaturated, so Sundial didn’t make this deal to acquire control of Nova Cannabis (NOVC:TSE), which is a wholly owned subsidiary of Alcanna. This acquisition is about the booze. Alcanna is a major retailer of wine, spirits, and beer in Alberta, Saskatchewan, and Ontario. They even have stores in Alaska. 

Remember those parties you went to in college? The most popular guy in the room brought liquor, weed, and money. That’s what Sundial Growers is positioning itself to be. The party is already going north of the border. Expect it to migrate to warmer climates in 2022. Sundial’s stock, which opened at $0.58 this morning, is going to be a big earner this year.  

Fifteen States Have Legal Weed on the Docket this Year

Federal legalization of cannabis in the US is stuck in Congress, which seems incapable of getting anything done these days. State legalization is another story. Recreational use is legal in eighteen states. Medical use has been okayed in thirty-six states. Fifteen states have cannabis legislation on their ballots this year. At this rate, federal action might not be needed.

Meanwhile, the SAFE Banking Act can’t get past the Senate floor, so cannabis growers and distributors are struggling to find funding. They need to look outside of the FDIC-backed banking industry for financing. SunStream Bancorp is one of those sources. While the debate rages on Capitol Hill over SAFE and MORE, their doors are open for business.   

Cannabis Stocks to Invest In this Quarter

 Sundial Growers (SNDL) is an all-in buy for me. Concerns over dilution and delisting can be alleviated if you look at their charts. The quick ratio is 12.80 and EPS for the year is estimated at 100%. The gross margin is only 8.3%, but the company is spending a lot on acquisitions. Look for them in the mix as more US states pass cannabis legalization measures. 

I also like Trulieve Cannabis (OTC:TCNNF). They started the year on a gentle downslope, like most of the cannabis industry, but their recent partnership with El Blunto to distribute in Arizona should give them a boost. Share prices are showing some signs of life this week. El Blunto is California’s top blunt producer. The distribution deal starts today. 

My final pick in this space is Green Thumb Industries (CNSX:GTII). They were proactive when Illinois legalized weed in 2020 and currently run sixty-seven active stores in the US, with approved licensing for 114 more in fourteen markets. That’s an impressive accomplishment in an environment where federal legalization hasn’t happened yet. I’m buying.   

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About the Author

Sundial’s Dilution Strategy May Pay Off for Investors in 2022

Kevin D. Flynn

Kevin D. Flynn is a former financial professional and founder of AdvisorScale Financial Writing. He lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.