Sundial Growers, SNDL Stock, started out with a whole lot of hype that a lot of retail investors bought into. Sundial Growers were able to raise significant investment capital to build themselves a large base to work with. But, my biggest complaint with Sundial Growers SNDL stock has always been consistent: the core business is falling short of anything spectacular.
While Sundial Growers has an advantage that they can acquire companies with their cash, and support any business that has not achieved net earnings positive yet, building a core business to work with should simultaneously be a priority. The advantage that Sundial Growers enjoys right now is that nearly all cannabis stocks are undervalued marijuana stocks. Any acquisition is done so at below-market rates.
Still, what I find interesting is that Sundial Growers’ numbers, its financials, are going to be supported by the acquisitions they make, not their ability to grow, produce, and sell a product. That seems ironic to me.
Sundial Growers just announced another acquisition of Alcanna, Inc., a liquor retailer that also owns 62% of another cannabis dispensary system. This gives access to 62 more dispensaries on top of the 100 that Inner Spirit is providing Sundial Growers. So, Sundial Growers will certainly have access to what is likely the most dispensaries in Canada and, I am betting that Sundial will ultimately close on the remaining 32%.
This is huge. But, will it help?
One of the knee-jerk reactions I had to this was that Alcanna may not have revenue growth rates that are impressive simply because alcohol sales are anything but impressive from a growth standpoint. But, this does give Sundial Growers those 62 other dispensaries. That is where the growth will be.
Switching gears on acquisitions?
One thing I have been watching is that Sundial Growers has steadily been acquiring shares of the Valens Company VLNCF Stock. At the same time, Sundial Growers has been acquiring shares of Auxly Cannabis CBWTF Stock but, they have since decreased the position size. I felt certain that Auxly would be a take-over target. But, the reversal of shares may signal a change in direction or thinking.
In the meantime, Sundial is still actively acquiring the Valens Company. That may be a stock to watch simply because there will be a complete acquisition of all the shares of the company. Should Sundial Growers move forward with that, this would create a behemoth company.
The Sundial Growers SNDL Stock Comparison
Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:
- #9 Market Cap: $1.3B
- #77 Revenue Growth Rate: -6.1%
- #91 Gross Margins: -31%
- #70 Operating Efficiencies: 191.9%
- #85 EBITDA/Revenue: -197%
- #10 Cash/Debt Ratio: 2,100%
- #6 Total Assets $1B
The numbers are not outstanding by any means. But, it is that cash position that really gets this cannabis company the ability to perform. Without the cash, Sundial Growers would have a difficult time getting financial numbers that are worthwhile.
The Sundial Growers Stock Financial Data
As I repeatedly mention with Sundial Growers, their numbers for the core business are less than exceptional. This is the last time we will be able to see the financial data come through where it is just the core business.
Revenue growth rates for Sundial Growers simply do not exist; they are in a constant decline:
Keep in mind the large distribution that Sundial Growers will now enjoy. But, I am left wondering if this is like pushing a square peg through a round hole? If Sundial Growers were to have a highly desirable product would existing sales networks see declines as they do?
Given the fact that Sundial has the cash it does and is now ready to push its products into other dispensaries they will inevitably see increasing revenues. Plus, existing sales that are already happening in the dispensaries are going to more than likely grow organically.
In its new foundation, Sundial has a chance to see significant growth. I see the dispensary system as being a highly valuable asset that will produce significant revenue over the years. But, I will always wonder if the core products are respectable.
Sundial growers has gross margins that are some of the worst in the business:
Out of 100 companies, Sundial Growers has gross margins in the bottom 10%. We have seen this before with a few other companies, but, just at different stages. Sundial Growers is sitting on a pile of cash and so they built a big company and now are trying to sell products to support that company. Canopy Growth CGC Stock and Aurora Cannabis ACB Stock are similar.
However, unlike the two aforementioned cannabis companies, Sundial Growers is acquiring companies that are producing significant revenues and adding to the bottom line. The other two companies bought into the idea of cannabis instead.
Once again, Sundial Growers built a big company and are now trying, unsuccessfully, to sell enough product to support its core business:
This is typical of what we have seen with other companies that were infused with large capital: Build big… Sell later… and, not succeed.
Without sustainable gross margins and operating margins, EBITDA profits will be elusive for the core business:
The first real goal of a new company, after production starts, is to cover the core business costs. Once a company achieves that, which is shown with EBTIDA profit/loss, then scaling up would pay for the remainder of the business. Sundial Growers has not achieved that successfully. But, they will also be adding in businesses that have achieved these goals and likely cost savings will be achieved along with increased revenues.
Fortunately for Sundial Growers, although they are net earnings negative, their burn rate would not even come close to a concern considering their cash-on-hand:
And yet, for a company that has generated $36M in the past four quarters they have also achieved burning $250M during that same time.
I just see that as unabashedly irresponsible.
Sundial Growers total equity is large simply because of the cash on hand:
Equity will change considerably once the new acquisitions accrete into the business. It is management’s job to continuously increase assets and equity for investors and, this is where you can see that happening. Keep in mind that the assets a company own are what produce revenues and profits. Continually increase the assets and a company has the ability to continually increase revenues and, by extension, profit potential.
Sundial is sitting on a pile of cash with very little debt, and that is evident here:
This amount of cash on hand, approximately $750M, is an arsenal of opportunity. Sundial Growers will have the ability to grow in size with many future acquisitions.
Sundial Growers SNDL Stock Chart
Most cannabis companies have seen their share prices moving up and then back down. During the same time, Sundial Growers has not done much at all.
The big spike in February notwithstanding, this is a stock chart that has largely gone nowhere. Perhaps the stock is at the very bottom and the only direction left is upwards.
Is Sundial Growers SNDL Stock A Good Buy?
The fact that Sundial Growers is sitting on so much cash, are deploying it nicely, and now have a weaponry of dispensaries at their disposal is interesting to me. The fact is, they will be the biggest dispensary system in Canada.
Given that, they also now have the ability to sell their products throughout a slew of dispensaries. Plus, their continued acquiring of the Valens Company VLNCF stock shows that Sundial Growers wants to be a well-rounded company. This could be a force to reckon with.
But, I’m not exactly settled with the metrics of the core company of Sundial Growers. I feel as if management way overextended themselves in order to become big without also balancing their own product development.
Still, they will be huge. And, maybe the better bet is to acquire the Valens Company VLNCF stock and then wait to get acquired at a premium. This would build in some measure of safety.
For those that already own Sundial Growers, they will be huge. That is a certainty.
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