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Why Sundial Stock Soared Today

By Joe Tenebruso - Jan 7, 2021 at 2:07PM

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A Biden presidency and Democratic-controlled Congress bode well for the cannabis company.

What happened 

Shares of Sundial Growers ( SNDL -5.57% ) continued their recent ascent on Thursday. As of 1:50 p.m. EST, the popular marijuana stock's price was up 10% after rising as much as 22% earlier in the day.

So what

Sundial's stock has received a boost in recent days following Georgia's Senate runoff elections. With the Democrats picking up two seats, they will now have effective control over both the House and the Senate. That, in turn, will give President-elect Joe Biden more support for his policies, which include marijuana reform.

A U.S. flag with a cannabis leaf in place of the stars.

Sundial Grower's stock rose sharply along with other marijuana stocks on Thursday following U.S. Senate elections. Image source: Getty Images.

Biden will take office on Jan. 20, following the ratification of his election victory by Congress on Thursday. He has promised to decriminalized marijuana, a move that could ignite a major bull market for cannabis stocks, by allowing easier access to banking and other services.

A Biden presidency and Democratic-controlled Congress might also take steps toward full-scale legalization at the federal level, which would be a boon for the cannabis industry. 

Now what

Sundial has worked to strengthen its financial position ahead of these positive developments in the U.S. marijuana market. It's now debt-free following a series of asset sales, debt-for-equity swaps, and share offerings. 

Yet risks remain. Sundial's core cannabis operations continue to burn cash, to the tune of 20 million Canadian dollars ($15.8 million) in the third quarter alone. 

To stop the bleeding, management implemented cost-cutting initiatives, which are helping to improve Sundial's profit margins. Additionally, the marijuana company is shifting its focus from the wholesale market to retail. Sundial has made progress in this regard, with 77% of its sales coming from branded cannabis sales in the third quarter, up from 69% in the second quarter. A strong retail presence could further help to improve Sundial's margins.

If these initiatives can help Sundial achieve profitability in the coming quarters, its stock price could continue to surge. But until it stops burning cash, Sundial's stock remains a risky investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Sundial Growers Inc. Stock Quote
Sundial Growers Inc.
SNDL
$0.56 (-5.57%) $0.03

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