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Why Sundial Growers Stock Jumped 72% Last Month

By Jeremy Bowman - Feb 4, 2021 at 6:14PM

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The small-cap pot grower gained on a short squeeze and hopes for U.S. legalization.

What happened

Shares of Sundial Growers (SNDL -6.98%) surged last month, as the company benefited from a Reddit-fueled short squeeze at the end of January. It also rose earlier in the month on hopes for marijuana legalization under the Biden administration, and after two Democrats won Senate runoff races in Georgia.

According to data from S&P Global Market Intelligence, the stock finished the month up 72%. As you can see in the chart below, the gains came in two separate waves:

SNDL Chart

SNDL data by YCharts.

So what

Marijuana stocks were broad winners last month on hopes for the new administration in the White House. Shares of Sundial, a Canadian marijuana grower, jumped 27% over a two-day span on Jan. 6-7 as investors responded favorably to Democrats taking over the U.S. Senate.

Several jars of dried marijuana, with one tipped over

Image source: Getty Images.

On Jan. 11, the stock ticked up as the company announced a new line of premium concentrate products under the Top Leaf brand, part of its strategy to roll out branded premium retail products. The stock surged as much as 16% that day, but closed up just 4%.

Shares faded over the next two weeks, but then surged at the end of the month as WallStreetBets traders spied it as a potential short squeeze. The stock finished up 37% on Jan. 28 after more than doubling during the session. And volume was strong enough, at over 2 billion shares, to prompt trading restrictions (along with other popular Reddit stocks) on Robinhood. With about 15% of the float sold short and a low share price, the stock was enticing to traders on the platform.

The following day the company filed to sell $100 million worth of stock, wisely taking advantage of the pop.

Now what

Sundial surged again on Feb. 1, which seemed to be the end of the short squeeze. The following day it closed a $100 million offering, and on Feb. 4 it closed a $74 million offering, giving the company $610 million in unrestricted cash.

Promises from a number of senators to decriminalize marijuana helped lift the stock again on Feb. 3.

Given the political climate and the attention from Reddit traders, the stock should continue to be volatile over the coming weeks. Investors should be aware that Sundial, like most marijuana growers, is deeply unprofitable -- but the prospects of U.S. legalization are clearly encouraging.

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