In the past month, shares of Sundial Growers (SNDL 0.54%) have soared more than 235%, while the S&P 500 is up by just 2%. The stock got a boost around the same time retail investors were buying up GameStop and other risky investments. Despite poor sales numbers and a lack of profitability, speculators have been bullish on a potential merger or acquisition involving Sundial, which has given the stock lots of momentum. And Sundial's management have capitalized on the hype, announcing not one but two offerings since the initial surge in price.

Is this a sign of trouble and that Sundial is running low on cash, or could the company be working on something bigger? Let's take a closer look at its business and financial health to determine the possible motivation behind these latest moves.

Green traffic light with marijuana leaf image

Image source: Getty Images.

Sundial now has plenty of cash on hand

On Feb. 4, the company announced that after its latest offering, it has 610 million Canadian dollars in unrestricted cash, in addition to CA$61 million in marketable securities and loans receivable. Sundial doesn't report on unrestricted cash on its earnings reports, but on Nov. 11, 2020, the company released its third-quarter numbers for the period ending Sept. 30, 2020, and stated that its cash on hand at the time was CA$60 million.

The recent offerings for approximately CA$222 million, have certainly strengthened Sundial's cash position. However, the concern for investors is that the business is burning through cash, and another offering may be inevitable if that doesn't change.

Last quarter, Sundial used up CA$20.1 million during the period ending Sept. 30, 2020, to fund its day-to-day operating activities and spent another CA$1.1 million on property, plant, and equipment purchases. Given its current cash balance, it looks like these past two offerings should give Sundial new flexibility. If its operations remain consistent and Sundial continues at a quarterly burn rate of around CA$21 million, its current cash balance would be enough to fund more than seven years of activity. The company doesn't have big bills to pay back, either. On its last earnings report, its combined liabilities (including both current and long-term) totaled CA$151.8 million.

With relatively low cash burn, these latest offerings suggest that Sundial doesn't really need all this cash -- unless, of course, it's planning for something big. 

The company is exploring its options

In its third-quarter press release, Sundial hinted that some sort of deal could be in the works, stating that it "continues to review potential strategic alternatives to ensure that all opportunities to maximize value are explored." Then there was the drama that ensued with cannabis minnow Zenabis, in which the producer alleged Sundial was trying to take over its business after buying its debt and alleging it was in default. Zenabis has since entered into a credit agreement (with a separate party) and has refinanced its debt.

Sundial's purchase of Zenabis's debt cost the company CA$58.9 million in cash. With far more money on hand now as a result of the latest offerings, it wouldn't be surprising for Sundial to target a larger fish, assuming that an acquisition is how the company is planning to spend its cash. In its initial offering, the company stated that it "intends to use the net proceeds from the offering for the financing of possible acquisitions of, or investments in, equipment, facilities, assets, equity or debt of other businesses, products or technologies and for working capital and general corporate purposes."

There's a broad array of possibilities for Sundial under that explanation, but it's notable that a possible acquisition was first on the list.

Should you buy shares of Sundial today?

Sundial's business on its own isn't particularly attractive. In Q3, it reported net cannabis revenue of just CA$12.9 million, which was down 36% from the previous period. It also incurred a net loss of CA$71.4 million. However, the pot stock could become a whole lot more attractive if it buys a business or otherwise strengthens its operations, which is why investors are likely bullish on the stock of late and its latest moves. 

But buying based on a possible acquisition is risky, as there's no guarantee one will happen. While a deal could certainly send the stock soaring in a hurry, it's still a speculative reason to invest. If there isn't a transaction to report, investors could lose hope and dump their shares. Unless you're willing to take on a huge risk, Sundial is still a big question mark right now, and it's safer to take a wait-and-see approach for the time being. 

This article represents the opinion of the writer(s), 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.