Shares of Sundial Growers (SNDL 2.00%) fell on Friday after analysts cautioned that the prices of many cannabis stocks had come too far, too fast. By the close of trading, Sundial's stock's price was down 12.6% after declining as much as 25.2% earlier in the day.
Fueled by optimism that the U.S. might finally legalize marijuana at the federal level now that the Democrats control the White House and Congress, investors have bid up the prices of many pot stocks in recent weeks. Sundial has been one of the biggest beneficiaries of this trend. At one point on Wednesday, its shares were up more than 500% since the beginning of the year.
Analysts, however, have warned that the prices of many pot stocks have risen to levels that were not supported by their current sales and profits, nor were they justified by their near-term growth prospects. When Sundial's stock price began to pull back, many traders took it as a cue to sell the stock.
While Sundial's share price could certainly decline further in the coming days, any concerns regarding the company's financial position can be laid to rest. After a series of share offerings, Sundial is now debt-free. Better still, the pot producer has boosted its cash reserves to roughly $615 million. So, Sundial clearly has the cash it needs to survive any near-term challenges. And should the U.S. legalize marijuana in the coming years, Sundial could find itself in a position to aggressively enter this potentially massive market.