Shares of Canadian pot grower Sundial Growers (SNDL 1.72%) jumped more than 8% in early Tuesday trading. But after giving back those gains, the shares were down 2% as of 10:30 a.m. EST.
The stock has been highly volatile recently as a target of trading with the Reddit retail trader crowd. But the company also released some news today related to its underlying business.
The marijuana grower announced an approximately CA$22 million stock and cash investment in Canadian edibles producer Indiva. The immediate reaction of existing shareholders seems to be that the investment isn't the use of capital investors were hoping for after several recent rounds of raising fresh capital.
Sundial said its investment would be made through CA$11 million from a private placement share offering from Indiva, for which Sundial will be the sole subscriber. Indiva will also receive CA$11 million from a term loan facility. Indiva will use the proceeds to retire all its outstanding debt, as well as for working capital. The investment is expected to be completed by Feb. 23, 2021, after which Sundial Growers will control 18.45% of Indiva shares.
"Sundial is pleased to support the development of Indiva's high-quality products. This transaction broadens our exposure to the rapidly expanding cannabis edibles category," Sundial CEO Zach George said in a statement.
Sundial shares have soared more than 330% since Jan. 25 around the time trading volume increased, presumably as part of the Reddit-inspired retail trades. Investors should be careful of speculating and monitor whether investments like Indiva will help grow the underlying business to warrant Sundial's current $3 billion market cap valuation.