On a day when Canadian marijuana grower Sundial Growers (NASDAQ:SNDL) announced it has regained compliance to remain listed on the Nasdaq exchange, shareholders are punishing the stock for a different reason.
As of 10:35 a.m. EST Wednesday, shares of Sundial were down 15%.
Shareholders today are reacting to a shelf registration the company filed with the Securities and Exchange Commission (SEC) yesterday. It will allow the Sundial to issue up to $1 billion in securities, including common shares, preferred shares, and any related guarantees, warrants, rights, and units, over time. The potential dilution to existing shareholders comes after the company has already raised $175 million in security offerings just since the start of the year.
Some of the recently raised capital was put to work yesterday for an 18.5% stake in Canadian edibles producer Indiva. An almost 300% surge in the share price since the start of 2021 has helped Sundial regain compliance to remain listed on the Nasdaq. It has also brought the company's market capitalization to about $2.8 billion.
The filing to be able to potentially sell $1 billion of company securities, including new shares, has investors today fearing significant new share dilution. The filing does not mean the company will sell new shares, only that it may. But some investors aren't waiting to find out, resulting in a big decline today.
Sundial has shored up its balance sheet with recent capital raises, so it's also unclear why it would need to initiate more share sales. Selling the stock today may be jumping the gun, as there is nothing wrong with having a plan in place. The business fundamentals are what will determine if the company actually needs to raise new money.