Shares of Sundial Growers (SNDL 5.41%) fell on Friday morning after the marijuana producer announced warrant exercises and a new issuance. Sundial's stock rallied later in the day; by the close of trading, its price was up 5.5% after falling as much as 15.9%.
Holders of roughly 98.3 million warrants will convert them into shares at prices of $0.80 and $1.10. Sundial, in turn, will receive $89.1 million in cash. In exchange, Sundial is issuing an additional 98.3 million warrants, which will give these holders the right to purchase shares at an exercise price of $1.50 over a 42-month period.
The new warrant issuance comes on the heels of Sundial's filing of a shelf registration with the U.S. Securities and Exchange Commission (SEC) on Tuesday, which will allow it to issue as much as $1 billion in new securities. The marijuana company exhausted its previous registration statement after a series of stock offerings earlier in the year.
When Sundial's shares declined sharply on Friday morning, investors appeared to be focusing on the potential for their ownership stakes to be diluted by additional stock and warrant sales in the weeks and months ahead. But while dilution is a serious concern, the long-term direction of Sundial's stock price ultimately depends on whether it can use its new-found cash to make value-creating acquisitions and fund profitable organic growth initiatives.
Sundial has raised hundreds of millions of dollars in recent months, which management has said it could use to acquire other cannabis companies. Sundial recently took a $22 million stake in Indiva, a Canadian producer of cannabis edibles.
Investors seemed to take a more optimistic view of Sundial's marijuana-focused investment opportunities later in the day, helping its stock price rebound.