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Why Sundial Growers Stock Jumped, Then Dropped Today

By Howard Smith - Feb 25, 2021 at 4:01PM

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An early morning spike evaporated as retail traders backed off.

What happened

Shares of Canadian marijuana grower Sundial Growers (SNDL -1.26%) spiked 13% early Thursday. But buyers backed off, and as of 3:40 p.m. EST, shares reversed course and were down more than 4.8% versus Wednesday's closing price. 

So what

The stock was likely caught up in a resurgence of the Reddit-inspired retail trades early in the day. When names like GameStop (GME -4.08%) and AMC Entertainment (AMC 13.31%) soared earlier this month from chatroom buying interest, some speculative pot stocks like Sundial moved in tandem. After today's spike wore off, shares moved down with no real company-specific news. 

marijuana plants hanging to dry

Image source: Getty Images.

Now what

There had been some company news, however, earlier this week. On Tuesday, Sundial closed an approximately CA$22 million stock and cash investment in Canadian edibles producer Indiva. It's good to see the company putting capital toward growth, but the company's need to raise so much capital has investors spooked. 

One day earlier, Sundial announced it was issuing new warrants that could bring another $147.5 million to the company. Assuming those warrants are exercised to purchase common shares, it will add to the dilution current shareholders have seen. The company's market cap gain in 2021 is twice the gain in share price due to the increase in share count. 

While raising capital can help a company grow, it can also be seen as a sign of desperation. As the stock is down more than 50% from February highs, investors seem to be thinking the latter.

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Stocks Mentioned

Sundial Growers Inc. Stock Quote
Sundial Growers Inc.
$0.39 (-1.26%) $0.00
GameStop Corp. Stock Quote
GameStop Corp.
$129.69 (-4.08%) $-5.52
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$14.13 (13.31%) $1.66

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