You can count the number of pot stocks that have been hotter this year than Sundial Growers (SNDL -2.67%) on one hand. Actually, you'll only need one finger. Tilray is the only stock to narrowly outperform Sundial in 2021 so far. But that could soon change.
Sundial announced its fourth-quarter results after the market closed on Wednesday. The marijuana stock jumped close to 8% in after-hours trading. Here are the highlights from the company's Q4 update.
By the numbers
Sundial reported net cannabis revenue of 13.9 million in Canadian dollars in the fourth quarter, up 8% quarter over quarter but down more than 5% year over year. This result topped the average analyst's revenue estimate of CA$12.1 million.
The cannabis producer announced a net loss in the fourth quarter of CA$64.1 million. This reflected improvement from Sundial's net loss of CA$71.4 million in the previous quarter and its net loss of CA$145.9 million in the prior-year period.
Sundial recorded an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations loss of CA$5.6 million in Q4. In the third quarter, the company posted an adjusted EBITDA loss of CA$4.4 million.
Behind the numbers
Sundial Growers CEO Zach George noted that the company faced headwinds in its last two quarters from the repositioning of its cultivation operations. The cannabis producer has made these changes to try to meet the continuing shifts in consumer preferences.
The company's transition from wholesale to branded retail sales achieved incremental improvement in the fourth quarter, compared to the third quarter. However, Sundial has a long way to go to return to its revenue levels of the past.
George readily acknowledged this. He noted that the company still has "significant work to do in our core operations to achieve the goals we have established for Sundial and our shareholders."
It didn't help that the company's Q4 average gross selling price per gram equivalent for branded products fell to CA$4.14 from $5.53 in the third quarter. Sundial attributed this decrease to "industry price compression," which basically means that competition is resulting in lower prices.
The good news for Sundial is that its cost reduction initiatives are paying off. General and administrative (G&A) costs in full-year 2020 declined 18% year over year. However, total sales, marketing, and G&A costs rose 6% quarter over quarter, due primarily to increasing sales and marketing spending promoting the company's brands.
There are several positive developments to look forward to with Sundial. The company said that it harvested its highest-potency cannabis flower ever in February. That could bode well for Sundial's market positioning of its retail cannabis products.
Earlier this week, Sundial announced a joint venture with SunStream Bancorp. The two companies will work together to invest in cannabis companies in Canada and internationally.
However, the lack of profitability seems likely to hover over Sundial like a dark cloud. Until the company makes progress toward achieving a positive bottom line, it will likely have to resort to additional dilution-causing stock offerings in the future.