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Better Pot Stock: Sundial Growers or Tilray?

By Keith Speights - Mar 19, 2021 at 6:01AM

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Here's how these two hot marijuana stocks compare.

No cannabis stocks have attracted more attention in 2021 so far than Sundial Growers (SNDL 1.51%) and Tilray (TLRY). That attention has been overwhelmingly positive, considering that the share prices for both companies have almost tripled year to date.

However, the excitement of being in the limelight can fade quickly. Which of these two pot stocks is the better pick going forward? Here's how Sundial and Tilray stack up against each other.

Hand holding white bag with a picture of a cannabis leaf printed on the bag

Image source: Getty Images.

Growth

Tilray's revenue jumped 20.5% year over year in the fourth quarter to $56.6 million. The company's international medical cannabis sales skyrocketed 191%, while its Canadian adult-use recreational marijuana sales soared 49%. The only fly in the ointment for Tilray was its hemp segment, which experienced an 18% revenue decline.

Sundial announced its Q4 results on Wednesday, and its story wasn't nearly as good as Tilray's. The company reported net cannabis revenue of 13.9 million in Canadian dollars. While this reflected an 8% increase from the prior quarter, Sundial's revenue was down more than 5% year over year.

Both Sundial and Tilray have opportunities to grow in the Canadian market, especially as the country's Cannabis 2.0 derivatives market continues to pick up momentum. However, Tilray definitely will have an advantage.

Tilray's merger with Aphria (APHA) is expected to close in the second quarter of 2021. The combined company will rank as the biggest global cannabis producer based on revenue. It will also claim the leading market share in the Canadian retail marijuana market.

The "new" Tilray will also be a top player in European medical cannabis markets because Aphria owns a major German cannabis wholesaler. Tilray also operates a large cannabis production facility in Portugal. Sundial doesn't have a presence in Europe at this point.

Tilray and Aphria also have businesses in the U.S., while Sundial doesn't. Aphria acquired craft-beer maker Sweetwater Brewing, and Tilray owns leading hemp foods manufacturer Manitoba Harvest. The combined company thinks that these operations will give it a great launching pad should federal cannabis reform open the door to jump into the lucrative U.S. cannabis market.

Financial position

Sundial posted a net loss of CA$64.1 million in the fourth quarter. The company generated an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of CA$5.6 million and had CA$710 million in unrestricted cash as of March 15, 2021.

Tilray is in a much stronger financial position even before the Aphria merger. While the company recorded a Q4 net loss of $3 million, it was a huge improvement from the net loss of $219.8 million in the prior-year period. Tilray also generated positive adjusted EBITDA of $2.2 million and had $189.7 million in cash as of the end of 2020.

The financial situation for Tilray should improve once the Aphria merger closes. Aphria has delivered seven consecutive quarters of increasing adjusted EBITDA profitability. The combined entity expects to realize significant synergies within the two years following the finalization of the transaction.

Valuation

Tilray's market cap currently stands at around $4.5 billion, while Sundial's is close to $2.4 billion. But is Tilray actually worth nearly twice as much as Sundial?

We can't use earnings-based valuation metrics to compare the two stocks. However, Sundial and Tilray appear to be close using price-to-sales (P/S) ratios. Sundial currently trades at around 24 times trailing-12-month sales, while Tilray trades at a P/S multiple of nearly 23. 

However, it's important to remember that Tilray's sales continue to rise year over year while Sundial's are still declining year over year. This makes Tilray's valuation more attractive compared to Sundial.

Better pot stock?

This decision isn't difficult. Tilray is growing faster than Sundial and seems to have stronger growth prospects going forward with the Aphria merger on the way. It claims a stronger financial position than Sundial and, to top things off, Tilray's valuation is slightly more attractive right now. On all counts, Tilray appears to be the better pot stock than Sundial.

However, I don't think that either of these stocks is a great choice for investors. There are several other stocks that are in a better position to profit from the U.S. cannabis market growth that are more attractively valued than either Sundial Growers or Tilray. 

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Stocks Mentioned

Tilray Stock Quote
Tilray
TLRY
Aphria Stock Quote
Aphria
APHA
Sundial Growers Inc. Stock Quote
Sundial Growers Inc.
SNDL
$0.40 (1.51%) $0.01

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