Please ensure Javascript is enabled for purposes of website accessibility

Why Sundial Growers Stock Plunged in April

By Howard Smith - May 5, 2021 at 4:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cannabis company has built quite a cash pile but at the expense of existing shareholders.

What happened

Shares of Canadian cannabis company Sundial Growers (SNDL 14.00%) dropped 24% in April, according to data provided by S&P Global Market Intelligence. But in a sign of how much shares had previously run, the stock is still up 65% year to date. 

So what

The month of April was fairly unremarkable for Sundial, but the company had several capital raises earlier in 2021, and investors want to see some productive uses of it. As of March 15, 2021, Sundial had a cash balance of more than $700 million, most of which came from share offerings in 2021. Shareholder dilution resulted as can be seen in the difference between share performance and market capitalization.

As previously mentioned, shares rose 65% since the start of the year. But the company's market cap exploded by almost 200% from so many additional shares. Some shareholders may be running out of patience as they wait to see the cash the company gained invested for future growth. 

Marijuana leaf over Ben Franklin's face on a $100 bill.

Image source: Getty Images.

Now what

Sundial reported its fourth-quarter and full-year 2020 financial results in mid-March. The stock has been on a downhill roll from there, down 50%. Sundial has worked to shift its business to lean more heavily on sales of branded retail sales. Still, net cannabis revenue only increased by 8% in the fourth quarter sequentially over 2020's third quarter.

The stock spiked in April in response to one potentially positive news item: U.S. politicians took one step closer to passing a banking act. Passage of this act should have several positive implications for cannabis companies.

Subsequently, Sundial did put some of its cash to work. On May 5, the company announced it plans to acquire Inner Spirit Holdings and its Spiritleaf retail cannabis network for about $131 million. Zach George, CEO of Sundial, hinted in a statement that the company will be able to leverage its cash to continue to expand the retail network. He stated, "Sundial's capital base will enable us to support continued expansion and deepen the capabilities of the Spiritleaf retail brand." Sundial will report first-quarter 2021 results on May 11 when shareholders may look forward to hearing more about uses of the company's capital. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

SNDL Inc. Stock Quote
$3.42 (14.00%) $0.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.