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Why Sundial Growers Stock Plunged in April

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

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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.

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