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Why Sundial Growers Stock Jumped Then Dropped Wednesday

By Howard Smith – May 12, 2021 at 2:29PM

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Some positive comments from the company in its quarterly financial update haven't convinced investors.

What happened

Shares in Canadian cannabis company Sundial Growers (SNDL -1.74%) initially jumped almost 10% Wednesday morning after the company reported its first-quarter earnings update last night. But after investors had more time to digest the results, the stock reversed course. As of 12:35 p.m. EDT, Sundial shares were down 2.7% on the day. 

So what

Sundial Growers headlined its financial release by telling investors the quarter marked its "first positive quarterly earnings from operations in the company's history." The company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were the equivalent of approximately $2.7 million, the first positive quarter for that metric it has ever had. While that is a nice achievement, there were other results that don't paint as bright a picture. 

Two elderly women smoking marijuana and laughing.

Image source: Getty Images.

Now what

Sundial said gross revenue dropped 30% sequentially compared to the fourth quarter of 2020 and a similar amount versus the year-ago first quarter. The company sold 3,989 kilogram equivalents of cannabis in the first quarter of 2021, down 45% versus the fourth quarter of 2020, though it said its shipments for March 2021 constituted a monthly record. 

One of the main headwinds for the company is a lower product selling price. In its earnings conference call, Sundial CFO Jim Keough detailed that the average gross selling price of branded products was $3.15 per gram compared to $4.14 per gram in the previous quarter, "reflecting the industry price compression and a consumer shift to value products." 

CFO Keough added, "There is more work to be done to improve our margins for cannabis operations." Subsequent to the end of the first quarter, the company announced it plans to acquire Inner Spirit Holdings and its Spiritleaf retail cannabis network for about $131 million to increase its branded offerings. The margin improvements alluded to will have to materialize for the company to continue on a road to net profitability. 

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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