Sundial Growers (NASDAQ:SNDL) has been a major flop in its attempt to capitalize on the Canadian marijuana industry. Due to overexpansion, lack of brand quality, and supply gluts, the firm's pot sales have plummeted in the past year. Meanwhile, Sundial took advantage of a rise in share price from a retail frenzy to issue stock and raise cash. The firm's outstanding shares went from less than 200 million last July to 1.86 billion as of this month. 

The house of cards came down fast. Since February, the stock has lost an astonishing 75% of its value. Is there any reason why investors should keep holding on to their Sundial shares?

Man harvesting cannabis in a hemp field.

Image source: Getty Images

Truly terrible results

During the first quarter of 2021, Sundial's gross revenues declined by nearly 30% year over year to 7.2 million Canadian dollars. There was a dramatic decline across all of the company's vape, dried flower, and oil segments. Only Sundial's concentrates outperformed, but that brought in just CA$504,000 in revenue. 

What's more, the firm sold 3,989 kilograms (8,794 pounds) of dried cannabis in Q1 2021, which wasn't that bad compared to the 4,437 kilograms (9,782 pounds) it sold in Q1 2020. This indicates Sundial likely had to make severe cuts in pricing in order to get its pot products to move off the shelves. 

The company did post earnings from operations of CA$1.7 million compared to a loss of CA$13.6 million in Q1 2020. However, keep in mind that this is a company with a market cap of $1.245 billion. The progress is nearly negligible, especially in the face of the continued unpopularity of its brand.

An unlikely transition

Whenever the results are this bad, the first thing investors usually think of is ditching the stock and looking for alternatives. I think otherwise; Sundial actually may have a shot at unlocking shareholder value this time, not to mention its stock is too heavily shorted. 

Don't get me wrong; I'm not saying that one should buy the stock and hope Sundial will turn around its pot sales. Instead, Sundial could be considered a buy in its new role as a cannabis financier rather than a cannabis operator. 

Sundial raised over $1 billion in cash from selling stock and used the funds to completely eliminate its debt balance. After that, the money went to financing other dispensary chains and acquisitions. On Feb. 22, Sundial made a CA$22 million debt and equity investment in Indiva. Sundial has already shown that its acquisition of Indiva might be starting to pay off. In Q1 2021, it earned CA$2.8 million in interest income and CA$12.9 million in capital gains. On April 23, the firm pooled CA$188 million into a joint venture with SunStream Opportunities L.P.

Sundial then bought a 10.1% stake in cannabis producer The Valens Company on May 4. The day after that, it announced plans to acquire the Inner Spirit Holdings and Spiritleaf Retail cannabis networks for CA$131 million. 

As of May 7, Sundial still has CA$752.7 million in cash remaining. If we subtract that value from its market cap, then the company's enterprise value stands at only $600 million. Keep in mind that this does not account for the value of Sundial's investments.

What's the verdict? 

Sundial is working to transform itself into a pot fund in the face of disappointing operations. Investors who like the risk-reward profile may wish to buy a small stake. If that doesn't fit your own risk-reward tastes, there is no shortage of other hot marijuana stocks out there today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.