What happened
Shares of Sundial Growers (SNDL -3.38%) jumped 12% on Wednesday, fueled by positive mentions of the pot stock on Reddit and other social media platforms.
So what
Many individual investors are intrigued by the potential of the marijuana industry. The global cannabis market will grow to more than $90 billion by 2026, up from $20.5 billion in 2020, according to research firm MarketsandMarkets. Fortunes will be made in this rapidly expanding industry, and investors are eager to place their bets on who they believe will be the winners.
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In recent weeks, traders have gravitated toward the cannabis companies viewed as likely consolidators. With many weed producers struggling to turn a profit, a wave of mergers and acquisitions has swept over the industry. Sundial's popularity on Reddit and other stock-focused trading forums has helped to support its stock price, which has allowed the company to raise hundreds of millions of dollars via share offerings. It's now intent on using that cash to invest in and acquire other cannabis businesses.
Now what
Sundial's cash hoard could position it to scoop up bargains, particularly if its smaller rivals continue to struggle to generate profits. However, investors should note that Sundial has also produced net losses in recent quarters, and the dilution caused by its stock sales will make it even more difficult for the company to deliver meaningful per-share profits from its existing cannabis operations. Thus, Sundial's long-term future is essentially tied to management's ability to identify value-creating investments, which makes its stock a relatively risky bet.
