Sundial Growers (SNDL -1.19%) has vaulted onto the scene as one of the hottest pot stocks on the market this year. This sizzling performance has been due largely to interest in the stock among investors on Reddit and other online sites. In this Motley Fool Live video recorded on June 11, healthcare and cannabis bureau editor and analyst Olivia Zitkus and Motley Fool contributor Keith Speights discuss whether or not Sundial is worthy of the hype it's receiving. 

Here's The Marijuana Stock You've Been Waiting For
A little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming.

Cannabis legalization is sweeping over North America – 15 states plus Washington, D.C., have all legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018.

And one under-the-radar Canadian company is poised to explode from this coming marijuana revolution.

Because a game-changing deal just went down between the Ontario government and this powerhouse company...and you need to hear this story today if you have even considered investing in pot stocks.

Simply click here to get the full story now.

Learn more

Olivia Zitkus: I feel like I can't let you go from this conversation without talking a little bit about Sundial Growers.

Keith Speights: [laughs].

Zitkus: We already talked a little bit about one meme stock in Tilray. Definitely experiencing a little bit of extra attention from Reddit. But let's talk about Sundial for a second. They released their Q1 2021 earnings and got a huge jump last week in stock pricing. It was up 23-25% and 12% in May.

What is going on here? Can you talk to people who might have only seen discussion on Sundial over Reddit or on social media? What do you think about all this hype?

Speights: Yeah. I'm usually not a fan of buying a stock that's gone up primarily because of hype, and that has been the case for Sundial Growers. Having said that, I will acknowledge Sundial has made some progress.

I think it's important to recognize that Sundial surprised with a positive adjusted EBITDA in its latest quarter. That's something that some of the big boys in Canada haven't been able to do yet. We were just talking about Canopy Growth. They're hoping to get there, so that's a positive.

I think Sundial Growers is making some of the right moves in terms of cost-cutting to improve their bottom line. All that's good.

Again though, the company faces some big headwinds in Canada with the pricing pressures. If you really dig into their financial results, all of the good news is coming from Sundial's investments; it's not coming from their cannabis business. Cannabis sales declined for the company; it's their investments that are helping.

The issue to me there is that to make those investments, Sundial has had to dilute its stock a lot. I think the company might be the worst diluter in the Canadian cannabis market right now, that's something [laughs] because there are a lot of diluters in that market. They've had to dilute their stock a lot in issuing new shares to raise money to do all these investments.

The investments may be paying off, but over the long run, Sundial needs to get to true profitability to avoid having to dilute even further, and I think that's a problem.

Look, I understand a lot of investors on Reddit and other online communities see a stock like Sundial that shot up and they want to jump on board. Check out the company's fundamentals though, understand its business, and Sundial's business just isn't all that strong. There are plenty of U.S. players in particular that have much stronger businesses than Sundial does.

Zitkus: Totally. I think there are a lot better Foolish weed plays out there. The whole shift from producer and distributor to consolidator and financier is going to take some time to see if it actually works. This spring was just buy, buy, buy, and invest. [laughs] It's going to take -- there's potential perhaps, but right now, so much of this is just speculation built into the stock price.

Speights: I do give kudos to their management team. They're making some good changes, but it's still to me uphill for Sundial.