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Why Sundial Growers Stock Dropped Friday

By Howard Smith – Aug 13, 2021 at 1:38PM

Key Points

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There remains uncertainty whether the company can use the money it has raised to grow its business.

What happened

Highly watched Canadian cannabis company Sundial Growers (SNDL 8.68%) reported earnings after the bell last night. Investors hoping for any big positive development were unimpressed, and after dropping 10% early on Friday, Sundial shares are still down more than 7% as of 12:50 p.m. EDT today. 

So what

Sundial spent much of last year restructuring by raising capital and reorganizing into a two-pillar business heavily reliant on acquisitions. In doing so, the company diluted existing shareholders by increasing its share count by more than 1 billion shares, or almost 1,500%, from a year ago.

Yesterday's financial update didn't provide the momentum shareholders were looking for. In fact, Sundial said its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a loss in the second quarter, which ended June 30. That comes after it reported its first positive quarter ever for that metric in the first quarter of 2021. 

marijuana leaves over a stock chart with red down arrow.

Image source: Getty Images.

Now what

Net loss for the second quarter was the equivalent of about $41 million. CEO Zach George issued a statement saying: "Our second quarter performance continued to be impacted by the liquidation of discounted inventory and our refusal to push sub-optimal product into the market. We have undertaken a significant retrenchment in our cultivation activities." 

Investors would have liked a second consecutive quarter of positive adjusted EBITDA, and that likely contributed to today's reaction in the stock. Sundial said it has more than $1 billion of cash, marketable securities, and long-term investments as of June 30. Investors will be closely watching that cash to see if it can make successful investments to turn the business around. 

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.

Stocks Mentioned

Sndl  Stock Quote
$3.13 (8.68%) $0.25

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