What happened
Shares of Canadian marijuana grower Sundial Growers (SNDL 0.33%) popped early Wednesday with a jump of almost 6%. The stock didn't hold those gains, but remained up about 1.5% as of 10:30 a.m. EDT today.
So what
Initial investor interest today likely came after another Canadian cannabis company announced a new investment in the U.S. market. Tilray (TLRY +1.03%) said last night that it has acquired the majority of the outstanding senior secured convertible notes of U.S.-based cannabis retailer MedMen Enterprises (MMNFF +0.00%). This puts Tilray in a position to potentially own a significant equity stake in MedMen, which would give it a path to the U.S. cannabis market should federal legalization materialize. So why did Sundial investors react to this? Because Sundial has made acquisitions a key portion of its future strategy, and Tilray's move could be a framework for Sundial, too.
Image source: Getty Images.
Now what
Sundial restructured its business last year, raising significant capital in the process. This heavily diluted shareholders, who are now counting on the company to smartly put that money to work. In addition to streamlining its cannabis operations, Sundial created an investment pillar to its business, which will seek acquisition targets. There are many risks to successfully managing this strategy, but Tilray's move gives other Canadian marijuana companies a potential path to follow.
Tilray's investment in a U.S. multi-state retailer gives it a potential avenue into the U.S. should federal legalization occur. And Tilray CEO Irwin Simon made it clear he believes that day is coming. Simon stated the new investment "is a critical step toward delivering on our objective as we work to enable Tilray to lead the U.S. market when legalization allows."
With Sundial having about $1 billion on its balance sheet and no debt as of Aug. 9, its investors are counting on that business pillar to move the company to profitability.
