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Why Sundial Growers Stock Is Perking Up Today

By George Budwell – Updated Oct 8, 2021 at 4:14PM

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The pot company pulls the trigger on an all-stock merger agreement.

What happened

Shares of the Canadian cannabis company Sundial Growers (SNDL -0.32%) are having a strong finish to the week. They're up by a healthy 11.1% as of 10:42 a.m. EDT on Friday.

Sundial's shares are up by double digits today on the news that it will acquire Canada's largest private liquor retailer, Alcanna. The deal is an all-stock transaction worth approximately 346 million Canadian dollars ($277.22 million). Alcanna shareholders will receive 10.69 common shares of Sundial in exchange for one share of the liquor giant. Alcanna's shareholders, per the press release, will also have a hand in running the combined company.  

A person using a credit card to pay for cannabis in store.

Image source: Getty Images.

So what

This is an intriguing deal for Sundial and its shareholders. The company has been recapitalizing of late and seemingly looking for new avenues of growth. Through this all-stock acquisition of Alcanna, Sundial will also gain access to the company's majority-owned subsidiary Nova Cannabis. Alcanna owns a 63% equity stake in the pot company. 

Sundial will thus be rewarded with Alcanna's stable cash flow generation via its stable of 171 stores, operating mostly out of Alberta under the retail brands Wine and Beyond, Liquor Depot, and Ace Liquor. And it should be able to significantly boost its cannabis footprint. Nova, after all, reportedly owns 62 cannabis stores in AlbertaSaskatchewan, and Ontario, primarily under the names Value Buds and Nova Cannabis.

Now what

Is Sundial's stock a buy on this news? This deal could be a game changer for the cannabis company. The long and short of it is that the Canadian cannabis space is simply too crowded and there's too much competition. A deal like this one ought to help Sundial float along until the day cannabis finally becomes legal in the far larger U.S. market. So while this transaction doesn't make Sundial's shares a screaming buy, they are far more attractive today -- from a fundamental standpoint -- than they were yesterday. 

George Budwell 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
$3.12 (-0.32%) $0.01

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