It's no secret that the cannabis industry in both the U.S. and Canada has faced tough challenges. But that doesn't mean that there still aren't some pot stocks with a lot of potential. Does Sundial Growers (SNDL -4.31%) belong in that group? Here are the bull and bear cases for the Canadian cannabis stock.

Bull case: Beaten-down but with better days ahead

Keith Noonan: Sundial Growers investors have had a tough go of things. Amid mixed business performance, heavy stock dilution, and the threat of increasing competition in the cannabis space, the company's share price has collapsed.

The stock trades down nearly 60% this year alone, and it's off a whopping 97% from the market close on the day of its initial public offering nearly three years ago. As bad as its stock performance has been, however, the company might now be significantly undervalued. 

Sundial's revenue increased roughly 78% year over year in the first quarter of 2022 to 17.6 million Canadian dollars ($13.6 million). This figure included only one day of revenue contribution from the company's acquisition of cannabis and liquor retailer Alcanna.

Sundial is on track for much bigger sales growth as a result of this acquisition, which should also work to boost margins. 

Right now, the company is burning cash. Its Spiritleaf cannabis retail stores are facing rising competition in the Canadian market. However, the combination of cannabis production, company-owned stores, franchised retail locations, and contribution from the more-dependable liquor retail business could help Sundial outperform the market's expectations.

With a market capitalization of around $800 million, no debt on its books, and ample cash reserves, investors are already pricing in weak performance. The company has some time to let its new strategy pan out. It wouldn't take great business performance to send the stock above current levels. 

Bear case: Too many better alternatives 

Keith Speights: What do you get when you combine two companies that are losing money? Answer: A bigger company that's losing money. That's what Sundial Growers shareholders now own since the Alcanna acquisition closed. But the continued lack of profitability for Sundial isn't the primary argument against the stock.

I think that the single most compelling reason to not buy Sundial is that there are simply too many better alternatives -- including some within the cannabis industry. For example, Village Farms International (VFF -6.62%) checks off every box that Sundial does and then some. It has generated positive adjusted earnings, before interest, taxes, depreciation, and amortization (EBITDA) for 14 consecutive quarters. Village Farms' valuation is also much more attractive than Sundial's.

The U.S. cannabis market also offers several better options than Sundial. Ayr Wellness, Cresco Labs, and Green Thumb Industries especially stand out with great businesses and clear paths to sustained growth.

Yes, Sundial could enjoy a rebound. And it's a better bet than some of its Canadian peers. However, the stock doesn't have what it takes to make me bullish about its prospects relative to several with even stronger potential.

Risky either way

Sundial Growers bulls and bears can probably agree about one thing: The stock isn't for everyone. Risk-averse investors are better off staying away from it (and most cannabis stocks, for that matter). The company's shares are likely to remain highly volatile with continued headwinds in the Canadian cannabis market.