It's no secret that cannabis stocks have been a brutal space for investors. Since Canada legalized adult-use cannabis for recreational purposes nearly four years ago, most of the country's publicly traded cultivators have lost well over 80% of their value.
This dreadful performance can be attributed to a mix of unrealistic expectations and poor management by the initial wave of executives of these companies (most of whom are now gone). In a race to conquer the global cannabis market, for instance, several top-tier cultivators, like Aurora Cannabis, Canopy Growth, and Tilray Brands plowed inordinate amounts of capital into aggressive expansion plans at home and abroad.
When the dream of rapid worldwide legalization failed to materialize in a timely manner, and the Canadian black market stubbornly persisted in the wake of legalization, these cannabis pioneers were forced to take massive goodwill impairment charges, shutter or repurpose large grow facilities, and rethink their product mix as they rightsized their operations.
And to this day, Aurora, Canopy, and Tilray are all still struggling to combat the limited commercial opportunity in Canada, changing consumer preferences, the slow pace of legalization in key international territories like Germany and the U.S., along with sins of their fairly recent past such as overexpansion, repeated bouts of shareholder dilution, and misadventures into highly speculative product categories.
This financial carnage has brought about some much-needed change to the industry, however. Alberta-based SNDL (SNDL -0.70%), for example, appears to have taken these lessons to heart. As a result, SNDL arguably stands out as the most compelling cannabis stock to buy in September. Here's a rundown of the company's key features that make it an intriguing speculative buy for risk-tolerant investors.
Change is afoot
SNDL hasn't been immune to the industry's rough start. The Canadian cultivator has lost 96.5% of its value since entering the field of publicly traded marijuana companies. SNDL, however, has turned around its outlook in an abrupt manner of late.
By acquiring the alcohol retailer Alcanna earlier this year, SNDL grew its net revenue by a staggering 2,344% in the most recent quarter. While the company still isn't anywhere near cash flow positive, this transaction ought to stabilize its revenue stream in a big way going forward. Alcohol, after all, is a far more reliable and predictable source of revenue than cannabis is at this stage of the game.
What's more, SNDL has been on the hunt for additional high-value businesses to increase its cash flows. Over the last two weeks, the company announced deals to buy cannabis extraction company Valens, as well as marijuana retailer Superette. These deals aren't exactly game changers. But they do appear to be a harbinger of things to come.
With a large stockpile of cash and zero debt on its balance sheet, SNDL is in prime position to consolidate its position within the Canadian cannabis market by taking advantage of some its less fortunate peers. What's more, SNDL is also reportedly eyeing transactions that would make it a much bigger international cannabis player.
Last but certainly not least, SNDL sports one of the industry's most compelling valuations. With its shares trading at a ratio of price to 2023 projected sales under 1, SNDL comes across as a downright bargain at these levels.
Time to buy?
All told, SNDL's decision to diversify beyond the struggling cannabis industry, via its Alcanna acquisition, ought to prove to be a brilliant strategic move. While cannabis's long-term growth prospects are still tantalizing, there is no telling how long it will take for the most lucrative commercial opportunities to open up.
So, right now, the name of the game in cannabis is survival. SNDL's bold move into alcohol should enable it to not only survive while the marijuana industry matures, but actually evolve into a cash-flow-positive business within a few short years. SNDL, as a result, is arguably the most attractive cannabis stock to buy right now.