Sundial Growers Inc (NASDAQ: SNDL) has been a hot topic of conversation as of late, and for good reason. After a recent dramatic run for the top, profit takers have stepped in, leading to declines. At the same time, the overall cannabis sector is having a great time thanks to coming regulatory changes.
Now the question is, “Will the stock head back for the top?” In my opinion, the answer is a resounding, “Yes!”
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- Sundial to Benefit Greatly From Regulatory Changes
- The Company Is a Perfect Acquisition Target
- What Analysts Think About SNDL Stock
- Risks to Consider Before Buying SNDL Stock
- Final Thoughts
Sundial Growers to Benefit Greatly From Regulatory Changes
While Sundial Growers hasn’t quite shared in the run, the cannabis sector has been seeing some pretty strong gains, and for good reason. At the end of the day, regulatory changes will likely open the door to a vast global market over the next few years.
At the moment, we’re seeing quite a bit on the topic of cannabis legalization in the UK and across Europe. Of course, legalization in these regions would open massive markets for any cannabis grower, including SNDL.
However, the bigger story is the fact that cannabis may soon become legal in the United States.
Recently, the house of representatives voted to remove cannabis from the list of controlled substances in the United States. At the moment, the move is highly symbolic since changes can’t be made without approval from the Senate, but it’s a major step in the right direction for cannabis companies and consumers.
Ultimately, the next step is for the Senate to vote on the measure. If it passes, and many believe it will, adults will soon be able to legally buy cannabis in the United States, the world’s largest economy.
While other cannabis stocks have seen a pretty robust reaction to the news, SNDL has lagged behind, suggesting that there’s a major opportunity ahead.
The Company Is a Perfect Acquisition Target
Beyond the potential for gains that could come as regulatory changes make cannabis a legal drug around the world, there’s quite a bit of opportunity in the fact that SNDL represents a perfect acquisition target.
As its name would suggest, Sundial Growers is a cannabis growing operation. However, the company has recently broken into the cannabis vape market, a growing market that many believe will result in higher demand than dry flowers.
At the same time, the edibles market is a massive one, and yet another market that Sundial is currently working on breaking into.
With the regulatory changes that are likely ahead, and Sundial Growers breaking into key markets like the edibles and vape markets, it only makes sense that the company would be in demand for a larger player looking to consolidate the market.
Furthermore, SNDL stock has had a pretty rough time in the market over the past year. While that’s a painful reality for investors, it also means that a suitor would receive a discount in a potential acquisition.
What Analysts Think About SNDL Stock
One of the factors that’s likely holding SNDL stock down in a time when cannabis stocks are flying is analyst opinions. Unfortunately, analysts don’t see SNDL as an opportunity.
At the moment, there are two analysts weighing in on the stock, one with a Hold and one with a Sell rating. There aren’t any analysts currently rating the stock a buy. Moreover, the high price target on the stock is $0.30 with the low being $0.20, for a consensus estimate of $0.25.
While that’s a grim outlook from analysts, SNDL has improved over the past few months, and none of these ratings are anything new or updated. As a result, I believe that analyst views on the stock are outdated and that SNDL does indeed offer up an opportunity, especially considering its standing as a potential takeover target.
Risks to Consider Before Buying SNDL Stock
Anytime you make an investment, you’re accepting the risks that come along with that investment. Sundial Growers is no different. In fact, the risks associated with the stock are quite significant. Nonetheless, you can’t expect significant gains without being willing to accept significant risks. Before you buy SNDL stock, consider the following:
- Regulatory Risks. Cannabis is a highly regulated industry, and for the most part, the substance is illegal around the world. Although regulatory changes are taking place, this process can be slow. Moreover, if cannabis doesn’t become legal in major markets outside of Canada relatively soon, the sector could feel significant pain.
- The Company Isn’t Making Any Money. Like many in the cannabis sector, Sundial Growers doesn’t make any money. Sure, it drives revenue through the sale of its product, but it also has far more cash flowing out of the business than the amount coming in. If the company can’t get to profitability soon, it may look toward capital markets as a way to raise funds, which would dilute value for existing shareholders.
- Penny Stock Risks. By nature, penny stocks are a highly speculative play, riddled with risk. First and foremost, high volatility opens the door for potentially significant losses. Moreover, companies at this stage in the game have quite a bit to prove, with little to show by way of market penetration. Essentially, SNDL, like most other penny stocks, has a long way to go to become uber successful.
- A Speculative Investment. My investment thesis is based on Sundial Growers having what it takes to get out of hard times, tap into multiple markets, and potentially be acquired. All of this is speculative and with heavy speculation comes heavy risk.
Ultimately, I didn’t write the risk section above to scare you off. Nonetheless, it’s important to consider the risks before making any investment.
Nonetheless, I see Sundial Growers as a major opportunity. As regulatory changes continue to go in the right direction, the opportunity for revenue expansion and a push to profitability grows. So too does the potential for a complete takeover of the company by one of the major players in the space.