SNDL Stock: Sundial Growers Signs Concentrates License Agreement

Sundial Growers Inc (NASDAQ: SNDL) is having a strong start in the premarket hours this morning, and for good reason. The company announced that it entered a licensing agreement surrounding a suite of cannabis concentrates. Here’s what’s going on:

Skip to What You Want to Read

Sundial Growers Signs a Concentrates Licensing Agreement

As mentioned above, Sundial Growers is having a strong start to the trading session this morning after announcing that it has entered into a licensing agreement. The agreement was signed with Simply Solventless Concentrates and surrounds the processing and manufacturing of a suite of solventless cannabis concentrate products by SNDL. 

The company will manufacture the concentrates at its Rocky View facility using Simply Solventless Concentrates’ intellectual property. Importantly, this agreement makes it possible for SNDL to use its Rocky View assets while enhancing its focus on producing premium inhalables. 

According to the terms of the agreement, Simply Solventless Concentrates will receive a royalty on the sale of products manufactured using its brand and technology. Moreover, the company will provide non-cannabis materials to Sundial Growers for the production of concentrates in addition to paying Sundial a monthly administration fee. 

The agreement also stipulates that a minimum of 75% of the cannabis materials required for the processing and manufacturing of the concentrates will be cultivated by Sundial. That is, unless such inventory is unavailable. 

Moreover, the parties of the agreement are working together to form a definitive agreement for the sale of Sundial’s Rocky View assets for $5 million. 

Finally, SNDL said that it expects to scale its distribution of these specialty concentrates across Canada, with the first products targeted to be in stores in the second quarter of 2021. 

Management Commentary 

In a statement, Andrew Stordeur, President and CEO at SNDL, had the following to offer:

As part of our continued cost and process optimization initiatives, we are pleased to enter into a licensing agreement with SSC that includes a non-binding purchase agreement to sell the Rocky View facility. We believe that this collaboration with SSC will improve our returns on invested capital and provide consumers with an excellent addition to our portfolio of cannabis products.

The above statement was followed up by Jeff Swainson, President and CEO At Simply Solventless Concentrates. Here’s what he had to say:

Simply Solventless is thrilled to be working with Sundial to provide a portfolio of pure, potent, terpene-rich solventless concentrates across Canada. From old school hash to live rosin, our premium solventless concentrates are hand crafted to captivate even the most discerning of consumers.

Why Investors Are So Excited

The news released by Sundial Growers this morning proved to be overwhelmingly positive. While dried cannabis flower remains the darling of the cannabis industry, we’re seeing derivatives like edibles and concentrates taking the market by storm. 

However, there has been quite a bit of questions about the solvents used to create concentrates. With Simply Solventless Concentrates’ technology and process, SNDL will be able to make concentrates that are 100% cannabis with no trace amounts of solvents to be concerned with. 

With proper marketing, this could be the competitive advantage that makes SNDL the top dog in the cannabis concentrates space in Canada. Of course, that’s exciting news. 

Does This Bring SNDL Closer to an Acquisition?

There has been a lot of discussion about a potential buyout of Sundial Growers, and in my opinion, today’s announcement makes that potential buyout far more likely. 

Again, concentrates are a hot topic among the cannabis community, and with Simply Solventless Concentrates’ technologies, SNDL will have some of the highest quality concentrates on the market. This combined with their activity in the edibles space makes the company even more attractive to potential suitors. 

Of course, at the same time, a suitor that acquires SNDL at these levels will receive an extreme discount. So, the solventless concentrates that will be hitting the market in the second quarter of next year are just icing on the cake for any potential buyer. 

What Analysts Think About SNDL Stock

While there are plenty of reasons to be excited about Sundial Growers, analysts seem to be concerned about the future of the stock. According to TipRanks, there are two analysts currently covering the stock, one with a Hold and one with a Sell rating. 

The analyst with the hold rating has a price target on SNDL stock of $0.30 while the analyst with the sell rating has a price target of $0.20. 

While analyst views of SNDL stock are not encouraging, it’s my belief that they are outdated. These views were provided months ago before the company announced the agreement surrounding edibles and today’s concentrated agreement. 

Moreover, at the time of these analyst views, the cannabis market was being hit hard by the COVID-19 pandemic, only helping to sway the analysts to the dark side. Today, I believe that SNDL is a far more exciting stock and a great opportunity for the contrarian investor to make big gains. 

Risks to Consider Before Buying SNDL Stock

Any time you buy a stock, or make any other investment for that matter, you’re going to have to be willing to accept risk. It’s just part of the game. When it comes to SNDL stock, the most significant risks to consider are as follows:

  • The Company Isn’t Making Money. Sure, Sundial Growers generates revenue from the sale of its products, but that revenue isn’t quite enough to cover expenses. Therefore, the company may soon be in need of funding and could reach out to capital markets to get it. If this is the case, existing shareholders would experience dilution. 
  • Speculative. Much of the value I place on SNDL has to do with its standing as a potential takeover target. Moreover, the cannabis industry as a whole is a highly speculative space with many questions about global regulatory changes being unanswered. As such, this is a speculative play and will come with an added level of risk. 
  • Penny Stock. Finally, SNDL is a penny stock. This means that the stock experiences high levels of volatility. Moreover, like most penny stocks, the company hasn’t reached profit and its business model isn’t quite a proven winner just yet. 

Final Thoughts

While any investment comes with risk, and SNDL is no exception, I see incredible opportunity here. First and foremost, if an acquisition does take place, investors will experience an immediate return of value, and the time is perfect for one. 

Moreover, if an acquisition doesn’t happen, the company won’t be a sitting duck. As Sundial Growers continues to shift its focus away from dried cannabis flower and toward edibles and concentrates, the potential of the company to generate meaningful growth is becoming hard to ignore, making SNDL stock one for the watchlist.