Sundial Growers Inc (NASDAQ: SNDL) is headed for the top in the market again this morning, following up on the gains we saw out of the stock yesterday. The gains were triggered by news surrounding cannabis-related legislation in the United States, but may be far from over as yet another massive short squeeze may be triggered.
Here’s the scoop:
Why Sundial Growers Is Climbing
The gains in Sundial Growers and other cannabis companies are very simple to explain. The company’s core focus is in the cannabis sector. In fact, it’s one of the premier growers of the product in Canada.
At the moment, the company can’t export its products to the United States due to the fact that cannabis is illegal on a federal level in the country. However, should the borders open to the possibility, the opportunities would be tremendous, and with news that broke yesterday, we’re one step closer to that point.
Yesterday legislators in the United States voted in favor of passing the Secure and Fair Enforcement (SAFE) Banking Act. Should this Act make it all the way through, it will give banks the opportunity to legally provide services to cannabis companies that are following their local laws.
This is a huge step for the United States cannabis sector as banks haven’t been willing to support these companies for fear of breaking federal laws. However, this legislation sets the stage for changing tides on a federal level, suggesting that cannabis will soon become legal for adult use in the United States, which would be a gamechanger for Sundial Growers and other Canadian cannabis producers.
A Serious Short Squeeze Could Be The Next Move
Recently, there has been a lot of talk about short positions in the stock market. Shorted stocks are shares of stock that are borrowed from long investors and sold immediately in the market. The hope is that the price of the stock will fall, giving the investor that shorted the stock the opportunity to buy shares back at a lower price before returning them to their rightful owner.
However, this activity can be a losing game too. If the price goes up, short sellers are forced to buy shares at a higher price to return to their rightful owner, resulting in losses.
Due to the fact that big money hedge funds have been using short positions to make massive amounts of money at the expense of retail investors, retail investors have been working together to give these funds a taste of their own medicine by pushing heavily shorted stocks for the top and forcing what’s known as a short squeeze.
In these events, those with short positions race to buy shares and cover their positions in an attempt to stop the bleeding. In doing so, the price of the stock sees significant gains, creating massive opportunities for retail investors.
In my view, SNDL stock is gearing up for a big short squeeze. At the moment, the stock trades with short interest of more than 30%. That’s overwhelmingly high, and it can turn out to be great news for retailers. Should a short squeeze take place on the stock, considering the overwhelmingly high short interest, we could see gains in multiples as the hedge funds lose their shorts.
All told, this is a huge opportunity.
The Bottom Line
The bottom line here is simple. Sundial Grower has been the victim of short selling for some time, and many retail investors have been left holding the bag. Now it’s time to tip the scales.
Ultimately, the retail side of the coin has all the tools it needs to force shorts out of their positions and force gains in multiples. All in all, SNDL stock is one to watch closely.
At the same time, as cannabis regulation reform continues, the company stands to benefit in a great way, making it a speculative, yet interesting long-term bet as well.