Sundial Growers (NASDAQ:SNDL) might not be as popular with the Reddit crowd as it once was. However, SNDL stock still garners a lot of attention from investors despite being down around 11% year-to-date.
So, why is Sundial so popular?
I’ve got two possible reasons.
SNDL Stock Has a Good Story to Tell
If you look at Sundial’s November 2021 corporate presentation and you had never heard of the cannabis company, you would quickly get a good sense of what it is trying to accomplish as a business.
It does so without putting too many words to the page. In my experience in studying companies over the years, I believe it has developed a well-crafted document that lays out its strategy for today and into the future without overdoing it.
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That is not as easy as one might think.
Page 4 of its presentation lays out its two-pillar business model constructed to provide growing recurring cash flow. The two pillars are cannabis operations and investment operations. As I’ve explained before, it is not unlike Berkshire Hathaway (NYSE:BRK-B) with its insurance, railroad, and other operating businesses on one side and its massive $337 billion equity portfolio on the other.
When I last wrote about Sundial in early February, it was just days from being delisted from the Nasdaq Exchange for its bid price failing to trade over $1 for ten consecutive trading days. However, as has been happening a lot lately, Nasdaq gave the company a 180-day extension until Aug. 8 to comply with the exchange’s minimum bid price requirement.
Given Sundial has a whopping 2.1 billion shares outstanding, I would think the company would be excited about reducing its share count into the millions rather than billions.
Despite the potential delisting it faced, it continues to push ahead with its two-pillar approach.
On Jan. 24, Sunstream Opportunities LP, an affiliate of Sunstream Bancorp, the company’s joint venture investment partnership with SAF Group, announced that the Egan-Jones Ratings Company gave the LP’s existing credit portfolio of 375 million CAD ($295.6 million) a BBB+ investment-grade credit rating.
This says a lot about what it is trying to accomplish on the investment side of the equation. It also highlights what a great story it has got to tell.
The Alcanna Acquisition Strengthens Retail Presence
If you’re at all familiar with Alcanna’s (OTCMKTS:LQSIF) history, you’ll know that the liquor and cannabis retailer has sometimes had a very acrimonious existence as a Canadian public company.
In June 2017, Canadian activist investor PointNorth Capital won a proxy fight that replaced six of eight company directors. At the time, it went by the name Liquor Stores N.A. The company’s U.S. expansion was failing badly. So, PointNorth ensured that it focused on retail liquor sales in Alberta, British Columbia, and Alaska. A year after that, the company changed its name to Alcanna.
In October 2018, Alcanna launched its Nova Cannabis stores in Alberta and Ontario. They now go by the Value Buds banner. In January 2021, Alcanna completed the spin out of its cannabis business through a merger with YSS.
Nova Cannabis (OTCMKTS:NVACF) began trading as a separate business in the first quarter of 2021. Today, it has 71 cannabis stores across Canada. All but three are operated under the Value Buds banner. Alcanna owns 63% of Nova’s shares.
By combining Sundial’s Spiritleaf retail stores with Nova’s, the merged entity will own more than 180 cannabis retail stores across Canada, along with 171 liquor stores. In addition, the liquor stores will generate the profits necessary to continue growing the “downstream” segment of Sundial’s cannabis operations.
The segment’s annualized revenues will be almost 1 billion CAD ($784.0 million) and it will be Canada’s largest cannabis retailer operating in six Canadian provinces.
It is easy to see why Alcanna’s shareholders voted to approve the merger.
The Bottom Line on SNDL Stock
While Sundial’s cannabis operations are significant, I see the investment operations being the one that delivers positive surprises for shareholders in the future.
If you’ve followed financial services and cannabis, you know that it hasn’t been easy for cannabis producers and related businesses to get banking and lending services like other Canadian and American businesses. Therefore, the need for companies like Sunstream Bancorp remains high.
The road hasn’t been easy since Canada legalized cannabis in October 2018. It will be the fourth anniversary of legalization in a few short months. Yet, some things haven’t changed.
Sundial ought to benefit from the future changes that will come. As speculative stocks go, it is an intriguing bet. I like it more every day.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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