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I’ll admit to missing the plot about Sundial Growers (NASDAQ:SNDL) stock. When I last wrote about Sundial in mid-summer, the company had just reported earnings and I got caught up in the dismal details.
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I would describe myself as being bullish on the long-term opportunity in cannabis stocks. However, I’m also pragmatic and I think there are simply other sectors that are more deserving of my capital at this time
But even if I was to invest in the cannabis sector, I would still have a wait-and-see attitude about SNDL stock.
It’s not to suggest that I don’t see the opportunity. If you had bought 1,000 shares of SNDL stock on Dec. 31, 2020 and held them to the time I’m writing this article, you would have a gain of over $250. But if you had bought the shares just five trading days into the new year, you would basically be even. And of course if you had bought them at various times in between, you’re likely sitting on a loss.
That’s a penny stock in a nutshell. But nonetheless, I understand why investors want to believe in the bullish narrative for Sundial stock. What I’ve been wondering about is what are investors basing that hope on?
A Change Needed to Be Made
Sundial is fighting a losing battle as a cannabis retailer. The Canadian market is suffering from too many companies competing for too few dollars. In early 2021, the hope was that the United States might be taking steps to legalize cannabis.
However, as Josh Enomoto writes, the Biden administration has its hands full on other matters. While many in the progressive wing of the party would likely embrace legalization, it’s hard to say it’s a priority when both parties must figure out how to keep the government running.
I’ve said it before and it bears repeating. Legalization in the United States is a matter of when, not if. I truly believe that. But that when may not be as soon as many expect. And until that becomes more defined, there are better uses for your capital.
Reinventing Its Business Model
But back to Sundial. The plot line that I seemed to have missed is that Sundial has an investment arm. After its meme stock rally in early February, Sundial found itself with a boatload of cash even after paying off all its debt. It had to be deployed somewhere. This has been achieved through a 50-50 joint venture for SunStream Bancorp, a cannabis financing arm.
Sundial’s pivot into investing makes sense. Patience doesn’t seem to be lacking among SNDL stock investors. However, you don’t want to take that positive sentiment for granted.
If you haven’t done so, I’d encourage you to read Ian Bezek’s article in which he describes Sundial’s early success with this venture. I’m going to turn my attention to one part of Bezek’s article. He mentions that if SunStream were to really take off, it might resemble something that resembles Innovative Industrial Properties (NYSE:IIPR).
Bezek mentioned that, in fairness, growth like that could be years away. That means that investors will have to tie up capital for a long time when it seems that the better course of action might be to buy shares of IIPR stock.
I know that’s not as exciting as buying a whole lot of shares for not a lot of money. But I hate to see hard-earned (or even not so hard-earned) capital being tied up on what still appears to be a stock with limited upside. At least for now.
SNDL Stock Is a Book You Can Wait to Buy
One day I returned a book to the library and told the librarian I just couldn’t get into it. She smiled and said, it was the author’s job to write an interesting book; there were others for me to read.
I may be missing the plot on Sundial Growers. But if I am, there are plenty of others who are missing it as well. I’m speaking about the analyst community which reviewed the company’s earnings report in more detail than I did. And they’re still bearish on the stock, giving a consensus price target of just 73 cents.
If you’re an investor holding SNDL stock, I’m not going to tell you it can’t, or won’t, pay off. But in a market where there are other opportunities, including penny stocks, that are delivering more predictable returns, there are better options for your capital. At least there is for me.
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On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
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