Is the current rally in cannabis producer Sundial Growers (NASDAQ:SNDL) stock legit? That’s the question investors are struggling to determine as the Canadian penny stock breaks out.
Since Jan. 26, SNDL stock has more than doubled in price from $0.56 to around $1.21 a share.
The move higher has been cheered by investors who have the risk appetite to trade in often volatile penny stocks, defined as securities worth less than $5 per share.
But while the euphoria around Sundial Growers reaches a fevered level, it is important to remember that Calgary, Alberta-based Sundial Growers stock has been here before (and then some).
Steady Decline and SNDL Stock
While the current rally in SNDL stock is noteworthy, the share price remains way below its peak of $11.50 a share. The stock’s all-time high was reached in August 2019, shortly after its initial public offering (IPO) and less than a year after Canada formally legalized cannabis consumption nationwide.
At that time, Sundial Growers was caught up in the excitement that surrounded the lofty expectations for legalization north of the border.
However, since then, Sundial Growers stock has been crushed under the massive disappointment that has followed Canada’s ill-fated cannabis legalization. In the past 18 months, Sundial Growers stock has fallen nearly 100% to an all-time low of just $0.14 a share.
The stock is at risk of being delisted by the Nasdaq exchange. While the share price has recovered some in recent weeks, it’s more akin to the stock struggling to get up off the mat than to the stock staging an epic comeback for investors.
Adding to the uncertainty and volatility surrounding SNDL stock are reports that it has become a “Robinhood play” and targeted by the same traders that have sent retailer GameStop’s (NYSE:GME) share price to ridiculous levels.
Sundial Growers stock has been one of the securities that Robinhood has limited trading in due to extreme volatility. Sundial Growers has tried to capitalize on the situation by selling more stock.
What Else Is New?
Beyond SNDL stock being targeted and run up by the Robinhood crowd, nothing else appears to be new with the Canadian company that produces and distributes cannabis pre-roll and vape products.
Other than issuing new stock to take advantage of the recent appreciation of its share price and saying that it plans to focus on “premium” cannabis products going forward, Sundial Growers has not made any significant announcements.
The company has until June to keep its share price above $1 for 10 consecutive trading days, or longer, to avoid being delisted.
However, SNDL stock has fallen steeply since its IPO for good reason. The company has been hit with multiple lawsuits from distributors, as well as a class-action lawsuit from consumers who claim the cannabis provided by Sundial Growers is of poor quality and even contained rubber in it.
Sundial Growers Chief Executive Officer has since resigned and the company’s financial position remains precarious. In the third quarter of 2020, Sundial Growers revenue was 62% lower than in the same period of 2019.
Other Cannabis Options
The cannabis sector, and a host of cannabis stocks, have been performing strongly so far this year. The American Cannabis Operator Index rose nearly 25% in January, marking its fourth consecutive monthly gain.
As several U.S. states move closer to legalizing cannabis, and with a Democratic administration taking the reins of power in Washington, D.C., expectations for cannabis are again running high (pun intended).
Several cannabis stocks, including Canopy Growth (NASDAQ:CGC), Tilray (NASDAQ:TLRY) and Aphria (TSE:APHA) are each up more than 50% so far in 2021.
With the entire sector enjoying success right now, there are plenty of other options for investors than the volatile and risky Sundial Growers stock. Companies such as Canopy Growth and Tilray are among the early leaders in the cannabis space and their stocks are finally being appreciated by investors.
In contrast, Sundial Growers has proven to be a laggard among cannabis producers. The fact that the crowd on Reddit is pumping up the share price is no reason for investors to take a flyer on Sundial Growers. Take a pass on SNDL stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.