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SNDL Stock: A Post-Earnings Weed Stock Frenzy

After reporting Q3 earnings, SNDL’s popularity reached a high. Sundial’s share buyback announcement seems to have re-ignited positive sentiment.

Cannabis stocks have been trading higher in the past couple of days. Sundial Growers is one of them. After the company reported its third quarter results, shares climbed as much as 30% in premarket action, as investors’ euphoria increased on the main Reddit forums.

Figure 1: Sundial product portfolio.

Figure 1: Sundial product portfolio.

The catalyst driving the recent surge may not have been Q3 numbers. Wall Street Memes takes a closer look at the Sundial stock  (SNDL) - Get Sundial Growers Inc. Report frenzy, and discusses what could be causing it.

(Read also from Wall Street Memes: Has WISH Stock Hit Rock Bottom?)

SNDL: a weed stock frenzy

Sundial Growers posted net earnings of C$11.3 million – profits are still a rarity in the cannabis space. On the other hand, the company missed on revenues by C$1.93 million.

What may have been the more important news driving euphoria was the announcement of a C$100 million share repurchase program. Investors have become accustomed to being diluted, as outstanding shares have risen more than 2,000% since the company’s IPO, two years ago.

The buyback program was commented often on Reddit’s main forums, including the r/SNDL subreddit that has more than 65,000 active members. Because SNDL has a market cap of just over $1 billion, the C$100 million planned repurchases can make quite a difference in equity ownership and even share price.

Beyond momentum, the management team seems confident that the company is on track to create shareholder value. According to CEO Zach George, Sundial’s balance sheet strength “enables [the executive] team to avoid short term pressures while working to improve the quality of our decision making”. He also said that Sundial’s financial goals should lead to positive free cash flow in 2022.

What’s next?

Cannabis stocks are highly sensitive to industry regulations. They have been trading higher in the past couple of days (see chart below) in great part due to policy matters.

Figure 2: YOLO and THCX ETFs in the past five trading days.

Figure 2: YOLO and THCX ETFs in the past five trading days.

Legalization hopes have been renewed as a bill allegedly drafted by South Carolina House Rep. Nancy Mace to regulate cannabis could make the substance legal in the United States. Amplify Seymour Cannabis ETF portfolio manager weighed on the news:

″[Its] huge news for a market that was not expecting de-scheduling or a federal outcome potentially before midterm elections and something that clearly is in the price of cannabis stocks.”

In addition to the positive developments in the industry, SNDL shares could also benefit from the increased popularity of cannabis stocks. As we have seen happen to many so-called meme stocks in 2021, retail investors turning overwhelmingly bullish and voicing their positions online can lead to a buying frenzy. Could SNDL be next?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)