The first quarter of 2021 was great for Sundial Growers (SNDL) - Get Sundial Growers Inc. Report shares, as well as cannabis stocks in general. For one thing, advances in cannabis legislation put the marijuana stock sector on a natural high.
At the same time, invigorated by a series of epic short squeezes like the one on GameStop (GME) - Get GameStop Corp. Class A Report, Reddit users turned their attention to cannabis stocks such as Sundial, Tilray (TLRY) - Get Tilray Brands, Inc. Report, and Canopy Growth (CGC) - Get Canopy Growth Corporation Report.
However, the boom was short-lived. Since June, Sundial Growers stock has plummeted nearly 70%, leaving many investors holding the bag.
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The Delisting Risk
Since August 2021, Sundial Growers has been notified that it is in danger of being delisted from the Nasdaq due to its common share price falling below $1 for more than 30 consecutive trading days.
The deadline is looming. Sundial Growers' stock must stay above $1 for at least 10 consecutive trading days.
It's worth remembering that this is not the first time that Sundial has gone through this kind of hardship. In late 2020, the Nasdaq made a similar threat to Sundial, which managed to keep the stock trading over $1 for two weeks between June.
Last November, to avoid a delisting scenario, Sundial management announced a share consolidation. The company aggressively diluted its shares from 105 million in 2020 to more than 2 billion in 2021. Sundial plans to repurchase about 100 million CAD ($79.6 million) worth of its common stock.
However, remember that, since the buyback announcement, the number of shares held by investors has been reduced due to a sell-off.
The Fed Effect
Meanwhile, analysts expect the Federal Reserve to raise interest rates as early as March. That has complicated the market, especially when it comes to growth stocks.
Because growth stocks depend on debt to fund their ambitions, their balance sheets look less attractive when interest rates rise. In addition, investors are seeking safer places to park their money.
Sundial is a growth stock. So the threat of a rate hike will continue to be a headwind for SNDL in the short term.
The Alcanna Acquisition
There is a ray of hope for Sundial investors.
Since last October, the company has planned to acquire cannabis retailer Alcanna (LQSIF). The purchase would be a good thing for Sundial, because unlike Canopy and Tilray, Sundial has focused on Canada, where cannabis is legal.
Alcanna would help Sundial build a portfolio of vertically integrated Canadian brands. And it could pave the way for further expansion through mergers and acquisitions.
SNDL Needs a “Meme Miracle”
Last year, meme investors helped heavily shorted stocks like GameStop, AMC (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report, and BlackBerry (BB) - Get BlackBerry Limited Report come back from the dead. That enthusiasm spilled over into the ailing cannabis stock sector. Most notably, Sundial Growers stock enjoyed a 342% increase between January and early February 2021.
Although "meme mania" has slightly fizzled out, there's an active community on Reddit that discusses SNDL from time to time.
Sundial needs a “meme miracle." But who knows? Maybe lightning will strike twice.
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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)