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TLRY or SNDL: Which Cannabis Stock Is A Better Pick?

Tilray and Sundial stocks remain popular on Reddit forums and around the web. We discuss which cannabis stock may be a better pick now.

Cannabis stocks have been trading higher since October, following bullish news regarding the legalization of marijuana in the US at the federal level. Some of the main sector ETFs, including AdvisorShares Pure Cannabis (see below), have been climbing fast.

Figure 1: YOLO and MJ ETF monthly performance.

Figure 1: YOLO and MJ ETF monthly performance.

Two of the most discussed cannabis stocks on Reddit's main forums are Tilray  (TLRY) - Get Tilray, Inc. Report and Sundial  (SNDL) - Get Sundial Growers Inc. Report. As retail investors seek to take advantage of momentum, we ask: what might be the best pick today, Tilray or Sundial stock?

Figure 2: Trending stocks on Reddit on November 15.

Figure 2: Trending stocks on Reddit on November 15.

Cannabis sector on fire

Current bullish momentum has been motivated by recent news regarding legalization. A bill 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.”

Third-party data suggests that the legal cannabis market will reach an impressive $91 billion by 2028, implying an imposing CAGR of 26%. As medical cannabis continues to become legal around the world, further legalization can be the key catalyst to boost product demand.

Tilray developments

Tilray has a clear goal: to become the world’s leading cannabis-focused consumer company. To accomplish it, the company has made key acquisitions since December of last year. The biggest corporate deal was the merger with Aphria.

Since then, Tilray positioned itself as a market leader in Canada and set in motion its long-term global leadership plan. In addition to better market positioning in North America, the Tilray-Aphria merger was an attempt to gain a foothold in Europe and to play economies of scale.

Also, a few months ago, Tilray purchased cannabis company MedMen Enterprises, which has 24 retail locations in six U.S. states. The investment was also aligned with the company’s daring market leadership goal. CEO Irwin D. Simon has said:

The investment we are announcing in MedMen securities, one of the most recognized brands in the $80 billion U.S. cannabis market, is a critical step towards delivering on our objective as we work to enable Tilray to lead the U.S. market when legalization allows.”

Sundial developments

In Q3, Sundial posted net earnings of C$11.3 million, which is impressive since profits are still a rarity in the cannabis space. On the other hand, the company missed expectations on revenues by C$1.93 million.

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

The buyback program became a hot topic on Reddit’s main forums. This is justifiable, since the C$100 million planned repurchases accounted at the time for almost 10% of SNDL’s market cap of a bit over $1 billion. The buyback could help to concentrate profits in the hands of fewer shareholders and, maybe, support share price.

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

Which is best?

Both TLRY and SNDL have benefited from retail investors’ euphoria and Reddit popularity. Tilray is a bigger company than Sundial in market value, and it is already one of the key players in the cannabis space.

Also, TLRY is one of the most relevant holdings in cannabis ETFs, including YOLO and MJ, at a respective allocation of 5% and 8%. Thus, TLRY shares may dictate the pace of returns in cannabis stocks more than its peers.

On the other hand, Sundial has sizeable growth potential, if it can catch up and become a key name in the sector. The biggest issue so far has been stock dilution, but the recently announced repurchase plan could put an end to these concerns.

Based on positioning in the industry and market cap size, SNDL might be the more volatile stock that pleases traders the most. TLRY, on the other hand, may be the cannabis “blue chip” that long-term investors might be more attracted to.

Twitter speaks

Cannabis stocks have been trending lately. Between Tilray and Sundial, which is your favorite stock pick?

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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)