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Sundial Stock: What Could Happen In The Face Of Delisting Threat

SNDL shares have failed to hold above $1 per share for 10 consecutive trading days. Will the cannabis company be forced to delist?

Shares of Sundial Growers  (SNDL) - Get Free Report have dropped more than 90% since the company went public in 2019. Priced under $1 for nearly a year, Sundial runs the risk of being delisted from the Nasdaq stock exchange.

Is there still hope for SNDL shareholders? Let's take a look.

Figure 1: Sundial Stock: What Could Happen In The Face Of Delisting Threat

Figure 1: Sundial Stock: What Could Happen In The Face Of Delisting Threat

Sundial: Mission Impossible?

The quest to keep Sundial Growers from delisting has felt like "mission impossible." Due to compliance requirements, SNDL shares must hold above $1 for 10 consecutive trading days to avoid delisting.

In the last 180 days, SNDL shares haven't hit $1 even once. In mid-November, the stock came close, reaching 92 cents. But with strong headwinds hitting growth and speculative stocks hard, Sundial shares have been hovering around half a dollar.

Figure 2: Sundial stock performance 180-day period.

Figure 2: Sundial stock performance 180-day period.

Light at the End of the Tunnel?

There's still a thread of hope that Sundial's stock will avoid the delisting scenario. According to Nasdaq, even if a company does not regain the required price, a possible 180-day compliance period may still be available.

To do so, the company needs to issue a written notice committing to comply with compliance requirements, even if a reverse stock split is required.

A reverse stock split would involve merging the company’s shares with the aim of forming a smaller number of shares in the float, decreasing liquidity, and proportionally increasing value.

We saw this happen a couple of years ago with another cannabis company. Aurora Cannabis  (ACB) - Get Free Report performed a 1-for-12 reverse stock split to satisfy NYSE listing requirements.

It's worth remembering that Sundial aggressively diluted its shares from 105 million in 2020 to more than 2 billion in 2021. Also, keep in mind that stock dilutions are meant to stimulate gross income, as well as to raise capital for new projects or acquire a competitor.

In November 2021, Sundial had already announced a plan to buy back about 100 million CAD ($79.6 million) worth of its common stock. But since the buyback announcement, the number of shares held by investors has been reduced due to a sell-off.

The Worst-Case Scenario for SNDL

Although the risk of delisting still remains, it's very likely that this won't happen, given the alternatives that still remain for Sundial to keep in compliance with Nasdaq.

When stocks are delisted, they can no longer publicly appear on that stock exchange. In Sundial's case, that means it couldn't be traded on the Nasdaq. A delisted stock can still be traded over-the-counter (OTC), meaning it would trade in a decentralized market.

However, the most likely scenario for Sundial is that it will conduct a reverse stock split. Although this practice is generally frowned upon – mainly because it gives the image of a failed growth plan for the company's management – it doesn't technically change the company's value and saves it from being delisted.

In the least likely scenario, Sunday will be granted a new 180-day compliance period and shares will trade above $1 levels for 10 consecutive trading days. But that's roughly 50% above current price levels.

In order for something like that to happen, Sundial would need a "meme miracle."

(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)