Sundial Analyst: Cannabis Stock In A 'Transition Phase' Due To M&A Potential, Cost-Cutting Efforts

Shares of Sundial Growers Inc. SNDL took a tumble Thursday despite the Calgary, Canada-based cannabis company reporting fourth quarter sales of $13.9 million — exceeding analyst expectations of $12.07 million by 15.16%.

The cannabis company opened at $1.61 per share and saw a slight uptick to $1.67 by 9:40 a.m., but kept on dipping throughout the day, closing at $1.46, down 5.19%. 

The Sundial Analyst: Cantor Fitzgerald analyst Pablo Zuanic maintained a Neutral rating on Sundial. 

The Sundial Takeaways: Sundial "is in a transition phase," Zuanic said in a note, citing ongoing cost cutting efforts and a "regearing" of its cultivation facilities.

Sundial, under the helm of CEO Zach George, has been focused on "premium higher potency flower," the analyst said. 

"Most importantly, the company now sits on C$700Mn of cash and will look to M&A both in the domestic and elsewhere," Zuanic said. "The new share count post the recent capital raises is 1.66bn."

The stock remains quite volatile, he said, noting a Feb. 10 peak of $2.95 per share.

Year-to-date, Sundial's stock is up 230% versus a 53% gain for the AdvisorShares Pure Cannabis ETF YOLO.

Benzinga's Take: Be wary of the so-called "meme stocks."

Sundial, which produces and distributes cannabis products to the medical and recreational markets, falls into this category due to a lot of hype stemming from social media (Reddit, Twitter etc.).

The stock has shed more than 50% of its value in the last month. Just last week, BMO Capital Markets analyst Tamy Chen downgraded Sundial from Market Perform to Underperform.

Still, the company lifted its cash position at the end of February and remains ripe for an M&A play. 

Courtesy image.