The Blue Wave Doesn’t Guarantee Green for Sundial Growers

With society becoming more progressive — a trend well underway before the 2020 election — it was inevitable that cannabis-based products would become all the rage. But cannabis-based investments have become a different story. While the narrative made sense, the relatively low barrier to entry, among other factors, have kept a lid on momentum. Thus, many skeptics (including yours truly) didn’t have a comfortable feel for Sundial Growers (NASDAQ:SNDL) and SNDL stock.

Let me be the first to admit that I’ve been dead wrong about this company. before The last time I wrote about Sundial Growers was in mid-December. At the time, I mainly cited economic concerns. Basically, if consumer confidence doesn’t ramp up soon, SNDL’s emphasis on premium quality cannabis could end up hurting the organization.

Though vice-related purchases such as alcoholic beverages tend to increase during recessions, data indicates that financial pressure forces consumers to purchase lower-quality (and therefore cheaper) brands. On the surface, that wouldn’t help SNDL stock. Indeed, if the timing were different, say, at the beginning of President Donald Trump’s term, Sundial may have been a more confident pick.

The other potential headwind for SNDL stock at the time was political uncertainty. While President-elect Joe Biden won the election, Democrats did not have guaranteed control of the Senate.

Now, fast forward to the present: the Democrats have handed the incoming Biden administration a clean slate. Is this the final catalyst to move Sundial Growers stock to fresh plateaus?

Certainly, the market seems to think so. On a year-to-date basis, SNDL stock is up more than 50%. Since the market opened this year on Jan. 4, most of the gains are essentially politically driven. And it’s completely understandable given how much Democrats have talked about marijuana legalization.

But President-elect Biden doesn’t represent a blue monolith. He’s a moderate who has emphasized deal-making and pragmatism throughout his political career. And this is where it gets nuanced for Sundial.

Why Biden Is a Wildcard for SNDL Stock

Throughout this election cycle, many media pundits have stated that people weren’t necessarily voting for Biden, but rather against Trump. That made sense on multiple levels. Frankly, Biden has never inspired me — he just appeared like the adult in the room.

Of course, that bar was set fairly low, given the current president’s prodigious tweeting and sometimes inexplicable behavior. Personally, I thought that had Trump simply exercised a little bit of restraint and focused more on professional leadership, he could have won this election.

But that also brings up a risk factor for SNDL stock that has enjoyed such a strong narrative boost from the political landscape. Biden has never been big on marijuana. Indeed, as the Washington Post reminded us, “Biden built part of his political career on being known as a fighter in the ‘war on drugs,’ supporting legislation as a senator that set harsh penalties for some drug offenses.”

Yes, he promised to decriminalize marijuana. But that’s a different animal than outright making cannabis legal throughout these United States. In other words, he compromised, making a pragmatic deal with the progressive elements of his party. I think you can see where I’m going with this.

It’s hard to take any politician seriously regarding his or her word — I mean, politics, am I right? But if you set aside the rancor for a moment, there is a sincerity (the magnitude of which is arguable, of course) to him wanting to work with Republicans.

But progressives are urging him not to get sucked into what could be a trap by the right. Others want Biden to be punitive to conservatives. I think he’ll surprise people in how moderate he’ll be. After all, it was his moderation that made him reach a deal with his own party (i.e., marijuana decriminalization as opposed to full legalization).

But cannabis advocates aren’t looking for moderation, not when Democrats have achieved nearly unfettered power. This will be an interesting environment for SNDL stock.

Thesis Unchanged

Although I risk irritating SNDL’s fanbase, I’ve got to stick with my earlier take: As an idea for high-risk, high-reward speculation, Sundial Growers certainly has potential. Anecdotally, my gut tells me that the stock will move higher in the near term.

It has many characteristics that help its speculation profile: dirt-cheap nominal price, relevant industry and a fiscal/monetary setup that rewards putting money in equities to avoid the guaranteed penalty of holding cash in a real negative-interest-rate environment.

But if you’re a cautious investor, I don’t think SNDL stock is right for you. Currently, it’s running on a narrative that may not pan out as well as some might be hoping.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.