Be Patient with Sundial Growers as Alcanna Acquisition Should Pay Off
It’s been a stressful year for pot-stock traders, to say the least. A case in point would be Canadian cannabis company Sundial Growers (NASDAQ:SNDL), as SNDL stock dropped almost as quickly as it popped in 2021.
Part of the problem is that the market has been fickle lately. One month, Reddit traders are pushing up the Sundial share price. The next month, they’re abandoning Sundial and looking for the next short-squeeze target.
That’s just how it goes in the wild world of low-priced marijuana stocks. It’s also been a challenging year for the cannabis industry in general, and Sundial’s CEO fully acknowledges this issue.
Still, challenges can be overcome and Sundial could be on the cusp of a comeback. With a potentially game-changing acquisition in view, the sun should shine on Sundial soon enough.
A Closer Look at SNDL Stock
Some folks might eye a $1 price target, but history shows that SNDL stock is capable of reaching almost $4.
Back in February, the Sundial share price surged to a 52-week high of $3.96. Of course, it’s likely that r/WallStreetBets traders precipitated that rally.
Will the Reddit mob return and give SNDL stock another short squeeze? It’s a possibility, but hoping for another Reddit-fueled run-up isn’t really much of an investment strategy.
Fast-forward to late December, and the Sundial share price was still frustratingly below $1. There’s no need to despair, though.
InvestorPlace contributor Will Ashworth suggested that it’s possible for SNDL stock to return to $1. However, this is predicated on an important acquisition, which hasn’t been finalized yet.
So, let’s delve into the details now.
Replicating the Playbook
By far, the biggest news for Sundial’s stakeholders in recent months has been Sundial’s proposed acquisition of Alcanna (OTCMKTS:LQSIF) for roughly $346 million.
This buyout could prove to be transformative for Sundial Growers. Alcanna is Canada’s largest private liquor retailer, and the company operates 171 locations predominantly in Alberta under three retail brands.
“Alcanna’s value-focused model in liquor retailing has created market stability and we believe that the replication of this playbook in cannabis has strong potential to drive a similar result,” Sundial CEO Zach George enthusiastically commented.
Ashworth pointedly observed that the Alcanna acquisition will give Sundial Growers “street cred.” However, Sundial’s investors will need to be patient as the transaction hasn’t been finalized yet.
Indeed, it’s been a while since the Oct. 7 announcement of the proposed buyout. Admittedly, it will be difficult to justify a long position in SNDL stock if the Alcanna acquisition process gets postponed for much longer.
A Confirmation, and an Admission
Thankfully, Sundial Growers recently confirmed/reiterated its commitment to the proposed Alcanna buyout.
Not only that, but independent proxy advisory firm Institutional Shareholder Services Inc. recommended that Alcanna’s shareholders should vote in favor of the transaction.
“Despite recent market volatility, we remain committed to our plan of arrangement with Alcanna,” George assured.
Staying on the topic of “market volatility,” Sundial’s CEO is willing to admit that his company is facing sector-wide headwinds.
“I would say we’re in the first or second ending of a true distress cycle,” George acknowledged in a recent interview.
I’m just glad that he said “first or second ending,” and not “first or second inning.”
The implication here is that the “distress cycle” – i.e., the persistent bear market in cannabis – could come to a long-awaited end soon.
The Bottom Line
As the broader cannabis industry attempts to climb out of a slump, Sundial Growers’ investors should remain loyal and patient.
Acquiring Alcanna, assuming the transaction is successfully completed, should add a great deal of value to Sundial.
Thus, 2022 could prove to be a turnaround year for SNDL stock as Sundial Growers seeks to acquire a high-conviction business – and perhaps, some “street cred” in the process.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
