Sundial Growers Running Out of Time to Avoid Nasdaq Delisting
Canadian cannabis grower, retailer and investment firm Sundial Growers (NASDAQ:SNDL) had its 15 minutes of meme stock fame a little less than a year ago. Shares rocketed 725% higher between the start of 2021 and its high of nearly $4 in February. But since then, SNDL stock has plummeted to around 52 cents a share and is on the verge of being delisted from the Nasdaq.
The company only has until Feb. 7 to comply with continued listing requirements or it risks being booted from one of the senior equity indexes. Management will no doubt try everything it can to avoid this outcome, but the deadline is fast approaching.
Why SNDL Stock Could be Delisted Next Month
On Aug. 9, Sundial was notified by the Nasdaq that it was in danger of being delisted because the bid price on its common shares had strayed below the exchange’s minimum threshold of $1 per share for more than 30 consecutive days. The Nasdaq said the company had 180 days, or until Feb. 7, to get SNDL stock above $1 for 10 days in a row.
This isn’t the first time the company has been threatened with a delisting. In December 2020, the Nasdaq said Sundial had until June 26 to bring its share price back in compliance with the listing requirements. Management succeeded in doing so just under the wire, with SNDL stock trading above $1 between June 1 and June 14.
As Forbes contributor Peter Cohan notes, Sundial did this by raising “about $700 million by selling stock and making other moves — which increased its shares outstanding by seven-fold in three months — massively diluting its investors’ holdings.”
Since mid-June, it’s been almost all downhill for SNDL stock. In fact, it hasn’t traded above $1 per share since late June. Even the short-lived rally into mid-November saw shares peak at 96 cents.
It’s still possible SNDL stock could regain compliance in the next two and a half weeks. However, shares would need to rally more than 90% from their current level and then hold for 10 days. That seems unlikely unless management has a big surprise in store for investors. Realistically, the company has just one option.
Sundial Could Announce a Share Consolidation Soon
To regain compliance with the Nasdaq’s minimum bid requirements, Sundial Growers may announce a share consolidation, also known as a reverse stock split. The consolidation should be effective around the expiry date of the exchange’s notice.
Sundial has about 2.06 billion common shares outstanding right now. As I wrote in November, the company sent mixed signals with the announcement of plans to repurchase about 100 million CAD ($79.6 million) worth of its common stock, but it has reduced its share count by a little bit.
From this writer’s computations, the company should do at least a 1-for-2 consolidation, where existing shareholders get one share for every two old shares held. However, there’s a problem with that “too-low” exchange ratio.
At today’s closing price for SNDL stock of 52 cents a share, a 1-for-2 consolidation would result in a post-consolidation share price of just $1.04. The new price would allow for only a 3.9% decline in the company’s stock price before the Nasdaq compliance eyes refocus on Sundial.
It’s highly likely that Sundial may announce at least a 1-for-10 share consolidation so the resultant stock price would be above the $5 mark. However, SNDL stock will remain a penny stock at such trading ranges. Perhaps management will settle for a consolidation ratio much higher than 10.
That said, there’s still a challenge with the consolidation route – a delayed acquisition deal.
Delayed Alcanna Acquisition May Increase Delisting Risk
Sundial Growers is in the middle of a sizeable acquisition of Alcanna, a Canadian liquor retailing giant. Alcanna needed more time to rally its shareholder base to reach the required minimum votes for the deal to sail through. So, it moved its shareholder vote from Dec. 14 to Jan. 7.
When the Alcanna vote finally took place, more than 90% of shareholders voted in favor of the deal. The final consideration includes a $1.50 CAD cash portion and a conversion ratio of 8.85 Sundial shares for every Alcanna share held. Based on the total Alcanna shares issued and outstanding at the record date, Sundial could issue about 320.6 million new common shares to Alcanna investors as the deal closes. Hopefully, the transaction will close during this quarter.
Given an already set Alcanna exchange ratio, Sundial may choose to close the Alcanna acquisition before consolidating its shares. Ideally, parties would wish to fast-track the acquisition. However, that’s up to the regulatory authorities to decide.
The Bottom Line on SNDL Stock
It’s highly unlikely management will let SNDL stock be delisted from the Nasdaq without putting up a fight. The company has no other listing in North America and won’t want such a potentially catastrophic event to happen to its common shares.
However, unless some bullish news comes out to take SNDL stock on a 90%-plus rally, investors should expect the company to announce a share consolidation any day. This may happen even before Sundial closes its Alcanna acquisition deal.
On the date of publication, Brian Paradza 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.
Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term “madness”. You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains, and the new cryptocurrencies asset class.
