Will sundial producers acquire another business in 2022?
Pbefore it became a popular memes store earlier this year, Producers of sundials (NASDAQ: SNDL) was nothing more than a struggling cannabis company that may have struggled to differentiate itself from other cannabis stocks.
However, cash can change a business’s outlook and future prospects. With an influx of cash and multiple acquisitions this year, Sundial Growers is a very different business and is now one of the leading cannabis retailers in Canada. But with the company still holding hundreds of millions of dollars in cash on the books, that may not happen. Should investors expect another acquisition in 2022?
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Mergers and acquisitions remain in his plans
Sundial acquired the cannabis retail business Inner Spirit earlier this year for C $ 131 million. Most recently, in October, she announced she was buying the operator of a liquor store Alcanna for C $ 346 million (which, through a subsidiary, also has pottery stores in its portfolio). Unlike the acquisition of Spiritleaf, this deal has yet to be finalized and may not be finalized until early next year.
Sundial has clearly had an appetite for business lately. And in his latest earnings report (for the period ending September 30), he said he was assessing âmany potential investment opportunities in the cannabis industry,â specifically noting mergers and acquisitions as a option. As of November 9, Sundial reported unrestricted cash of C $ 571 million.
Several attractive options there
One of the main reasons Sundial might consider making a purchase soon is that cannabis stocks are struggling and valuations are low. In the past six months, the Horizons Marijuana Life Sciences ETF fell by more than 30% (Sundial is down 33%) while the S&P 500 is up more than 10%.
Two examples of cannabis retail companies trading at modest market caps that Sundial could afford are High tide, valued at approximately C $ 400 million, and Fire flower, valued at just over C $ 200 million. Both are among the best retail pot stocks in Canada and could be viable investment options if Sundial expands its presence in this segment of the market.
However, investors do not need to assume that Sundial will be limited to companies with market caps that match its cash balance. In the Inner Spirit case, the company paid a combination of cash and shares. And for the more expensive Alcanna acquisition, it was an all-equity transaction.
Should we expect an agreement from Sundial Growers next year?
Given the aggressiveness of Sundial this year, and the low cost opportunities to pursue. It wouldn’t surprise me in the least if the company took another big step forward in 2022. It may not necessarily be an acquisition, but Sundial has shown that it is looking to use its improved resources and stronger balance sheet. (he often boasts of having a stock of debt-free cash).
Additionally, the company is already actively seeking investment opportunities through its joint venture, SunStream Bancorp, which it formed with private equity firm SAF Group in March. It would also benefit from its popularity with retail investors, and one way to stimulate interest is to announce a key acquisition.
The sundial is full of potential, but it’s still a risky buy
There is a great opportunity for Sundial to gain market share through acquisitions given its strong financial position. But since the company still relies heavily on equity issuances to fund transactions, the danger for investors is that there could be more dilution in the future.
This stock has the potential to be a big winner next year if its recent deals come together and bolster its finances (the company has only generated CA $ 47 million in revenue in the past 12 months while its losses net worth C $ 239 million).
However, there are too many âifsâ for this to be a sure-fire winner. If you can tolerate the risk, then Sundial may be worth giving it a try today. If you can’t, you might be better off going with these top cannabis stocks.
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David Jagielski does not have a position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.