The cannabis market was hit hard in 2021 due to the high volatility caused by the negative margins and a speedy increase in competition in the given industry. Consequently, the ETFMG Alternative Harvest ETF (MJ) lost about 36% of its value in 2021.
However, the global cannabis market is estimated to demonstrate a CAGR rate of 32.04% over the next six years, hitting $197.74 billion in 2028. Proven medicinal usage of cannabis and a higher legalization pace worldwide should serve as key growth catalysts for this industry.
In this article, I will analyze and compare two cannabis stocks: Sundial Growers Inc. (SNDL) and Aurora Cannabis Inc. (ACB), to determine which stock is a better buy for 2022. Founded in 2006, SNDL is a Canada-based cannabis company that produces and sells cannabis products such as flowers, pre-rolls, and vapes. Based in Edmonton, Canada, ACB produces, markets, and sells cannabis and cannabis-related products in Canada and across the globe. Over the past six months, shares of Sundial have fallen about 35%, while ACB stock decreased 32%.
On January 6th, Sundial Growers announced that it had revised considerations for the acquisition of Alcanna. Under the new terms, Alcanna shareholders will obtain 8.85 common shares of Sundial and $1.50 in cash for each share of Alcanna. This represents a change from all-stock acquisition to cash and share acquisition mix.
On January 4th, Aurora Cannabis announced that it had made $C10 million medical cannabis shipment to Israel, which is the company’s largest shipment ever. The shipment value will be displayed in ACB’s FY22 second-quarter report. This development emphasizes Aurora’s efforts to expand its global presence.
Recent Quarterly Performance
On November 12th, Sundial Growers announced its third-quarter earnings results. Its net revenue increased 11.65% year-over-year to C$14.37 million in Q3. However, the company missed Wall Street estimates by C$2.43 million.
Sundial Growers’ net income has been reported at C$11.3 million, up from its year-ago loss of C$71.4 million. The company’s Adjusted EBITDA from continuing operations came in at C$10.5 million compared to a loss of C$4.4 million as of 3Q2020.
In terms of Aurora’s financials, its revenue for the first fiscal quarter of 2022, ended September 30th, 2021, decreased 11.1% year-over-year to C$60.11 million. ACB also failed to beat the Wall Street revenue consensus of C$61.45 million.
However, the company significantly reduced its net loss to C$11.88 million in FQ1FY22 compared to its year-ago net loss of C$101.39 million. Besides, its Adjusted EBITDA loss was improved to C$12.1 million, up 79% from the prior-year value of C$58.12 million.
Liquidity Position & Analysts’ Estimates
As of September 30th, 2021, Sundial Growers had cash and cash equivalents of C$629.14 million as well as C$119.64 million in marketable securities and total debt of C$24.54 million. As of nine-month ended September 30th, 2021, its cash burn rate significantly increased from C$42.25 million to C$160.91 million. Based on that, I would expect the cash on hand to be sufficient for at least 12 months.
Wall Street expects SNDL’s earnings to grow 85.05% in the fourth quarter of 2021 to ($0.01) per share. Moreover, analysts forecast that its Q4 revenue should advance 80.34% to $19.96 million.
Aurora Cannabis’ total cash position stood at C$375.3 million, while its total debt came in at C$406.78 million in the first fiscal quarter of 2022. However, the company decreased its cash burn rate from C$109.27 million to C$22.67 million as of FQ1FY22.
For the second fiscal quarter of 2022, the analysts expect ACB’s EPS to stand at ($0.17), representing an 87.84% growth compared to the year-ago value. However, a $47.18 million average revenue estimate for FQ2FY22 indicates an 11.47% year-over-year decrease.
The Bottom Line
Putting it all together, I believe SNDL is presently a better long-term buy than ACB. Both companies should benefit from the long-term industry’s growth. However, Sundial’s financials and liquidity position are relatively better at the moment. Finally, SNDL is projected to demonstrate higher forward growth rates in the next quarter.
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SNDL shares were trading at $0.58 per share on Monday afternoon, down $0.01 (-2.47%). Year-to-date, SNDL has gained 0.29%, versus a -3.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist. More...
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