Several cannabis stocks are trading below all-time highs. However, the recent pullback in stock prices offers investors an opportunity to buy the dip in companies such as Sundial Growers (SNDL) and Clever Leaves (CLVR).

While SNDL stock is down 94% from all-time highs in 2019, CLVR has lost 86% since early 2021.

However, the cannabis sector is well poised to expand rapidly given several other countries should legalize marijuana for recreational use in the upcoming decade. With that in mind, I will analyze both of these stocks to determine if they deserve a place in your portfolio.

Sundial Growers

In Q3 of 2021, Sundial Growers reported an adjusted EBITDA of $10.5 million compared to a loss of $4.4 million in the year-ago period. This massive improvement was on the back of a 12% revenue growth which meant sales stood at $14.4 million in Q4. Further, net sales were up 57% on a sequential basis. Sundial sales rose driven by retail sales following the acquisition of Inner Spirit Holdings.

In the last 12-months, Sundial burnt $173 million in cash from operating activities. This figure stood at $56 million in Q3 which was 200% higher than its year-ago cash burn rate of $20 million.

Sundial recently announced the acquisition of Alcanna which is a retail liquor store chain, providing it with revenue diversification. However, the buyout might increase cash burn rates further.

Sundial Growers ended Q3 with a cash balance of $571 million and it might have to raise equity capital soon if the company aims to acquire other entities. SNDL stock has already diluted shareholder wealth significantly in the last year and its sales were down from $75.6 million in 2019 to $60.9 million in 2020. In the last 12-months, Sundial’s top line fell to $47.26 million.

Clever Leaves

A multi-national cannabis company, Clever Leaves is valued at $51.9 million by market cap. It has operations and investments in the U.S., Canada, Germany, Portugal, and Columbia. Clever Leaves increased sales by 25% to $4.2 million in Q4, compared to $3.3 million in the year-ago period. Its cannabinoid revenue was up 11% at $1.1 million while non-cannabinoid sales soared 31% to $3.1 million.

Due to the ramp-up of early-stage operations in Portugal, Clever’s cost per gram of dry flower surged to $0.47 in Q4, compared to just $0.15 in the year-ago period.

In 2021, Clever sales were up 27% at $15.4 million while all-in cost per gram stood at $0.22 compared to $0.14 in the year-ago period. Its write-down for the last year stood at $3 million, dragging gross profit to $6.8 million, compared to the prior-year figure of $7.4 million.

The verdict

Both Sundial Growers and Clever Leaves remain high-risk bets given their losses, write-downs, and inconsistent revenue growth. Analysts expect Clever Leaves to increase sales by 48% to $22.75 million in 2022 and by 79% to $41 million in 2023. Comparatively, on the back of acquisitions, SNDL might expand sales from $51.17 million in 2021 to $665 million in 2022.

I believe there are far better stocks to place your bets on right now that are fundamentally stronger and generate predictable cash flows. The low valuation of Clever Leaves and Sundial might be attractive, but you also require nerves of steel to stay the course over the long term.

SNDL shares were trading at $0.73 per share on Tuesday morning, down $0.04 (-5.55%). Year-to-date, SNDL has gained 26.23%, versus a -2.97% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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