Cannabis investors have seen a significant decline in their portfolio value this year. Cannabis stocks in the U.S. have fallen after the euphoria surrounding pot legalization seems to have taken a back seat in recent months. Last year, Joe Biden’s administration was expected to legalize, or at least decriminalize marijuana consumption at the federal level. But there has been no development on either of these fronts.
Alternatively, Canadian pot stocks continue to be impacted by widening losses, weak financials, accelerated dilution of shareholder wealth and several other factors.
Given the substantial pullback in cannabis stocks this year, let’s see which between Sundial Growers (SNDL) and Curaleaf (CURLF) is a better stock to buy on the dip right now. Sundial is a Canadian marijuana producer and Curaleaf has a huge presence in the U.S.
Sundial Growers is fundamentally weak
Valued at a market cap of $1.42 billion, shares of Sundial Growers are down over 90% from record highs. Due to its popularity as a meme stock, Sundial has been extremely volatile this year.
While the Canadian marijuana market continues to expand, Sundial has seen its sales fall from $75.8 million in 2019 to $60.19 million in 2020. Analysts expect sales to further decline by more than 20% to $45.48 million in 2021. However, according to data from Yahoo Finance, Sundial sales are poised to more than triple to $214 million in 2022.
Over the last few months, Sundial has reduced its product portfolio to focus on high-margin items and boost its bottom-line. In order to offset cash burn, Sundial raised equity capital several times over the past year which diluted shareholder wealth but allowed the company to eliminate debt and pivot to a new business vertical.
In the second quarter of 2021, Sundial in fact generated significant revenue from its investment business where it provides capital to other marijuana companies.
Curaleaf is valued at a market cap of $7.7 billion
One of the largest marijuana producers in the world, Curaleaf is valued at a market cap of $7.6 billion. It has 109 dispensary locations and operates in 23 states. At the time of writing, Curaleaf stock is down 40% from all-time highs allowing investors to buy the dip.
In the second quarter of 2020, Curaleaf’s sales grew by 166% year over year to $312 million, indicating an annual revenue run rate of $1.2 billion. In the last 12-months, its total sales stood at $985 million and are forecast to touch $2.27 billion in 2022. This values the stock at a forward price to 2022 sales multiple of less than 4x which is extremely attractive.
While several cannabis producers are grappling with mounting losses, Curaleaf is forecast to report an earnings of $0.25 per share in 2022, compared to a loss of $0.11 per share in 2020.
By the end of 2022, Curaleaf expects to have 60 dispensaries in the state of Florida which is among the largest medical marijuana markets in the U.S. and will be a key driver of revenue for the company in the future. Analysts tracking Curaleaf stock remain optimistic and expect its shares to more than double in the next year.
The final verdict
The comparison between Sundial and Curaleaf seems like a no contest. While Curaleaf is growing at a rapid pace and racing towards profitability, Sundial is still figuring out its business model. Therefore, I believe Curaleaf is a better investment in the long term, as it has enough tailwinds to derive outsized gains going forward.
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SNDL shares . Year-to-date, SNDL has gained 43.61%, versus a 22.19% 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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