Cannabis companies have been facing severe headwinds, struggling to generate stable revenues and improve their bottom line. Canadian cannabis producer SNDL Inc. (SNDL) dealt with these issues through strategic acquisitions and diversifying into the retail liquor business, which helped maintain steady top-line growth. Moreover, earlier this year, SNDL announced that it could become a majority owner of one or more multi-state operators (MSO) in the United States in 2023.

While the company’s plans to invest in MSOs raise optimism, the competitive landscape and regulatory challenges could pose major headwinds. Also, the company’s still unprofitable status is a cause for concern.

The stock is trading below its 50-day and 200-day moving averages of $1.56 and $2.08, respectively, signaling a weak momentum. The downward pressure could remain in the near term, making it a risky stock to own.

Below are the trends of some of its key metrics that support the bearish case.

Analyzing SNDL’s Net Income, Revenue, Gross Margin, and Current Ratio

SNDL’s net income in June 2020 was negative $346.7 million, which then improved slightly to negative $333.4 million in March 2023, with fluctuations over that period.

SNDL’s revenue over the past two years has seen a significant increase. Its revenue rose from $7.34 million on June 30, 2020, to $659.60 million on March 31, 2023, a growth rate of nearly 814%. The fluctuation was generally increasing, but there were individual peaks and troughs, such as a decrease from $49.88 million to $49.13 million between September 30, 2020, and December 31, 2020, followed by an increase from $46.18 million to $61.61 million between March 31, 2021 and June 30, 2021. The latest value, as of March 31, 2023, was $659.60 million.

SNDL’s gross margin has been trending downwards, from -4.0% on June 30, 2020, to -8.2% on December 31, 2020. The trend has gradually improved since then, reaching -0.7% on March 31, 2021, -0.7% on June 30, 2021, and -0.2% on September 30, 2021. As of March 31, 2023, the gross margin was at 1.9%, showing a growth rate of 170.5%.

SNDL’s current ratio has fluctuated over the past three years, with a 38.6% growth from June 2020 (1.79) to March 2021 (9.91). However, the most recent ratio as of March 2023 (4.90) is only about half of what it was a year ago.

SNDL’s Price Decline Slows

The share price of SNDL has declined overall from $2.31 (December 16, 2022) to $1.41 (June 9, 2023). This trend appears to be decelerating, with a sharper decline in the first half of the data than in the second. Here is a chart of SNDL’s price over the past 180 days.

Unfavorable POWR Ratings

SNDL has an overall F rating, translating to a Strong Sell in our POWR Ratings system. It is ranked #166 out of the 169 stocks in the  Medical – Pharmaceuticals category. SNDL also has an F grade in Momentum and a D in Stability, Sentiment, and Quality.

Stocks to Consider Instead of SNDL Inc. (SNDL)

Other stocks in the Medical – Pharmaceuticals sector that may be worth considering are Novo Nordisk A/S (NVO), AbbVie Inc. (ABBV), and Astellas Pharma Inc. (ALPMY) — they have better POWR Ratings.

What To Do Next?

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SNDL shares were trading at $1.41 per share on Monday afternoon, down $0.00 (0.00%). Year-to-date, SNDL has declined -32.54%, versus a 13.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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