Sundial growers are one of the most recent IPOs within the cannabis sector and after their most recent quarterly earnings report on Wednesday, the company has landed itself in the top 10 cannabis producers based on sales. On Wednesday we also saw one of the worst selloffs’s in 2019 but despite all of the negative sentiment in the markets, Sundial Growers closed up over 6%. This harsh environment is nothing new for the company that IPOed on one of the worst days the cannabis sector has seen with Canntrust releasing more negative news bringing the entire sector lower. One thing I really like about the company is the fact that they are focusing on near term profitability within the Canadian market, yet at the same time putting equal emphasis on the massive opportunity in the global cannabis market. The company recently acquired bridge farms in the united kingdom which will give the company additional growing space, a large focus on hemp cultivation, licensing and scalability. On top of their dual-pronged focusing on the Canadian and international markets, the company’s CEO is an industry veteran with over 20 years of experience at Coca Cola and 5 years at Molson Coors. Having a management team that understands the consumer can be an incredibly valuable asset in the long run.
Sundial Growers currently sells cannabis in five provinces in Canada which include Alberta, Ontario, British Columbia, Manitoba, and Saskatchewan with plans to expand to additional provinces. They take a premium brand approach to sales in the form of their Play segment that specifies certain uses for their products through their brands such as Top Leaf and BC Weed. They are focusing on higher-margin products as they see more profitability within this niche as opposed to lower quality brands. For Sundial Growers its all about quality. As the Canadian market matures the company feels that premium brands will stand out from the competition. This has been proven true for many other mature consumer markets such as soft drinks or alcoholic beverages, the companies with the deep-rooted brands usually come out on top as consumers seek a reliable, enjoyable and consistent experience.
On the international front Sundial Growers recently acquired Bridge Farms for 45 million pounds in cash. Bridge Farm’s has 1.6 million square feet of existing products, and is expected to have nearly 3.6 million square feet when the facility is fully constructed. This will provide Sundial Growers with instant scalability and entry into the CBD/Hemp market where the opposite approach can be taken as CBD has much wider uses and appeal to a larger portion of the consumer segment. Sundial Growers also gains a valuable hemp cultivation license with the acquisition which in itself is worth nothing.
Sundial Growers has entered the cannabis sector at one of the most difficult times, yet the company has been holding their ground. We have seen wave after wave of IPOs with companies promising the world to investors only to be disappointed time after time. We are at a crossroads right now with a short term push towards profitability and investor patience growing thin, Sundial Growers may have the perfect business model. I like their approach to the Canadian market putting their emphasis on premium brands while in Europe seeing the bigger potential for CBD in the form of quantity. It will be very interesting to find out where this company finds its place within the sector, but despite the dull outlook for the sector, the future looks bright for Sundial Growers. This is one stock to watch.
SNDL shares were trading at $11.09 per share on Friday morning, up $0.01 (+0.09%). Year-to-date, SNDL has gained 30.78%, versus a 16.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...
