Share Dilution

This cheap marijuana stock could make you rich

THELow-priced stocks (generally defined as stocks priced below $ 5) are the preferred vehicle for risk-tolerant investors for a multitude of reasons. One of the most important reasons is that investors can buy a large number of stocks with a small capital. This strategy creates instant leverage for shareholders (potentially amplifying returns) in a manner similar to buying a call or a put option, without having to worry about the all-important issue of an expiration date. However, companies with extremely low stock prices often have underlying fundamental problems or are operating in a high-risk industry (eg, clinical stage biotechnology). As such, these types of stocks are inherently risky, making them suitable only for the most aggressive investors.

Despite the fact that legalized cannabis is one of the fastest growing industries in the world today, most publicly traded marijuana stocks have rarely been kind to their original shareholders. As a result, dozens of marijuana stocks currently sports stock prices well below $ 5. This subsection of the healthcare sector has suffered from slow legalization in key trading territories like the United States, from overly aggressive management teams that have wasted immense amounts of capital on unnecessary facilities and a thriving black market that generally offers consumers illicit products at much lower prices. A Canadian cannabis company, however, might have what it takes to overcome all of these hurdles and deliver mind-blowing returns to its shareholders for years to come.

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Sundial Growers: a potential hidden gem in the high-value cannabis space

Since its IPO about two years ago, Producers of sundials (NASDAQ: SNDL) the action was one of the worst performers in the entire cannabis space. In fact, the company’s shares fell 92.2% in that short period. The main reason for Sundial’s disappointing performance since its inception as a public company is its penchant for shareholder dilution. At last count, the number of outstanding shares of the company, on a fully diluted basis, has increased by 160% in the past two years alone. The benefit of all this shareholder dilution is that Sundial has been able to raise a ton of capital for value-creating business development activities – while avoiding incurring debt in the process (an issue that plagued many of the firm’s closest peers).

What is Sundial doing to create long-term shareholder value? Sundial has taken many steps over the past year with the goal of achieving positive net income on a sustainable basis. To achieve this key operational goal, the braintrust of the cannabis company has moved into the alcohol business thanks to the recent acquisition of from Canada largest private liquor retailer, Alcanna; strengthened its commercial footprint by acquiring other cannabis retailers such as Inner Spirit Holdings; invested a fair amount of capital in the investment side of its business through companies like SunStream Bancorp; and held a large amount of unrestricted cash in reserve, presumably in anticipation of an opportunity to expand into the massive US cannabis market following federal legalization. Wall Street therefore expects Sundial’s revenue to grow 371% next year, thanks to these transformative business development moves.

What are the risks ? First, Sundial is still expected to post negative cash flow next year, despite this significant increase in revenue. Second, the company could continue to dilute its shareholders at a frightening rate to keep its cash reserves high in order to maintain its ability to enter into business development deals. Third, Sundial shares are well below the $ 1 listing requirement for the Nasdaq stock market at this time. The company, in turn, may need to perform a reverse split to raise its stock price above the $ 1 threshold. Potential investors should not ignore these potential risks.

Is Sundial’s Stock Worth the Risk?

The cannabis industry is currently going through many growth challenges. So, at the end of the day, there will likely only be a few big winners within this high growth space. The good news is that Sundial’s business is now diversified enough to withstand most, if not all, of these headwinds. The significant cash flow of the company should also allow it to wait for the end of the long process of legalization in the very important American market. That being said, this stock of cheap cannabis could continue to decline if management cannot deliver on its promise to achieve profitability within a reasonable time frame.

All things considered, Sundial stocks should be close to a sharp rebound. Management’s intriguing business development initiatives over the past year have put the company on much more solid ground. Additionally, Sundial is one of the Canadian cannabis companies with enough cash to quickly enter the US market when the opportunity arises. Investors, however, arguably shouldn’t buy into this growth story without a long-term mindset. This small cap cannabis stock could take over a decade to produce some truly impressive returns.

Here’s the marijuana stock you’ve been waiting for
A little-known Canadian company has just unlocked what some experts believe is the key to profiting from the upcoming marijuana boom.

And make no mistake, it does happen.

Cannabis legalization is sweeping across North America – 15 states plus Washington, DC, have all legalized recreational marijuana in recent years, and full legalization arrived in Canada in October 2018.

And an under-the-radar Canadian business is about to explode because of this upcoming marijuana revolution.

Because a game-changing deal has just been struck between the Government of Ontario and this mighty corporation … and you must hear this story today if you’ve even considered investing in pot stocks. .

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Georges budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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