Buzz around the U.S. House of Representatives’ passing of the MORE Act has helped Sundial Growers (SNDL) pop in recent weeks.
There is a good chance that if this bill was approved by the U.S. Senate and signed into law, it would indirectly help Sundial resolve its delisting issue.
But with full passage a long-shot, the company’s shares will likely have to reverse split to avoid delisting, which will push it to lower prices.
The Sundial Growers logo is on a phone screen with a light blue background in front of the sundial logo on a white background
Source: Shutterstock
Cannabis stocks like Sundial Growers (NASDAQ:SNDL) have become hot again. Sort of. With the U.S. House of Representatives passing a marijuana decriminalization bill (the MORE Act), SNDL stock and other hard-hit Cannabis names have spiked in price since March.
In theory, if this bill makes it through congress and is then signed into law, it could be enough to resolve this penny stock’s delisting issue. In order to maintain its listing on the NASDAQ Exchange, it needs to trade above $1 per share for at least ten trading days between now and Aug. 8.
Yet, it is not very likely that this bill will make it through the U.S. Senate. Chances remain high it will have to do a reverse stock split in order to keep its NASDAQ listing.
As a reverse split could put more pressure on shares, this former meme favorite will likely end 2022 lower, not higher.
SNDL
Sundial Growers Inc.
$0.62
SNDL Stock and The MORE Act
It is no surprise Sundial shares have jumped 26% in the past month. The very recent passing of the MORE Act by the House increases the odds that Canada-based pot companies like this one are able to enter the U.S. market.
The U.S. Senate passing this bill — or a similar bill proposed by Senate Majority Leader Chuck Schumer — would likely result in another spike for SNDL stock. At around 62 cents today, another 61% jolt is all it needs to make its way to $1 per share.
With that, Sundial could get back into compliance with Nasdaq and kick the delisting can down the road once again. In turn, it could avoid a reverse stock split, which would likely be a downward driver for shares. So, what’s the problem? Passage by the U.S. Senate, as it has been for past marijuana reform bills, remains a long-shot.
Why is this? Three Republicans in the House voted for the MORE Act, but it needs at least ten Republican votes for it to pass in the Senate. It also needs 100% support from Senate Democrats. According to The Hill, Senators Joe Manchin (West Virginia) and Jeanne Shaheen (New Hampshire) have been skeptical about marijuana reform.
Does Sundial Have a Path Back to $1 Per Share
In short, marijuana reform in the U.S. may still be years away. Another big boost for SNDL stock may not arrive in time. But aren’t there other paths besides U.S. pot legalization that could help it get back above $1 per share?
Yes, there are a few possible catalysts that enable this to happen. As you may know, Sundial recently closed on its acquisition of Alcanna. Ownership of this profitable liquor and cannabis retailer could help the company report stronger financial results over the next few quarters.
Sundial’s upcoming earnings report, covering the last quarter of 2021, could also have a positive impact, assuming the numbers demonstrate that it is making progress in reducing cash burn and getting close to reporting positive earnings. Its move last year into “investment operations” (i.e. loans to other pot companies) may be what enables it to report stronger results than in prior quarters.
Then again, with the sell-side already anticipating year-over-year improvements to its profitability (more accurately, narrower losses), reporting this may not be enough to spark another spike. If results fall short of expectations as the MORE Act buzz fades, shares could make a trip back to 50 cents per share.
Recent Boost Could Prove to Be Short Lived
Barring the U.S. Senate giving the go-ahead for pot reform, Sundial’s recent spike isn’t likely to last. Upcoming results, or the impact of the Alcanna deal, may already be priced into shares.
With this, the company will likely opt for a reverse split to avoid delisting. Why is this bad for the stock? At prices well under $5 per share, shorting it is difficult. But if it did a reverse split of ten-to-one and went back above $5 per share, short sellers could pile in.
I’ve discussed before how this may be a good thing if you want to get into the stock at a cheap price. The shorts could push it down to below its liquidation value, making it a value play. Yet, for investors today, it means one thing: your position stands to drop in value in the months ahead.
Unless you’re looking to make a moonshot wager on pot reform, skip out on SNDL stock.
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On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
