I’ve written more than a few columns about Sundial Growers (NASDAQ:SNDL) stock. None of them have been bullish.
Things have also played out as expected. SNDL stock has withered and is now fighting to keep its listing on NASDAQ because the share price won’t stay above $1.
Maybe the meme stock army will rush in to save it, but without artificial life support, things have been looking grim.
But recently, SNDL announced a joint venture with Canadian private equity firm SAF Group to offer financing, investment and eventually IPO cannabis companies not only in Canada, but across North America.
It’s a particularly interesting move for U.S. growers because while some states have legalized cannabis, the federal government hasn’t. That means few financial institutions will even open bank accounts for cannabis businesses and getting loans to expand operations is even more challenging.
Having SAF Group to assess investments and help businesses grow operations is a much needed offering.
Plus, SNDL has $753 million in cash sitting around, so SAF is likely putting in the business assessment layer and spending SNDL’s cash for investments.
A Closer Look at SNDL Stock
This new iteration is encouraging, but it’s still a little early to tell if this is just a maneuver to stave off irrelevance or if there’s a real plan in place.
If it’s the latter, it could be a very big deal for the industry in North America, the U.S. in particular. A leading lender for the high-growth, ground floor of the US cannabis industry would be very lucrative.
It doesn’t look like U.S. federal law is going to change anytime soon, yet more and more states are legalizing cannabis.
I suppose the feds are happy they and the states are deriving more tax revenue. Yet this odd system makes for odd solutions. And SNDL stock may be on to one.
Risks Do Exist, However
There’s no guarantee this idea will work. Perhaps some big firm like BlackRock (NYSE:BLK) comes in and takes over the business. Or maybe the new partnership has problems picking winners from losers and adds to SNDL stock’s woes by adding bad investments to its balance sheet.
Or, maybe this idea is just to keep the meme stock money in the stock and there’s no real structure or effort made to make this deal function.
What happens if there’s a big selloff and meme stocks get slaughtered? This idea ends up lost in irrelevance as investors scramble for the exits as portfolios get reallocated.
Yes, there are real risks here, and given SNDL stock’s performance up to now, the likelihood it can pull this grower-turned-investment bank transformation off, is slim.
However, if there are enough meme stock “experts” out there that will keep this venture afloat, it may pay off.
Yet I’m not convinced. The possibilities of this working are a better bet than SNDL becoming a major grower. So, in that respect, this is better for SNDL stock, but this doesn’t make it a great choice – or a choice at all.
This sector is so dynamic, and the U.S. is only slowly getting involved. U.S. investment banks and financial institutions will find a way to work this out, whether by legislation or opening Canadian operations and working across the border.
SNDL stock and SAF Group need to score some big early wins if this is going to work. Because if it does, the big money will roll in and it will either gobble up SNDL or it will roll over it.
SNDL is still a big risk, with perhaps a few more rays of hope shining through.
Disclosure: On the date of publication, GS Early did not have (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.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time. He’s seen a few things and heard plenty.
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