SNDL Stock: There’s still a good chance the Sundial will reverse the split
- The buzz surrounding the passage of the MORE Act by the United States House of Representatives helped Sundial producers (SNDL) pop in recent weeks.
- Chances are that if this bill were approved by the US Senate and signed into law, it would indirectly help Sundial solve its delisting problem.
- But with a full long-term pass, the company’s shares will likely need to be split in half to avoid delisting, which will push it to lower prices.
Cannabis stocks like Sundial producers (NASDAQ:SNDL) have become warm again. Kind of. With the United States House of Representatives passing a marijuana decriminalization bill (the MORE Act), shares of SNDL and other hard-hit cannabis names have risen in price since March. .
In theory, if this bill passes through Congress and is then signed into law, it could be enough to solve the problem of delisting this penny stock. In order to maintain its registration on the NASDAQ Stock Exchangeit must trade above $1 per share for at least ten trading days by August 8.
Yet, this bill is unlikely to pass the US Senate. The chances remain high that it will have to proceed with a reverse stock split in order to maintain its listing on NASDAQ.
As a reverse split could put more pressure on stocks, this former meme favorite will likely end 2022 lower, not higher.
|SNDL||Sundial Growers Inc.||$0.62|
SNDL Stock and the MORE Act
It’s no surprise that shares of Sundial have jumped 26% in the past month. The very recent passage of the MORE Act by the House increases the chances that Canadian companies like this will be able to enter the US market.
The US Senate’s passage of 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 enough to hit $1 per share.
With that, Sundial could get back into compliance with the Nasdaq and relaunch delisting on the road once again. This, in turn, could head off a stock split, which would likely be a downside driver for stocks. So what is the problem? Passage by the US Senate, as has been the case for past marijuana reform bills, remains a long wait.
Why is it? Three Republicans in the House voted for the MORE Act, but it takes at least ten Republican votes for it to pass in the Senate. He also needs 100% support from Senate Democrats. According to The hillSenators Joe Manchin (West Virginia) and Jeanne Shaheen (New Hampshire) have been skeptical of marijuana reform.
Does the sundial have a way back to $1 per share
In short, marijuana reform in the United States could still take years. Another big boost for SNDL stock may not come in time. But aren’t there other avenues besides legalizing pot in the US that could help get it back above $1 a share?
Yes, there are a few possible catalysts that allow this to happen. As you may know, Sundial recently completed its acquisition of Alcanna. Ownership of this profitable alcohol and cannabis retailer could help the company post stronger financial results in the coming quarters.
Sundial’s upcoming earnings report, covering the final quarter of 2021, could also have a positive impact, assuming the numbers show it is making progress in reducing cash burn and getting closer to reporting positive earnings. . Its shift last year to “investment operations” (i.e. loans to other pot companies) is perhaps what allows it to post stronger results than in the past. during previous quarters.
Again, with the sell side already anticipating improvements in its year-over-year profitability (specifically, narrower losses), signaling that this may not be enough to trigger another spike. If the results don’t meet expectations as the buzz about the MORE Act fades, shares could drop back to 50 cents a share.
Recent boost may prove short-lived
Unless the US Senate gives the green light to pot reform, Sundial’s recent spike is unlikely to last. The future results, or the impact of the Alcanna agreement, can already be assessed in actions.
With that, the company will likely opt for a reverse spin-off to avoid delisting. Why is this bad for the stock? At prices well below $5 per share, it is difficult to sell it short. But if it does a ten-to-one reverse split and gets back above $5 a share, short sellers could pile up.
I have already explained how this can be a good thing if you want to get into the stock at a cheap price. Shorts could cause it to drop below its liquidation value, making it a value play. Yet for investors today, this means one thing: your position may lose value in the months to come.
Unless you’re looking to make a lunar pot reform bet, avoid SNDL stocks.
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At the date of publication, Thomas Niel has not held (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.