Sundial Growers (NASDAQ:SNDL) is one of many Canadian cannabis stocks that has become a hot stock on message boards and one of the “ground floor” opportunities in the sector.
But before we get into the particulars, I want to explain a broader point on this sector. The quote about let a hundred flowers bloom was actually from Chinese ruler Mao Zedong when his communist revolution took over China. He said this in relation to inviting any and all ideas to the table in a gesture of openness.
However, it also exposed his enemies and detractors, who were then imprisoned, exiled, “re-educated” or worse.
The point is, a bounty of companies may last for a while, but that’s rarely the way it remains in the markets. And that’s the reality for cannabis companies throughout North America.
Competition Is Growing, Not Receding
For Canadian growers and the industry as a whole, the challenge is, as more U.S. states continue to legalize some form of cannabis use – Virginia will be the first Southern state to legalize cannabis on July 1 – the US market is much bigger and there are hundreds if not thousands of flowers blooming in the US already.
That means SNDL stock and its Canadian brethren, although they have some market position, they won’t have much of a chance competing in the market of their southern neighbor.
What’s more, in the US, there are plenty of venture capitalists and investment bankers willing to throw some money at U.S. cannabis firms that have the potential for either a national brand or significant regional brand.
And looking at SNDL stock’s fourth quarter results, the losses are piling up in a Canadian market saturated with growers. And during the pandemic you may expect cannabis sales to rise, since everyone is stressed out and sitting around the house or outside enjoying fresh air, but SNDL notes that the pandemic hurt business.
That may be an issue is processing and harvesting the crop, but sales shouldn’t be off due to simply the pandemic. And losing market share at this early stage is tough, since growth is what most investors value in this sector.
SNDL Stock Is More About Possibilities
Remember, Canada has about a tenth of the population of the US, which means there’s a lot of land for people to grow cannabis. And that means both personal and black market production is going to increase with the legalization of cannabis. It’s not all going to commercial growers.
The trouble with a lot of the money going into this sector now is younger investors that are excited by a new market they can identify with and want to support. But that enthusiasm can get novice investors into trouble.
The fact is, most of the big money – the money that makes a difference – doesn’t really step in until these hundred flowers bloom and we see which flowers are annuals and which are perennials.
Granted that’s from an investing perspective. But most SNDL stock investors are more likely traders. Here again, if you think you can compete with companies that are built for the sole purpose of trading momentum stocks, and I’ve worked with a number of the top momentum traders in the business, you have another thing coming.
Focus on the Long Haul
The best thing you can do in a crazy new market like this is be disciplined. Buy quality stocks that have some unique opportunity and are run like a business. If you invest in the long term, you can take trading volatility out of the equation.
And remember, if you buy a stock below $5 or $10 many institutions won’t touch it, so you’re at the mercy of momentum traders.
In the case SNDL stock, there are better ground floor opportunities in the sector, and there will be even more as the U.S. market opens up.
On the date of publication, GS Early has no position in the stock featured in this article. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
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 most of it before.