Marijuana stocks, one of the big trends of 2018, are back in fashion. The same is true for stocks with low market capitalization. The same is true for highly-quoted stocks. Sundial Growers (NASDAQ:SNDL) is all three of these things, and so it became a Reddit Touch. That is, small traders in the sub-Reddit r / WallStreetBets got together and bought SNDL shares, along with out-of-the-money options.
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They liked that he had no debts. They liked pressure from Democrats to declare marijuana legal across the country.
And they didn’t even stop when Sundial sold even more shares, bringing the share count to 1.5 billion in early February. Shares that were worth 56 cents on January 26 were worth nearly $ 4 at the start of trading on February 11.
If I were one of those lucky winners in January, I would consider myself a lottery winner and cash out.
Why sell
There are good reasons to sell SNDL shares.
On the one hand, there is a significant setback in legalization. The Idaho State Senate passed a constitutional amendment against marijuana. Other states are pushing for legalization to increase revenue, ignoring the fact that regulated sales cannot compete with Dealer McDope.
Senate majority leader Chuck Schumer needs 60 votes to overcome an obstruction. Even supporters of his project call this “a heavy lifting”.
Then there is the fact that Sundial is a small player in a big game. The company’s sales are still below $ 100 million, while the market cap is now $ 3.6 billion. There are competitors at scale, such as Canopy growth (NYSE:CGC), supported by the beverage giant Constellation Marks (NYSE:STZ), and Cronos (NASDAQ:CRON), supported by the tobacco giant Altria (NYSE:MO)
None of this stopped the Redditors. Sundial is now one of the top 10 purchases in Robinhood, the “free” stock trading app that makes money from your order flow.
What happens next
I must take my hat off for the Sundial management. They are making the most of Redditors to raise money. It reminds me of 19º century Erie War, but this was a battle for control of a real railroad. This is a pure profit.
Some things that are happening smell like things other than marijuana. Our own Mark Hake wrote in January about a big loan for Zenabis Global (OTCMKTS:ZBISF), another marijuana producer, which he concluded with a high probability of default.
The stock values plummeted after the last capital increase, but have since returned to full strength, despite the lack of news. After falling from $ 1.25 to $ 1 on February 4, SNDL’s stock closed at nearly $ 3 on February 10 and rose another $ 1 overnight.
The writers have been unanimous in questioning the measure. One wrote that recent earnings “should terrify” shareholders, because they are not based on anything real. ONE Forbes contributor said very clearly: do not buy.
I found an upper case of our Craig Adeyanju, launched when the stock was trading at $ 1.70 per share. He focused on the prospect of legalization, the relatively low price / sales ratio and the company’s cash increase. He said it could make it an attractive acquisition.
Maybe for $ 1.70. Not at $ 4.
The final result of the SNDL stock
When Gamestop (NYSE:GME) was trading at more than $ 300 recently, TV analyst Jim Cramer called from his sickbed to beg traders to sell. “You won,” he said. Those who followed the advice made money. Those who have not lost billions.
You have no profit until you sell an asset and have money in your pocket. I had a big paper gain in Bed Bath & Beyond (NASDAQ:BBBY) during his rise, but it only became a real gain when I sold my shares. I like the company, but you should never fall in love with your actions.
If you make a profit at Sundial, accept it. Even if you like the company, you will have another chance.
At the time of publication, Dana Blankenhorn did not hold shares, directly or indirectly, of any of the companies mentioned in this article.
Dana Blankenhornhas been a financial journalist since 1978. His latest book isBig Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, technology essays available at the Amazon Kindle store. Ffollow him on Twitter at@danablankenhorn.