Why Sundial Growers Stock Moved Up Today

What happened

Shares of Canadian cannabis company Sundial Growers (NASDAQ: SNDL) were on the move Tuesday morning. After popping nearly 6% early, Sundial shares were holding on to a 3% gain as of 10 a.m. EDT.

So what

Sundial issued a press release today related to its investment in The Valens Company, a Canadian cannabis products and processing services company. Sundial has previously been invested in Valens, but according to today’s release it now holds a 10% stake. The release is just a disclosure filing required under Canadian financial regulations, but it highlights the business strategy widely followed Sundial Growers will use going forward.

Image source: Getty Images.

Now what

The so-called “early warning report” filing requirement is meant to ensure market participants are aware of a significant accumulation in a security. Sundial said it added 100,000 shares last week to its existing holding of Valens, bringing its ownership to 10%. The shares have been purchased at an average cost base of approximately $2.08 per share, compared to a recent share price of about $2.49.

What’s most significant for Sundial investors, however, is the company’s new strategy, which includes both a cannabis segment and an investment segment. During the first half of 2021, the company issued more than 1 billion new common shares to raise capital for use in making cannabis-related equity investments. The company said those investments generated about 75% as much revenue as Sundial’s cannabis operations revenue in the second quarter ended June 30.

Existing shareholders were significantly diluted as the company issued new shares to raise capital to turn the business profitable. Management has pivoted to utilizing a parallel investment approach with its cannabis business. Investors will need to carefully watch that segment knowing it will play a large role in how the overall company — and its stock — performs going forward.

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Howard Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Valens Company Inc. The Motley Fool recommends The Valens Company Inc. The Motley Fool has a disclosure policy.

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