What happened
Amid turmoil in the market driven by fears about inflation and rising interest rates, shares of Sundial Growers (SNDL -8.76%) fell 8.8% on Monday against a backdrop of the S&P 500 falling by nearly 3.9%.
As investors spooked by the potentially deteriorating macroeconomic situation pull out of the market or flee to quality, Sundial is grappling with the dual challenge of being a cannabis stock, a category which the market has treated with disfavor for more than a year, and being unprofitable, which makes it significantly less attractive in turbulent times.
So what
Given that Sundial has so far relied on issuing hundreds of millions of dollars of stock each year to raise cash, the steep decline in its share price means that it’ll be harder to raise as much money with an issuance the next time around. While it could take out some debt if it wants to continue to finance cannabis investments via its SunStream Bancorp division, its cost of borrowing will likely become increasingly unfavorable over the coming months with interest rates projected to keep rising.
And all of that means its new investments will need to perform better to break even, which is a rapidly emerging headwind for its share value.
Now what
Lower share prices will also make it harder for Sundial to expand via acquisitions using its shares as payment, like it did most recently with its purchase of Alcanna. Furthermore, the dip could disrupt the early-stage plan for SunStream Bancorp to eventually be spun off and go public as a business development company. And both of those things will make it harder to grow Sundial’s core marijuana business.
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