Sundial Growers Stock Is Going Nowhere Without This Ephemeral U.S. Legalization

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Sundial Growers (NASDAQ:SNDL) stock represents one of the many publicly traded companies that has attracted immense interest on various social media platforms and it’s not hard to see why.

sndl stock Sundial Growers company logo icon on websiteSource: Postmodern Studio / Shutterstock.com

Featuring a diverse product line that incorporates premium ingredients and caters to a wide audience, Sundial is far removed from the underlying sector’s stereotypical image.

Therefore, SNDL stock seems like a reasonable wager.

However, cannabis has become a highly competitive market. Further, with legalization in Sundial’s home market of Canada, along with federal approval of hemp or cannabidiol (CBD) products in the U.S., the barrier to entry is very low. After all, growing weed isn’t rocket science — not that I would know or anything. So, SNDL stock must carry distinguishing features or risk getting lost in the crowd.

Unfortunately, if the market’s response to Sundial’s second-quarter earnings report is anything to go by, it could be a long winter for SNDL stock.

On the positive front, the company posted a net loss of 52.3 million CAD, an improvement from the loss of 60.4 million CAD in the year-ago level.

But then, net revenue came in at 14.86 million CAD, with sales from the cannabis segment contributing 9.15 million CAD. However, this was below analysts’ consensus expectation calling for 9.43 million CAD. Predictably, Wall Street wasn’t too pleased, with SNDL stock dropping more than 5% on the extended session following the Q2 disclosure.

While management stated that excluding an asset impairment charge for one of its facilities, Sundial would have generated net income of 7.7 million CAD, here’s the harsh reality: nothing in its books so far suggests that it’s anywhere close to being consistently profitable. Therefore, SNDL stock is all about growth potential.

So if it’s missing revenue expectations (no matter how slight), that’s an outsized problem.

More Worries Ahead for SNDL Stock

Still, ardent bulls of SNDL stock will likely brush aside the volatility. From their perspective, lower prices simply provide an opportunity to get more shares at a discount. Besides, Sundial carries the potential of full legalization in the U.S. market.

“Basically, Sundial’s home country of Canada is only so big. To really succeed, it needs to expand out of that domestic market” InvestorPlace contributor Stavros Georgiadis explained. “To that end, there has been some news which could prove fruitful for Sundial and its stock. Specifically, Senate Majority Leader Chuck Schumer recently “proposed legislation to legalize marijuana at the federal level.”

That’s the good news. But as Georiadis later stated, “Despite introducing legislation, the when of U.S. legalization is still unknown. Maybe legalization will happen, but no matter what, it’s unlikely to happen any time soon.”

Of course, the counterargument is that Democrats control the House and the Senate, albeit by the slimmest of margins for the latter. Also, President Biden is a Democrat. It seems like a can’t-lose proposition for SNDL stock.

Admittedly, I’ve felt that a Biden administration would be helpful toward an eventual road of full acceptance. Now, I’m not so sure. You see, Biden is getting up there in age. Presumably, a man of his years starts thinking about his legacy more so than a younger person.

Let me ask you, is marijuana legalization really something that he wants as part of his lasting legacy? Did you see the size of his family Bible during the inauguration?

As for the Democrats holding power, most of them are younger than the president and may not be thinking about legacy, but they are thinking about reelection. In a heavily disputed political landscape, one can’t be too polarizing.

Sundial Is a Fourth-and-Long Play

Frustratingly for botanical advocates, I don’t think we’re going to get federal legalization of cannabis. It’s too much of a political hot potato. Instead, politicians can gain cannabis users’ votes by waxing poetic about criminal justice reform.

But full legalization? Especially when the nation is dealing with an opioid crisis? I think the moral argument of personal liberties outweighs objections, but actually changing the course of history is a risk that probably many Democrats don’t want to take.

Therefore, legalization is a political punt — just boot it as far away as possible. But that also puts SNDL stock in a rough spot.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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