There’s an obsession with Sundial Growers (SNDL) among traders. The stock is up 140% year-to-date and I think the only reason is because it is a low-priced cannabis name that can be traded across all brokerages.
Traders see it as “cheap” despite its billion-dollar market cap. This is the same company that was sued because it failed to disclose it had product returned to it because it contained mold and bits of rubber gloves.
I often made fun of Aurora Cannabis (ACB) for issuing shares like they were candy. Sundial Growers is becoming the “hold my beer” response to Aurora. Drowning in debt, Sundial has used every pop in its stock to issue more and more shares. They’ve broken the billion count and I’m not sure there’s an end in sight.
The company is transitioning from wholesale cannabis to retail, but this is hardly unique in the industry. In fact, Sundial is way behind many competitors in this regard. It hit them hard as net sales recently declined 46% year over year.
Maybe the Twitter guru leading you to this stock won’t admit it, but in my view it’s a pump and dump. Ironically, this may ultimately save the company as they have a stronger balance sheet but with a valuation now well over $1 billion there are much better places an investor can put their hard-earned cash, whether they want an aggressive or a moderate name.
Village Farms (VFF) should arguably the top name on everyone’s list when swapping something in place of Sundial. The fact these companies have the same market cap is absolutely ridiculous. Village Farms offers the lowest cost of production, owns 100% of Pure Sunfarms, owns a huge greenhouse in Texas ready for CBD production when legal, and has an international reach. They also have 3x times the sales of Sundial, they’re cash flow positive, and profitable. Now tell me again why your guru has you buying Sundial?
Buy a multi-state operator. Which one? Almost anyone. Illinois-based Cresco Labs (CRLBF) sits at the top of my list. At a roughly $5 billion market cap, you’re getting the king of Illinois cannabis. Spread across nine states with 15 production facilities and 20 dispensaries, Cresco has one of the largest footprints in the U.S. They reported over $150 million in revenue in the last quarter alone along with profitability.
Trulieve Cannabis (TCNNF) is another alternative. Revenue of $136 million in the third quarter came in just below Cresco, but the Florida-concentrated cannabis company produced stronger EBITDA. And I wouldn’t fault anyone for going with Green Thumb Industries (GTBIF) or Curaleaf Holdings (CURLF) .
The easiest thing to do would be to buy the Advisorshares Pure U.S. Cannabis ETF (MSOS) , which will get you all of the above stocks plus another 25.
For those folks who want to stay in the aggressive lane, two smaller considerations are Juva Life (JUVAF) and Cybin (CLXPF) .
Juva
Juva is a vertically integrated cannabis company in California. Its CEO actually received the very first license granted in the state. While cultivating, processing, and selling cannabis to through retail and distribution will make for a nice revenue stream, Juva is taking the road less traveled, which should result in huge returns for shareholders in the future.
Juva will combine IRB-approved patient research investigations with testing along with verifying product integrity through a network of doctors and clinics along with its own $5 million Class 5 clean room.
This won’t lead to phase I trials with the FDA. Instead, Juva will gather loads of patient-reported data. These patient-reported outcomes per Juva-formulated precision cannabis products will allow the company to show that X produced used by Y patients generated Z responses/outcomes. The most common target/goal for Z is a reduction of a symptom by a specific percentage.
For instance, say I reported a daily pain level of 7 on a scale of 1 through 10 before I started using a specific dosage/precision Juva cannabis formulation. Then, after using that product for three weeks, I reported a new pain level of 2 on that same scale, something worth nothing. Now imagine if 10 people or 100 people or 1,000 people reported similar results. No, Juva can’t make a medical claim, but they could say something like, “Well, Mr. or Ms. Patient, 85% of the people with similar symptoms as you reported a reduction of pain using this specific strain of cannabis.”
The short-term result: Working with doctors, Juva can steer customers in the direction of strains based on user-reported results. The long-term hope is that physicians will be more likely to adopt recommending cannabis based on real-world patient data.
With every patient report, Juva’s data set grows, and we know how valuable data are in today’s world. This will help it build a marketable and valuable medical database. It could appeal to others in the cannabis world to partner with Juva and piggyback on the idea. Since big pharmas won’t risk studies or trials until a federal path is clear, the data they can obtain from Juva would give them a huge head start against competitors when the path is clear. The current targets of study for Juva right now revolve around inflammation, oncology, neurology, pain management, and opiate reduction. Any possible replacement for opioids would be a huge benefit to society and a huge financial risk to big pharma.
Cybin
If Juva is the road less traveled, Cybin is the new road being built. Cybin doesn’t operate in the cannabis space but rather in the next evolution of drug treatment, psilocybin. But we aren’t talking about recreational use. Management views themselves as a life sciences firm. The company’s current focus is on developing treatment regimens consisting of proprietary psychedelic molecules and developing their delivery mechanisms, such as the firm’s proprietary sublingual film and inhalation delivery system.
Recently, the company announced it would raise C$20 million. When the deal closed, they brought in over C$34 million, strengthening an already strong balance sheet to one with over US$40 million on the books. And they are going to put this cash to work.
According to Cybin, the company intends to sponsor a Phase 2a & Phase 2b Clinical trial in patients with Major Depressive Disorder (MDD) later this year. The trial will be conducted through the University of West Indies (UWI) and will abide by International Conference on Harmonization (ICH) and Good Clinical Practice (GCP) guidelines. By doing so, Cybin can use the data collected as a bridging strategy to enter other jurisdictions such as the U.S., Canada, and Europe.
If one of these cannabis companies were smart, they would snatch up Cybin before it becomes too expensive. With a market cap of only $300 million, I expect this will reach $2 billion before Sundial does.
If Sundial were smart, they’d reach into that share candy jar and offer Cybin $500 million to $700 million right now and make themselves into something that can compete against all the names above. Until then, I’d feel far more comfortable owning a mixture of VFF, MSOS (or a few individual MSO names), and either JUVA or CLXPF long before I hold a share of SNDL for longer than a scalp trade.
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