Sundial vs Tilray: Consolidation in the cannabis space

0
Sundial vs Tilray: Consolidation in the cannabis space
<a href="https://pixabay.com/users/TerreDiCannabis_/">TerreDiCannabis_</a> / Pixabay

Investors have been eagerly piling into Tilray since the merger with Aphria was announced, and now one analyst suggests Sundial Growers could make an acquisition. There’s a lot of consolidation among cannabis companies right now, so speculations about additional M&A from Sundial don’t come as a huge surprise after Tilray’s merger with Aphria.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q4 2020 hedge fund letters, conferences and more

Will Sundial Growers make an acquisition like Tilray?

In a note today, Cantor Fitzgerald analyst Pablo Zuanic initiated coverage of Sundial Gowers with a Neutral rating following a 21-fold increase in its stock price since late October when it bottomed out at 14 cents. He noted that the company's fundamentals are still mixed, but it has been losing market share, according to the latest scanner data.

GrizzlyRock: Long Thesis For This European Travel Company [Q1 Letter]

TravelGrizzlyRock Value Partners was up 16.6% for the first quarter, compared to the S&P 500's 5.77% gain and the Russell 2000's 12.44% return. GrizzlyRock's long return was 22.3% gross, while its short return was -2.9% gross. Compared to the Russell 2000, the fund's long portfolio delivered alpha of 10.8%, while its short portfolio delivered alpha Read More


Further, Sundial's third-quarter net sales fell 36% sequentially and 54% year over year, but despite that, its stock price is up significantly. Because of the rapidly rising stock price, the cannabis producer was able to raise equity and convert warrants and debt, boosting its cash holdings to about C$700 million (US$553.5 million) at the end of February from about C$26 million at the end of September.

Zuanic believes all that cash puts Sundial in a good position to acquire smaller companies "that have developed solid niches in parts of the Canadian market or overseas." He thinks the company is searching for opportunities and could trigger defensive M&A among other firms. Zuanic suggests the HEXO and Zenabis merger is one such example.

The analyst believes Sundial's stock is just too high right now, so he doesn't recommend that investors buy shares. He has a price target of $1.15 per share on the company.

What about Tilray?

Tilray's pending merger with Aphria will create the world's largest cannabis producer, making it much larger than Sundial. Tilray stock surged from $9 to almost $70 in early February, rising sevenfold in just a few weeks. InvestorPlace notes that now a month later, the shares have fallen nearly 70% from those highs. The site argues that it's no surprise that Tilray and Aphria have been underperforming in recent weeks.

Growth stocks like cannabis names haven't been doing well due to rising bond yields and inflation expectations, which have investors rotating into value stocks. InvestorPlace argues that while U.S. legalization of marijuana would be a big deal for Tilray, vertically integrated companies based in the U.S. are likely the ones that will outperform their international counterparts.

As the law currently stands, Tilray would have to produce cannabis in the U.S. to be able to sell it here. Other companies have a huge head start on Tilray and Aphria in this area.

No posts to display