Acquisition of liquor business adds value to SNDL stock
It’s been a weird and wild year so far for investors in the Canadian cannabis company Producers of sundials (NASDAQ:SNDL). It appears that SNDL’s stock received the meme stock treatment in mid-February, only to be emptied shortly thereafter.
As we will see, the $ 1 level will be significant for Sundial shareholders. May be Reddit users will start with a short squeeze, but there is no need to sit and wait for this to happen.
SNDL shares can increase in value depending on the evolution and diversification of the company. With this, investors don’t have to pray that an even stock rally will happen.
Indeed, as we take a look at recent Sundial ventures, you may be surprised to see what the company has been up to lately. The company is still a grassroots cannabis business, but expanding its investments could turn out to be a very smart move.
Focus on SNDL’s stock
So let’s talk about how the SNDL action gained the reputation of being a meme action.
In February, Sundial’s share price rose from around $ 1 to a 52-week high of $ 3.96. There was no news-based catalyst that would have justified a price move of this magnitude.
Additionally, meme stock traders tend to target low-priced stocks. Therefore, it’s entirely possible that SNDL action is on Reddit’s crowd radar.
This crowd can be fickle, however. By mid-April, the Sundial share price had fallen back below $ 1, leaving some traders in a difficult position.
It’s not fun to hold the bag, but you shouldn’t give up hope. As SNDL stock is still trading below $ 1, there is a window of opportunity to pick up some stocks before the next rally.
What could precipitate the next big move? Hopefully a few strategic investments could do the trick.
Generate interest income
You might think of Sundial as a cannabis grower, but the company also derives a source of income from loans.
Specifically, Sundial has invested CAD 22 million in a cannabis edibles producer called Indiva (OTCMKTS:NDVAF).
Half of that CAD 22 million was an equity investment, and the other half was a term loan that Indiva would repay with interest.
Additionally, Sundial amended that deal this month by providing an additional C $ 8.5 million to Indiva.
The updated arrangement called for an increase in the interest rate on the loan from 9% to 15%.
This definitely sweetens the deal for Sundial. In addition, there is a provision that â100% of accrued interest is payable in cash and accrued on a monthly basisâ.
With all of this, Sundial is expected to generate monthly interest income of approximately CAD 246,899, which equates to approximately $ 197,519 in US currency.
Of course, that depends on Indiva’s ability to repay the loan with interest, so Sundial investors should stay tuned for further developments on this.
Getting into the alcohol business
Do you consider it a natural progression for a cannabis business to expand into the alcohol market?
If so, you should be happy to hear that Sundial Growers has agreed to acquire Alcanna (OTCMKTS:LQSIF).
Impressively, Alcanna has over 25 years of regulated product retailing experience and is the largest private liquor retailer in Canada.
Additionally, Alcanna operates 171 locations, primarily in Alberta. The company’s retail brands include Wine and Beyond, Liquor Depot and Ace Liquor.
The press release touts Alcanna’s “long-standing alcohol offerings” which are expected to provide Sundial with “a generation of stable cash flow through a mature and proven business model.”
This cash generation would be based on Alcanna’s integrated retail platform, which has a year-over-year free cash flow of $ 16.4 million.
The bottom line
Adding revenues from 171 liquor stores could significantly boost Sundial’s bottom line.
In addition, the new Indiva loan terms are expected to provide a substantial income stream to sundial producers.
With all of that in mind, there is no reason to worry about the SNDL stock, which deserves to be $ 1, and possibly much higher than that.
At the date of publication, David Moadel did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.