Sundial Growers (NASDAQ:SNDL) received a lot of media buzz when Reddit’s WallStreetBets community focused on cannabis stocks in early 2021.
Of course, seasoned cannabis investors warn against the risks of Canada’s cannabis industry. Instead, they recommend multi-state operators in the United States, like Curaleaf Holdings Inc (OTCMKTS:CURLF). In a competition between Curaleaf vs Sundial Growers, are they right?
U.S cannabis sales hit a record $17.5 billion in the 2020 fiscal year, with another $100 billion in illicit sales estimated. That dwarfs the $10 billion per year of sales in the Canadian market. The U.S. market is considered one of the biggest and most important on the planet, and many Canadian operators are struggling to get in.
Of course, cannabis is still federally illegal. It’s a Schedule I drug listed by the U.S. Drug Enforcement Agency (DEA), making it fully illegal across the nation. Cannabis is a lightning rod industry for state vs national rights, and advocates see it as a symbol of freedom.
Which company will be a winner, and which a dried up blunt?
Curaleaf Investment Thesis
Curaleaf is one of the largest multistate operators, with medical and recreational cannabis operations across 23 states. The company has incredible sales numbers and more than doubled its revenue during the pandemic. And it acquired several big companies, like Grassroots and Cura Partners, which expand its brand equity even further.
Because it’s already so large, it should be able to easily scale should federal rescheduling happen. Of course, the company is operating in an expensive space. State cannabis licenses can cost up to $2 million just to apply, and startup costs exponentially increase from there.
Still, the company has deep pockets, with over $210 million in cash raised from its first quarter 2021 stock offering. It has the liquidity needed to remain in operations while continuing to scale. And its acquisitions increase revenue and profitability.
The company has plenty of opportunity coming down the pipeline as several states are poised to legalize cannabis. Companies with an existing market stake are the best positioned to open operations in these states. As new startups run out of money, Curaleaf is there to buy them and gain the infrastructure without the upfront spending.
This makes Curaleaf a great bet for those hoping for exposure in the cannabis industry. But is it better than Sundial?
Is Sundial Growers Stock a Buy?
Sundial Growers struggled to maintain value since going public in August 2019. In fact, the company lost over 90 percent of its IPO price of $13.00 per share over the next year. Even WallStreetBets couldn’t prop the price up high enough, although the Reddit community may be responsible for keeping the company alive in 2021.
Sundial operates in an expensive and crowded market. The company holds about 3.3 percent of the Canadian adult-use cannabis market, making it a market leader. But it’s clearly not ahead by much, and Sundial is a young company.
This gives it plenty of room for revenues to rise, and bullish investors believe it has a good chance at increasing its cash flow. And jumping in now may be a good bet since the initial short squeeze seems to have cooled by Q2 2021. The stock is trading at a reasonable valuation, priced at around $1.00; there’s a significant growth potential.
And the company is debt free, which means future cash flow can be reinvested directly into the business. If it can continue improving its supply chain as it scaled, investors have the potential of seeing big returns on its investments.
But does that mean it’s the best cannabis play?
Is Curaleaf Stock Better Than Sundial?
Many seasoned cannabis investors will remind you that Curaleaf is addressing a much larger market in the U.S. than its Canadian competitor. The multi-state operator’s share prices may not have skyrocketed as much as Sundial in Q1 2021, but it’s a better business comparatively.
With a market capitalization of over $10 billion, it’s the largest U.S. cannabis company with the highest revenue. The company earned $230.3 million in sales in the fourth quarter of 2020 alone, compared to $13.9 million in net revenue from Sundial.
That represents more than 200 percent year-over-year revenue growth and 26 percent growth from the previous quarter. This growth pace is much stronger than Sundial’s, and the company has more opportunity for further expansion ahead.
It owns the lion’s share of the market in eight states, which includes two that recently legalized recreational cannabis. As a result, the company is well positioned to continue dominating in those markets while exponentially increasing sales volume due to a larger crowd of retail buyers.
However, there’s one major pain point Sundial Growers solves that Curaleaf cannot.
Where Sundial Growers Shines
The biggest advantage Sundial Growers has over Curaleaf is that it can list on the Nasdaq stock exchange. Because cannabis is legal in Canada but not the U.S., Curaleaf can only trade on the OTC penny stock markets.
And this makes it harder for U.S. investors to pour their money into any domestic MSO.
Until cannabis is rescheduled and legalized on a federal level, no American cannabis companies can be publicly listed. The SEC simply won’t allow investments into illegal businesses. And that’s a big problem for Curaleaf, as you can’t invest directly from popular brokerage apps like Robinhood or Fidelity.
Sundial could be the better investment simply because it’s the only one available to you.
Curaleaf vs Sundial Growers Stock: Conclusion
Curaleaf and Sundial Growers are major players in their respective cannabis markets. They are multi-billion-dollar companies with streamlined supply chains and growing revenues. Although Curaleaf is growing at a much faster pace, it’s located in the U.S., which is a double-edged sword.
Federal laws still consider cannabis a Schedule I drug, and that means the American MSOs can only trade as penny stocks. This puts a lot of risk on potential investors, especially since there’s no guarantee the U.S. will ever decriminalize. Because of this, Sundial Growers may be the safer investment, as it’s less likely to go to zero in a legal country.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.