Pot stock, one of the hot trends of 2018, is back in fashion. So do stocks with low market capitalizations. So do stocks with high short-term interest rates. Solar Growers (NASDAQ:SNDL) are all three of these things, and have therefore become a Reddit play. That is, retailers at sub-Reddit r / WallStreetBets banded together and bought SNDL shares, along with out-of-the-money call options.
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They like it to be debt free. They like pressure from Democrats to declare pot legal nationwide.
And they did not even stop when Sundial sold even more shares, bringing the share to 1.5 billion at the beginning of February. Shares worth 56 cents on Jan. 26 were up nearly $ 4 at the start of trading on Feb. 11.
If I were one of the lucky January holders, I would call myself a lottery winner and pay out my money.
Why sell
There are good reasons to sell SNDL shares.
First, there is legal backlash on legalization. The Senate in Idaho has approved a constitutional amendment against marijuana. Other countries are pushing for legalization to increase revenue, ignoring the fact that regulated sales cannot compete with retailer McDope.
Senate Majority Leader Chuck Schumer needs 60 votes to overcome a filibuster. Even supporters of his bill call it “a heavy lift”.
Then there is the fact that Sundial is a small player in a big game. The company’s sales are still below $ 100 million, while market capitalization is now $ 3.6 billion. There are scale competitors such as Roof growth (NYSE:CGC), backed by liquor giant Constellation Brands (NYSE:STZ), and Cronos (NASDAQ:CRON), backed by tobacco giant Altria (NYSE:MO).
None of this stopped the Redditors. Sundial is now one of the top 10 purchases Robin Hood, the ‘free’ stock trading app that makes money by ordering it.
What happens next
I have to turn my hat in front of the Sundial management. They take full advantage of the Redditors to raise money. It reminds me of the 19de century Erie war, but it was a struggle for control of a real railway. It’s a pure cash grab.
Some of what happens smells like things other than marijuana. Our own Mark Hake wrote in January about a large loan to Zenabis Global (OTCMKTS:ZBISF), another pot producer, who he said would most likely fail.
Equity values fell after the latest capital increase, but it has since returned despite a lack of news. After falling from $ 1.25 to $ 1 on February 4, the SNDL stock closed at almost $ on February 10 and rose another $ 1 overnight.
Writers were unanimously in doubt about the move. One wrote that the recent gains “should frighten” shareholders because they are not based on anything real. A Forbes contributor clearly stated: do not buy.
I did find a bull case from our Craig Adeyanju, which was released when the stock was trading at $ 1.70 per share. He focused on the prospects for legalization, a relatively low price-to-sales ratio and the company’s cash increase. He said it could make an attractive acquisition.
Maybe at $ 1.70. Not at $ 4.
The core of SNDL shares
When Game stop (NYSE:GME) recently traded more than $ 300, TV analyst Jim Cramer called in from his sickbed to beg traders to sell. “You won,” he said. Those who adopted the advice earned money. Those who have not lost billions.
You have no profit until you sell an asset and have cash in your pocket. I had a big paper profit in Bed bath and beyond (NASDAQ:BBBY) during its rise, but it only became a real profit when I sold my shares. I love the company, but you should never fall in love with your shares.
If you have a profit in Sundial, take it. Even if you like the company, you will still get a chance.
At the time of publication, Dana Blankenhorn did not hold any shares, directly or indirectly, in any of the companies mentioned in this article.
Dana Blankenhornhas been a financial journalist since 1978. His latest book isBig Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle Store. Fallow him on Twitter at@danablankenhorn.