Cannabis stocks have been trading higher since October after bullish news was reported about federal marijuana legalization in the US. Some of the major sector ETFs, including AdvisorShares Pure Cannabis (see below), have risen rapidly.
Two of the most talked about cannabis stocks on Reddit’s main forums are Tilray (TLRY) – Get the report from Tilray, Inc. and sundial (SNDL) – Get the report from Sundial Growers Inc.. As retail investors try to capitalize on the momentum, we ask ourselves: what could be your best pick today, Tilray or Sundial stocks?
Cannabis sector on fire
The current upward momentum has been motivated by the recent legalization news. A bill drafted by South Carolina Rep. Nancy Mace to regulate cannabis could legalize the substance in the United States. Amplify Seymour Cannabis’ ETF portfolio manager weighed on the news:
I[It’s] huge news for a market that wasn’t expecting rescheduled dates or a federal outcome. “
Third-party data suggests the legal cannabis market will hit an impressive $ 91 billion by 2028, an impressive 26% CAGR. As medical cannabis becomes more legal around the world, further legalization can be the main catalyst to fuel product demand.
Tilray has a clear goal: to become the world’s leading consumer goods company focused on cannabis. To achieve this, the company has made important acquisitions since December last year. The biggest corporate deal was the merger with Aphria.
Since then, Tilray has positioned itself as the leader in Canada and has launched its long-term global leadership plan. In addition to better market positioning in North America, the merger of Tilray and Aphria was an attempt to gain a foothold in Europe and achieve economies of scale.
Tilray also bought the cannabis company MedMen Enterprises a few months ago, which has 24 retail locations in six US states. The investment was also aligned with the company’s daring goal of market leadership. CEO Irwin D. Simon said:
“The investment we are announcing in MedMen securities, one of the best-known brands in the $ 80 billion cannabis market, is a critical step in achieving our goal as we work to help Tilray lead the US market allow if legalization allows. “
Developments in sundials
Sundial posted net income of CAD 11.3 million for the third quarter, which is impressive given that profits in the cannabis space are still a rarity. On the flip side, the company missed sales expectations by $ 1.93 million.
The more important news that sparked the euphoria among shareholders, however, appears to have been the announcement of a $ 100 million share buyback program. Investors have grown used to the dilution of equity as outstanding shares have increased more than 2,000% since the company went public two years ago.
The buyback program became a hot topic on Reddit’s main forums. This is justified given that the planned $ 100 million buybacks at the time represented nearly 10% of SNDL’s market cap of just over $ 1 billion. The buyback could help concentrate profits in the hands of a few shareholders and possibly support the share price.
Dynamic aside, Sundial’s management team believes the company is on track to create shareholder value. According to CEO Zach George, the strength of the balance sheet “enables” it [the executive] Team to avoid short-term pressures while working to improve the quality of our decision-making ”. He believes that meeting Sundial’s financial goals in 2022 should result in positive free cash flow.
Which is the best?
Both TLRY and SNDL have benefited from retail investor euphoria and Reddit’s popularity. A bigger company than Sundial in terms of market value, Tilray is already a major player in the cannabis space.
Additionally, TLRY is one of the most relevant positions in cannabis ETFs, including YOLO and MJ, with allocations of 5% and 8% respectively. Hence, TLRY stocks can determine the rate of return on cannabis stocks more than their peers.
On the other hand, Sundial has significant growth potential if it can catch up and become a major name in the industry. The biggest problem so far has been stock dilution, but the recently announced buyback plan may alleviate those concerns.
Based on its positioning in the industry and the size of its market cap, SNDL could be the more volatile stock traders like the most. TLRY, on the other hand, could be the cannabis “blue chip” that long-term investors may be more drawn to.
Cannabis stocks are all the rage lately. What is your favorite stock pick between Tilray and Sundial?
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(Disclaimers: This is not investment advice. The author may be one or more of the stocks mentioned in this report. The article may also contain affiliate links. These partnerships do not affect editorial content. Thank you for supporting Wall Street Memes)