There is a golden rule in investing that you should never invest in a penny stock. Penny stocks sell for pennies for a reason; the companies behind them are usually garbage. There is also a saying that if a stock was selling for pennies in the last 52 weeks, even if it is no longer selling for pennies but it is under five dollars then by rule, it is still a penny stock.
In the last 52 weeks, Sundial Growers’ stock (SNDL) has hovered between 14 cents and $1.70. Currently it is selling for $1.10 which means it is essentially a penny stock. So why are we saying that a penny stock is the best option in the marijuana space to invest in?
Up until last week, Sundial Growers was a major concern on whether the company had enough money to survive the next six months. Thanks to the recent fiasco involving Robinhood, Reddit and Game Stop; Sundial Growers got caught up in the mix and whether miraculously, coincidentally or purposely. They were thrown a lifeline just in the nick of time.
While Sundial Growers did not enjoy the huge gains as Game Stop of even AMC, their stock price raised enough for the company to raise some much needed funds.
The company said it would seek to raise roughly $74.5 million from the sale of shares and warrants. The offering is expected to close on Feb. 4. The sale comes on the heels of another $100 million share offering that Sundial closed earlier today.
Sundial said these offerings will boost its cash reserves to roughly $615 million. Management also hinted that the cannabis company could be on the hunt for new acquisition targets.
“Sundial’s current balance sheet and liquidity enable management to focus on delighting consumers while providing significant optionality to participate in North American consolidation,” Sundial CEO Zachary George said in a press release. “We are grateful for continued investor support as we pursue attractive capital allocation opportunities within the emerging cannabis industry.”
Normally it is not good when a company issue more stocks to raise money on the public market as it dilutes the shares of the current stock holders. In the case of Sundial Growers, it might seem really bad as the company now have a whopping 1.5 billion (yes, billion with a ‘b’) shares outstanding.
So why potential investors should not be too concerned about the high number of shares outstanding? The last few trading days the company has been trading volume has been over a billion shares a day or close to a billion. Today 954 million of its shares changed hands and the average daily volume is 420 million. So even though the float is high, the trading volume is equally high; plus with a low price of $1.10 per share it would be easy to do a reverse split to lessen the float and increase the stock price.
With $615 million worth of cash in its coffers and major marijuana reform getting ready to take place in the United States, Sundial is sitting in a very great place.