SNDL Reverse Split: Sundial Growers Inc Announces 10:1 Reverse Stock Split to Avoid Delisting.

SNDL Reverse Split: Sundial Growers Inc Announces 10:1 Reverse Stock Split to Avoid Delisting.
SNDL Reverse Split: By March 2020, the stock was trading below $1, and hence it was a more than 90% fall in just nine months of trading for SNDL.

Various stocks have seen the wrath of the current bear market and are down by more than 50% in the last six-twelve months. Sundial Growers Inc is no exception. The stock has corrected more than 54% since the start of the year. Worse is that it has fallen 97.86% since its IPO on August 2, 2019. This kind of stock performance erodes investors’ wealth.

Sundial is a Canada-based cannabis supplier and the stock performance indicates the underlying problems in the company and the cannabis market. This poor performance led the company to go for a reverse split. In this article, we will talk about the reasons and effects of the reverse split, and whether the split makes Sundial Growers a buy or not.

SNDL Reverse Split: Facts About the Reverse Split

On 25th July 2022, Sundial Growers Inc called a special meeting to discuss a number of agendas, among which approval for a reverse split was one of the topmost priorities. Before, discussing the outcome of the meeting, it is important to note the performance of the SNDL stock over the last couple of years. SNDL went public in August 2019 at a share price of $104.50. Since then, it has been a one way move for the stock and the price kept coming down like a free fall.

By March 2020, the stock was trading below $1, and hence it was a more than 90% fall in just nine months of trading for SNDL. It went on to touch the lower ground and fell to 10 cents by October 2020. It was the lowest price since its debut. It recovered a bit by February 2021, to trade at $2, but the jump was futile, as in a couple of months afterward, it again began trading below $1 by April 2021. Fast forward the time to July 2022, the share price further fell down to 30 cents just before the meeting scheduled on 25th July 2022.

Now, as per Nasdaq rules, a stock needs to trade above $1 for ten consecutive days to remain listed on the exchange. As SNDL price was constantly trading below $1, it had the fear of getting delisted from the Nasdaq exchange. The company was given an extension on the previous two occasions to get the price above $1 and August 8 was the last date for the company to meet the deadline, or either get delisted from the exchange. Based on the support of meme traders, only a miracle could have saved the share, but this time, in the current bear market, the company did not get support from frenzy traders.

The reverse split was one of the least bad choices for the company as in the case of delisting, shares will be limited to over-the-counter (OTC) trading in a decentralized market. OTC trading has its own drawbacks and OTC trading carries default risks, as well as a lack of transparency due to very less liquidity and a large difference in bid-ask price. All these factors would have made trading in SNDL very difficult.

Due to this 1for 10 reverse split, the number of outstanding shares has gone down by a factor of 10. Prior to the split, there were 2,379,931,190 common shares outstanding which is reduced to 237,993,119. The record date to participate in the share consolidation was July 25th, 2022. The resolution was passed by 72% votes in favor and 28% against share consolidation.

SNDL Reverse Split: Other Agendas Passed at the Meeting

Along with the approval of the reverse split, there were a number of other resolutions also passed in the special meeting. Firstly, shareholders approved a change of name of the company from Sundial Growers Inc to Sundial Inc. The resolution was passed with 89% votes in favor. The company will provide more details about rebranding at the time of the second financial quarter result in early August 2022. In addition, all the five board members, including Chairman, Greg Mills are reelected to the panel. Each board member received 79-89% votes for the reelection.

SNDL Reverse Split: Effects of Reverse Split and the Way Forward

The reverse split is never taken in a good spirit in the market. It has been observed that almost all the stocks going for a reverse split see a plunge in the share price after the split. The reason is simple, the reverse split is kind of the last sort to save the drowning share price. Sundial also initiated a reverse split to avoid delisting. It tells that there is something fundamentally wrong with the company and hence the share price is seen falling from the hill, and a reverse split is kind of last support to catch hold of it, but it does not change the reasons, why it started falling in the first place.

For Sundial, the stock has fallen more than 25% post initiating the reverse split. The share price closed at $2.97 (post-split adjusted price) on 25th July, opened lower at $2.77 on 26th July, and went on to close at $2.28 on 26th July. It is still consolidating at that level with the latest share price being $ 2.25 (as of 29th July). The stock is expected to fall more in the upcoming days.

SNDL Reverse Split: Does Split Make Sundial Growers Inc Share a Buy?

For a start, Sundial Growers Inc is down and out. But, is everything that bad? Certainly not. There are a few positives for the company also in the current market situation. For example, the US senate may soon consider putting a bill that will legalize cannabis, as heard from a committee last week. In addition to it, recently three Democratic senators introduced a cannabis legalization bill titled The Cannabis Administration and Opportunity Act. As per analysts, it is only a matter of time, till cannabis is legalized in the United States. It will be a big push for the company and the sales and profits can grow multiple times in case this bill gets passed in the Senate.

In addition to it, big institutional investors are also holding SNDL in their portfolios. During Q1, 152 funds disclosed owning SNDL shares which include companies like ETF Managers Group, D.E. Shaw, Company, and SAF Jackson.

It is true that SNDL has become a penny stock for the last year or so and things are not going to change anytime soon, but the tide seems to be approaching the turn. Cannabis legalization is one of the pivot points for Sundial Inc – their new name. The company will declare the second quarter results on August 11, 2022, and it will be interesting to note if there are any positive signals on the business front or not. Investors should sit on the sidelines at least till the legalization of cannabis in the US market.

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SNDL Reverse Split: By March 2020, the stock was trading below $1, and hence it was a more than 90% fall in just nine months of trading for SNDL.

-Vineet Agarwal

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