SNDL just admitted it’s meme stock
from Canada SNDL (SNDL -3.47%) was no doubt familiar to many of you for years as sundial makers. Chances are you also consider SNDL more of a cannabis business than anything else.
There are changes afoot, however, and not just in the name of the company. Cannabis hasn’t been SNDL’s only focus lately. In effect, the company may be focusing on another substance that requires a license to sell, even if some retailers are unaware of it.
Speaking of which, SNDL management recently acknowledged the retail crowd, even to the point of crediting them with the longevity of the business. This might be a startling admission to some, but if the same-stock shoe fits, SNDL might as well wear it with pride.
What’s in a name anyway?
Whatever you do, don’t call Sundial Growers again – or at least not in the presence of CEO Zach George.
He says the original name and identity “become less relevant”, while the “new SNDL brand better reflects our business activities and the undeniable impact that the support of retail investors has had on our survival and our ability to build from Canada largest private sector distribution platform for alcohol and cannabis.”
There is a lot to unpack from this statement. First of all, it’s not every day that a company’s CEO refers to their own “survival” in a quarterly earnings press release. Beyond that, however, it’s worth noting that George seemed to credit the retail crowd with SNDL’s viability as a going concern. He’s not exactly a “monkey” leader like AMC Entertainment Holdings‘ Adam Aron, but George at least gave the memes a thinly veiled shoutout.
Another piece of information from this quote (albeit a subtle one) is that George mentioned alcohol before cannabis. It’s probably not accidental, as the CEO did it twice during the press release. Additionally, SNDL’s Q2 2022 data does indeed indicate that the company’s primary cash cow is now alcohol, not pot.
During this period, the gross turnover of SNDL Liquor Retail was $148.6 million, more than the combined gross revenue from its cannabis retail sales ($63.5 million) and cannabis cultivation and production ($15.4 million). And before you assume that SNDL is primarily a grower, consider that SNDL suffered a net loss of $8 million in the second quarter of its Cannabis Cultivation and Production segment.
New, but not necessarily improved
Overall, the rebranded SNDL’s second quarter of the year provided plenty of material for bulls and bears alike. In the bullish column would certainly be the company’s record net sales in the second quarter of $223.7 million, up 2,344% year-over-year. Another corporate record was set when SNDL recorded a gross margin of $43.1 millionup 1,627% from a year ago.
For some cautious investors, however, the bottom line will always be the bottom line. So they won’t particularly like SNDL’s net loss of $74 million, which is 41% larger than the year-ago quarter. $52.3 million net loss. In the same vein, SNDL’s adjusted EBITDA loss worsened by $200,000 in the first quarter of 2022 to $25.9 million in the second quarter of 2022.
This is not to trivialize the spectacular growth in SNDL’s turnover, but to put it into perspective. As George admitted, despite the company’s “encouraging results”, there is “still room for improvement”.
The sharp increase in quarterly revenue, however, could be misleading/distorted at the surface level, as it appears to reflect the addition of $148.6 million from a liquor retail segment that did not exist a year ago. earlier. There is also $63.5 million in revenue from a cannabis retail segment which, again, was zero in the prior year quarter. Regarding SNDL’s loss of pre-tax profits in the second quarter of 2022, $7.9 million is attributable to Cannabis Retail, while Liquor Retail almost compensated for this with a profit of $7.2 million and Cannabis Retail provided a small quarterly profit. In other words, SNDL is clearly not losing money selling alcohol.
It’s fine to make a small speculative investment in SNDL as long as you know what you own and, more importantly, what you don’t. And what you don’t own is a stake in a profitable cannabis-focused business.
What you might own, however, is a promising “sin” stock, a stake in a powerful income generator, and (most likely) a stock of memes. Call it a bet if you like – but please don’t call it Sundial Growers.