SNDL Stock: Why Reddit Play Sundial Growers Is Plunging Today

SNDL Stock: Why Reddit Play Sundial Growers Is Plunging Today

Sundial Growers (NASDAQ:SNDL) has had a handful of impressive trading days. After the speculative cannabis play won over r/WallStreetBets, shares have simply soared, topping out above $1.30. Now though, SNDL stock is falling. What is behind the plunge? And what else do you need to know right now?

For those unfamiliar, the Sundial Growers story has been evolving over several weeks. The tiny cannabis play represented exactly the sort of turnaround that is underway in the industry, especially with Democrats leading the White House and Congress. As Election Day fueled a new wave of interest in marijuana, company growth fueled a new wave of interest in SNDL stock. Confirmation that the company had paid off its debt seemed another guarantee of its success.

Then, r/WallStreetBets became a household name.

Along the way, Redditors and other retail investors took SNDL stock to new heights. Along with GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), the subreddit raised interest in Sundial Growers. Over the last 24 hours, SNDL is a leading WSB stock. Top posts ask “is $SNDL gonna go to the moon???” and call for readers to “buy $SNDL it’s rising.” In fact, because of this interest, Sundial Growers temporarily found itself facing trading restrictions on the trading platform Robinhood.

So with everything going right for Sundial Growers, why are shares plunging today? Biden is in office, and January runoff elections gave Democrats control of the Senate. That should only boost the case for cannabis reform, and possibly legalization, at the federal level. Plus, r/WallStreetBets has shown retail investors just what is possible, and has powered a major rally in popular names.

Well… it looks like today one of the reasons for the plunge is the overall collapse of the Reddit bubble. However, there is one other news item weighing on SNDL.

So what is the news behind the plunge in SNDL stock? Today, the cannabis company announced the closing of a $100 million secondary offering. Essentially, Sundial brought in $100 million in gross proceeds from the deal. After paying necessary fees, the company should walk away with about $74.5 million from the deal. This will bring its balance sheet to $615 million and its total outstanding share count to 1.52 billion.

But what does this really mean for investors? Well, talk of a secondary offering quite often causes panic. The Sundial Growers move is dilutive, and it offered units below its current trading price. However, this does not necessarily mean it is a bad thing. Instead, there is an argument to simply see this as a smart move to leverage new investor interest in SNDL stock. Propelled on by r/WallStreetBets, this could be a great chance to raise cash, shore up its balance sheet and keep pushing for growth. We have similarly seen moves by AMC and Naked Brand (NASDAQ:NAKD) to do the same.

Keep an eye out for more news from Sundial, and more info on how it will put this cash to work. This long-term potential is why contributor Faisal Humayun sees SNDL as an undervalued stock that could soon rip higher.

On the date of publication, Sarah Smith  did not have (either directly or indirectly) any positions in the securities mentioned in this article.