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Better Buy for 2022: Sundial vs. Canopy Growth

In this article I will analyze and compare Sundial Growers (SNDL) and Canopy Growth (CGC) to determine which cannabis stock is currently the better investment.

The cannabis market continues to be highly volatile due to investors' concerns about growing competition and negative margins. The ETFMG Alternative Harvest ETF (MJ) returned to its January highs of about $11.40 in mid-March, but has since given back those gains since then, sinking 18% year-to-date (YTD).

However, the increasing worldwide cannabis legalization pace should enable the global cannabis market to grow at a CAGR rate of 32.04% between 2021 and 2028 to hit $197.74 billion in the terminal year, Fortune Business Insights reports.

With that in mind, today I will analyze and compare two cannabis stocks, Sundial Growers Inc. (SNDL) and Canopy Growth Corp. (CGC), to determine which company is a better buy for the rest of the year. 

SNDL is a Canada-based cannabis company that produces and sells cannabis products such as flowers, pre-rolls, and vapes. CGC produces, distributes, and sells cannabis and hemp-based products for recreational and medical purposes, primarily in Canada, the United States, and Germany. The company operates across two business segments: Global Cannabis and Other Consumer Products. 

YTD, shares of Sundial are down 2.5%, while CGC has plunged 21% over the same period.

Recent developments 

On March 22nd, Canopy Growth announced positive results from the trial using cannabis to treat menstrual symptoms. The company's six-month, randomized clinical trial revealed that cannabidiol, or CBD, considerably decreased menstrual-related symptoms over the 6 months relative to a one-month baseline. Moreover, the higher dose of 320 mg of CBD was also efficient, substantially reducing irritability and stress over the same period.

Recent Quarterly Performance 

Sundial Growers last revealed its third-quarter earnings report on November 12th. The company's net revenue grew 11.65% year-over-year to C$14.37 million in the third quarter, missing Wall Street estimates by C$2.43 million.

Besides, the company’s net income came in at C$11.3 million, well above its year-ago net loss of C$71.4 million. Sundial Growers' Adjusted EBITDA from continuing operations has been reported at C$10.5 million in 3Q21 compared to a loss of C$4.4 million as of 3Q20.  

On February 9th, Canopy Growth reported earnings for the third fiscal quarter of 2022. In FQ3, the company's net revenue decreased 7.5% year-over-year to C$141 million, beating Wall Street estimates by C$5.21 million. The revenue drop was due to a decrease across CGC's Canadian recreational and medical business, which was partially offset by revenue growth in other consumer products segments and revenue increase related to acquisitions. Also, Canopy Growth disclosed GAAP EPS of (C$0.28), topping expectations by C$0.04.

The company’s Adjusted EBITDA loss came in at $67 million, representing a $1 million improvement compared to a year-ago value, primarily driven by the decrease in total SG&A expenses.

Liquidity Position & Analysts' Estimates

As of September 30th, 2021, Sundial Growers had cash on the balance of C$629.14 million and C$119.64 million in marketable securities while holding a total debt of C$24.54 million. As of the nine-month ended September 30th, 2021. SNDL's cash burn rate increased to C$160.91 million in Q3, up from C$42.25 million in a year-ago period. However, the current cash on hand should be sufficient to maintain the company's operations for at least the next 12 months. 

For the fourth quarter of 2021, the analysts expect SNDL's EPS to stand at ($0.01). Also, a $14.03 million average revenue estimate for the fourth quarter implies a 26.79% year-over-year growth.

Canopy Growth's total cash position stood at C$1.4 billion, while its total debt came in at C$1.5 billion as of December 31st, 2021. In addition, the company's cash burn rate increased from C$87.6 million to C$167.38 million as of FQ3FY22. Based on that, I expect the company's cash on the balance to be sufficient to meet its obligation and perform business activities for the next 12 months.

Wall Street expects CGC's earnings to grow 78.53% in the fourth fiscal quarter of 2022 to ($0.29) per share. However, analysts forecast that its FQ4 revenue will deteriorate 22.93% YoY to $106.86 million.

The Bottom Line 

In my opinion, SNDL is currently a better long-term buy than CGC. While both companies should benefit from the long-term industry growth, SNDL's financials, liquidity position, and forward growth rates look relatively better.

SNDL shares were trading at $0.59 per share on Tuesday morning, up $0.02 (+3.83%). Year-to-date, SNDL has gained 2.02%, versus a -6.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.


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