SNDL: Better Buy for 2022: Sundial vs. Aurora Cannabis

The cannabis market was hit hard in 2021 due to the high volatility caused by the negative margins and a speedy increase in competition in the given industry. Consequently, the ETFMG Alternative Harvest ETF (MJ) lost about 36% of its value in 2021.

However, the global cannabis market is estimated to demonstrate a CAGR rate of 32.04% over the next six years, hitting $197.74 billion in 2028. Proven medicinal usage of cannabis and a higher legalization pace worldwide should serve as key growth catalysts for this industry. 

In this article, I will analyze and compare two cannabis stocks: Sundial Growers Inc. (SNDL) and Aurora Cannabis Inc. (ACB), to determine which stock is a better buy for 2022. Founded in 2006, SNDL is a Canada-based cannabis company that produces and sells cannabis products such as flowers, pre-rolls, and vapes. Based in Edmonton, Canada, ACB produces, markets, and sells cannabis and cannabis-related products in Canada and across the globe. Over the past six months, shares of Sundial have fallen about 35%, while ACB stock decreased 32%.

Recent Developments 

On January 6th, Sundial Growers announced that it had revised considerations for the acquisition of Alcanna. Under the new terms, Alcanna shareholders will obtain 8.85 common shares of Sundial and $1.50 in cash for each share of Alcanna. This represents a change from all-stock acquisition to cash and share acquisition mix.

On January 4th, Aurora Cannabis announced that it had made $C10 million medical cannabis shipment to Israel, which is the company’s largest shipment ever. The shipment value will be displayed in ACB’s FY22 second-quarter report. This development emphasizes Aurora’s efforts to expand its global presence. 

Recent Quarterly Performance 

On November 12th, Sundial Growers announced its third-quarter earnings results. Its net revenue increased 11.65% year-over-year to C$14.37 million in Q3. However, the company missed Wall Street estimates by C$2.43 million.

Sundial Growers’ net income has been reported at C$11.3 million, up from its year-ago loss of C$71.4 million. The company’s Adjusted EBITDA from continuing operations came in at C$10.5 million compared to a loss of C$4.4 million as of 3Q2020.  

In terms of Aurora’s financials, its revenue for the first fiscal quarter of 2022, ended September 30th, 2021, decreased 11.1% year-over-year to C$60.11 million. ACB also failed to beat the Wall Street revenue consensus of C$61.45 million.

However, the company significantly reduced its net loss to C$11.88 million in FQ1FY22 compared to its year-ago net loss of C$101.39 million. Besides, its Adjusted EBITDA loss was improved to C$12.1 million, up 79% from the prior-year value of C$58.12 million. 

Liquidity Position & Analysts’ Estimates

As of September 30th, 2021, Sundial Growers had cash and cash equivalents of C$629.14 million as well as C$119.64 million in marketable securities and total debt of C$24.54 million. As of nine-month ended September 30th, 2021, its cash burn rate significantly increased from C$42.25 million to C$160.91 million. Based on that, I would expect the cash on hand to be sufficient for at least 12 months. 

Wall Street expects SNDL’s earnings to grow 85.05% in the fourth quarter of 2021 to ($0.01) per share. Moreover, analysts forecast that its Q4 revenue should advance 80.34% to $19.96 million.

Aurora Cannabis’ total cash position stood at C$375.3 million, while its total debt came in at C$406.78 million in the first fiscal quarter of 2022. However, the company decreased its cash burn rate from C$109.27 million to C$22.67 million as of FQ1FY22.

For the second fiscal quarter of 2022, the analysts expect ACB’s EPS to stand at ($0.17), representing an 87.84% growth compared to the year-ago value. However, a $47.18 million average revenue estimate for FQ2FY22 indicates an 11.47% year-over-year decrease.

The Bottom Line

Putting it all together, I believe SNDL is presently a better long-term buy than ACB. Both companies should benefit from the long-term industry’s growth. However, Sundial’s financials and liquidity position are relatively better at the moment. Finally, SNDL is projected to demonstrate higher forward growth rates in the next quarter. 

SNDL shares were trading at $0.58 per share on Monday afternoon, down $0.01 (-2.47%). Year-to-date, SNDL has gained 0.29%, versus a -3.10% 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. More…

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