Why Sundial Growers’ stock rose again, but Tilray and OrganiGram Holdings fell today

What happened

The WallStreetBets forum on Reddit is getting more publicity this week, with reports on CNBC that the crowd behind recent short-term momentum names is now focused on the cannabis industry.

Trading in the sector is volatile again today, with stocks moving as follows from 10 a.m. EST:

So what

Cannabis stocks in general have skyrocketed since the start of the year, in part due to politics and hopes for more progress towards federal legalization in the United States, as well as the growth of some of the companies. underlying, as well as consolidation, with Tilray poised to combine with Aphria (NASDAQ: APHA).

Today, stocks are pulling back from the outsized gains on Wednesday, when Tilray climbed 50%, OrganiGram 37% and Sundial Growers climbed nearly 80%. This volatility has likely been heavily impacted by retail traders focusing on the sector. But there is also company news for investors to consider.

Image source: Getty Images.

Now what

With stock prices soaring in the past few weeks alone, Sundial has taken the opportunity to raise capital, thereby increasing the cash flow on its balance sheet. While this is useful especially as the business remains unprofitable, it comes at a cost to existing shareholders. The company’s market capitalization has climbed more than 1,200% since the start of 2021, while the stock price itself has gained around 720%. While the two are huge numbers, the difference shows the dilution existing shareholders endured in the process.

Tilray had more fundamental reasons for its earnings in 2021. This week the company announced a new UK distribution deal to accompany other recently announced European expansions. It also recently announced that it had exported its first shipment of medical cannabis to Spain and that it had received the first and only marketing authorization for medicinal cannabis products in Portugal. In addition to business expansion, Tilray intends to partner with Aphria to form the world’s largest cannabis company by sales. Aphria CEO Irwin Simon will lead the newly merged company which will retain the Tilray name.

OrganiGram shares have also more than tripled since the start of the year. It’s the smallest of the three names with a market cap of just over $ 1 billion, and it’s not yet profitable. Last month, the company announced that its net income for the first quarter of fiscal 2021 from adult recreational use in Canada was up 30% from the prior year period, although its overall net income fell 23%.

The fury of yesterday’s retail traders seems to be easing today, but there are still things to like about business, especially if legalization continues to expand in the U.S. But investors should realize the dilution that has occurred to support the balance sheet of the Sundial Growers, and the struggle for profitability that all live. Investors should focus on the underlying business or dedicate funds to the speculative part of their portfolio.

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