Wednesday, December 6, 2023

Why an Acquisition Helped SNDL Stock Rise Today

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What happened

Canadian cannabis stock SNDL (NASDAQ: SNDL) (formerly Sundial Growers) jumped more than 5% Tuesday morning after the company started a new chapter in its growth. The stock held onto a gain of 2.9% as of 3:05 p.m. EST.

So what

SNDL announced the finalization of its acquisition of The Valens Company today, marking the start of its new strategy forward. SNDL first announced it took a 10% stake in the Canadian cannabis products and processing-services company in late 2021. It then said it planned to buy the balance of Valens it didn’t already own in August 2022. The acquisition is the culmination of a pivot in SNDL’s two-year-old business strategy to create an investment platform alongside its cannabis segment.

marijuana leaf cutout being held in front of busy street.

Image source: Getty Images.

Now what

During the first half of 2021, the company issued more than 1 billion new common shares to raise capital for use in making cannabis-related equity investments. Valens has become its flagship investment and should move SNDL to become a billion-dollar annual revenue company.

It also helps streamline the company with lower cost in-house manufacturing capacity, expand its potential product offerings, and provide cost savings. The company says the combination is expected to deliver close to $10 million of annual cost synergies.

SNDL shares are down nearly 60% in the last year after it has diluted shareholders to raise money over the past several years. SNDL paid more than $100 million for the balance of Valens it didn’t already own in the form of common shares as well as the assumption of debt. Investors are hoping this marks a new beginning for SNDL’s business and share price in 2023.

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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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