It's preferable to wait for positive trends to strengthen before investing
While it's true that the latest earnings report had a few things for Sundial shareholders to appreciate, it also had a slew of bad news. First and foremost, compared to the prior quarter and compared to the same quarter in 2020, in the first three months of 2021, net cannabis revenue dropped by 29%. That's partially a result of the gross average sales price, which fell by 24% to reach $3.15 per gram. As if that weren't brutal enough, cultivation costs per gram rose by 25% and adjusted gross margin dropped by 39%, taking it to negative 16%.
Its margins may not necessarily improve much without changing its product mix to prioritize goods with higher selling prices, which management has signaled is a work in process. Unlike other companies that focus on high-value-added product segments like concentrates and edibles, 58% of Sundial's revenue comes from dried cannabis flower, where margins are inherently thin.
In closing, it's key to remember that Sundial is still a young and volatile company. At least for the moment, it hasn't shown any clear positive trend of revenue growth or margin growth. Still, its formidable hoard of cash and upcoming retail network acquisition means that investors shouldn't count it out.
If you're willing to make a speculative purchase in which you're comfortable with losing money in the short term, buy Sundial stock this summer. But if you're a bit more cautious as I am, hold off for the moment and keep an eye on the next three or four earnings reports to see if the company establishes a pattern of growth before you make a purchase.
