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What occurred

Shares of the Canadian pot-big Sundial Growers (NASDAQ:SNDL) jumped by as considerably as 35% in pre-market place buying and selling Friday morning. What’s driving this significant surge in the firm’s share price tag right now?

Immediately after the closing bell Thursday afternoon, Sundial released its 2021 3rd-quarter earnings report. Whilst the firm posted web earnings of $11.3 million in Canadian pounds for the a few-month interval, this positive money development does not show up to be what’s really relocating the inventory this early morning. 

A scientist inspecting a cannabis sativa plant.

Picture supply: Getty Photographs.

So what

In its place, investors feel to be bidding up Sundial’s shares currently in response to the firm’s decision to approve a share-repurchase application. Specifically, Sundial claimed in a different announcement from its Q3 earnings report that its Board of Directors has permitted a new share-repurchase software that authorizes the business to repurchase up to $100 million Canadian pounds of its exceptional widespread shares from time to time at prevailing market place rates.

What’s the big offer? Sundial, like most publicly traded Canadian pot firms, has a very long observe report of diluting its shareholders in buy to elevate money.

Turning to the particulars, Sundial’s excellent share depend has risen by a jaw-dropping 2,150% since the corporation went public a minor about two a long time in the past. Whilst this monstrous amount of shareholder dilution is a key cause why Sundial finished the most modern quarter with CA$571 million in unrestricted cash and no exceptional personal debt, it is also the primary perpetrator guiding the company’s sub-$1 share cost. 

Now what

What is actually crucial to have an understanding of is that Sundial has to get its share cost earlier mentioned the $1 threshold to go on to be listed on the Nasdaq stock trade. This share-repurchase system should to go a extensive way towards attaining this all-vital objective. Following all, this transfer really should assuage the market’s deep fears about the company’s penchant for diluting shareholders, as very well as the in close proximity to-phrase danger of a feasible reverse split.

Sundial, in result, certainly manufactured a smart go with this shareholder-repurchase method. As this kind of, it wouldn’t be stunning if the pot company’s stock continued to plow better in the months and months in advance.

This article signifies the viewpoint of the writer, who may perhaps disagree with the “official” advice posture of a Motley Idiot premium advisory support. We’re motley! Questioning an investing thesis — even one particular of our individual — assists us all believe critically about investing and make conclusions that support us turn into smarter, happier, and richer.

By Anisa