SNDL Does Reverse Split As Meme Stock Trading Unwinds
Sundial Growers (NYSE: SNDL), once a Reddit favorite, has undergone a reverse stock merger to meet listing requirements.
July 27 2022, Published 3:23 a.m. ET
Cannabis company Sundial Growers (NYSE: SNDL), a Reddit favorite a year back, has undergone a reverse merger to meet listing requirements. SNDL stock crashed in 2022 and was trading below $1, which didn't comply with Nasdaq policies.
Amid rising rates, investors have shunned speculative names, especially meme stocks. Meanwhile, infamous meme stock GameStop has undergone a stock split.
Stock splits versus reverse stock splits (or mergers)
Companies split their shares when their stock price is too high. Both Amazon and Alphabet, whose stocks were trading near $3,000, underwent 20-for-1 stock splits this year.
There's no set stock price that's ideal for a reverse merger transaction—GameStop stock was trading below $150 when it split. The basic premise behind a stock split is to increase liquidity and make the stock more affordable for retail investors. Stocks tend to rise on news of a split.
Reverse stock splits are mostly involuntary
More often than not, reverse stock splits are involuntary and intended to meet exchange listing requirements, as is the case with Sundial Growers. Companies also sometimes do a reverse stock split to escape the penny stock category. General Electric is an example here—it did a reverse stock split in 2021. Its stock price was low despite it being in business for decades.
SNDL's stock split is no magic wand
SNDL has been under pressure, and not only because meme stock trading is fading, but because of a sell-off in cannabis stocks. Although cannabis stocks surged in 2020 after Joe Biden’s election, they crashed as hopes of federal legalization faded. There's a chance that the Senate will take up a bill to legalize marijuana in the U.S., but it will also need Biden's okay, and that doesn't seem likely.
Sundial Growers stock's 2025 forecast
As Sundial Growers is debt-free, with loads of cash and other investments on its balance sheet, its forecast looks positive. From a valuation perspective, investors get SNDL’s cannabis operations virtually for free, and the company's strong cash position could help it capitalize on the possible legalization in the U.S. However, for the stock to fully recover, market sentiment toward cannabis needs to improve, and that depends on U.S. lawmakers.