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Canadian Cannabis and Liquor Platform SNDL Rallies

Shares of Canadian cannabis and liquor platform SNDL (NASDAQ: SNDL) rallied 14.6% last week, according to data from S&P Global Market Intelligence.

SNDL is coming off an earnings report that showed positive momentum in revenue and profitability, with its losses narrowing. Then last week came several positive news items regarding the cannabis industry in Canada and prospects for legalization in the U.S.

SNDL’s Diversification Strategy

The Canada-based SNDL is a bit different from your traditional multistate operator in the U.S. After becoming a meme stock back in 2021, SNDL was able to raise a massive amount by tapping the equity markets when its price was elevated.

SNDL then redeployed that cash in several ways: buying a profitable liquor retail business, consolidating several smaller Canadian cannabis retailers and wholesalers, and investing in the debt securities of U.S. cannabis companies via its SunStream Bancorp joint venture. Therefore, Sundial is exposed to both the Canadian and U.S. cannabis industries, each of which saw positive news last  week.

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The Upside Potential in Cannabis

On Wednesday, Canada’s most populous province, Ontario, disclosed its budget for the fiscal year, in which it expects $445 million in cannabis tax revenue this year, which would be an increase over the $432 million it hauled in last year. While that mere 3% growth may not seem like much, the Canadian cannabis industry has been beset by oversupply and demand destruction from higher interest rates. Therefore, to see any year-over-year growth for this beaten-down industry is a positive.

In addition, a couple of different cannabis-related polls were released last week in the U.S., with positive results for the industry. A Pew Research poll showed 88% of Americans believe in legalizing cannabis in at least a medical capacity, while 57% favored full legalization on a recreational basis, and only 11% said the drug should continue to be illegal.

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A Cautionary Approach to Legalization

While there has been some positive talk in Congress recently about the passage of the SAFER Act or perhaps a rescheduling of cannabis, we’ve been here before. After all, many thought legalization was imminent after the current administration and Democratic Congress were voted into office back in late 2020.

Moreover, despite some positive headlines, it wasn’t all great news last week. Three Republican Senators sent a letter to the DEA at the end of the week, cautioning against rescheduling cannabis from a Class I drug to a Class III drug, as the Department of Health and Human Services recently advised.

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