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SNDL Stock: Sundial running out of time to avoid NASDAQ delisting

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Canadian cannabis producer, retailer and investment company Sundial producers (NASDAQ:SNDL) had his 15 minutes of fame in action even just under a year ago. Shares soared 725% from the start of 2021 to its peak near $4 in February. But since then SNDL stock has fallen to around 52 cents a share and is set to be delisted. Nasdaq.

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The company only has until February 7 to comply with the continuous listing requirements or it risks being kicked out of one of the senior stock indices. Management will no doubt do everything possible to avoid this outcome, but the deadline is fast approaching.

Why SNDL shares could be delisted next month

On Aug. 9, Sundial was notified by Nasdaq that it was at risk of delisting because the bid price for its common stock had fallen below the exchange’s minimum threshold of $1 per share for more than 30 consecutive days. The Nasdaq said the company has 180 days, or until Feb. 7, to lift SNDL stock above $1 for 10 consecutive days.

This is not the first time that the company has been threatened with delisting. In December 2020, Nasdaq said Sundial had until June 26 to bring its stock price back into compliance with listing requirements. Management managed to do this just under the wire, with SNDL shares trading above $1 between June 1 and June 14.

Like Forbes Contributor Peter Cohan notes that Sundial did this by raising “approximately $700 million by selling shares and making other moves – which increased its outstanding shares sevenfold in three months – massively diluting the holdings of its investors”.

Since mid-June, it is almost the descent for the action SNDL. In fact, it hasn’t traded above $1 per share since late June. Even the short-lived rally in mid-November saw stocks peak at 96 cents.

It is still possible that SNDL stock will return to compliance within the next two and a half weeks. However, stocks are expected to rally to more than 90% of their current level and then hold for 10 days. That seems unlikely unless management has a big surprise in store for investors.

Realistically, the company has only one reliable option to stay listed on the Senior Global Exchange.

Sundial could soon announce a stock consolidation

To regain compliance with Nasdaq’s minimum bid requirements, Sundial Growers may announce a stock consolidation, also known as a reverse stock split. The consolidation should be effective around the expiration date of the trade notice.

Sundial currently has approximately 2.06 billion common shares outstanding. As I wrote in November, the company sent mixed signals with the announcement of its intention to repurchase approximately 100 million Canadian dollars ($79.6 million) of its common stock, but it reduced the number of its shares.

According to this writer’s calculations, the company should proceed with at least a 1 for 2 consolidation next month, where existing shareholders get one share for every two old shares held. However, there is a problem with this “too low” exchange ratio.

At today’s closing price for SNDL stock of 52 cents per share, a 1-for-2 consolidation would result in a post-consolidation share price of just $1.04. The new price would only allow a 3.9% drop in the company’s share price before Nasdaq compliance’s eyes refocus on Sundial.

It is highly likely that Sundial will announce at least a 1 for 10 stock consolidation, so the resulting stock price could close above the $5 mark. However, SNDL stock will remain a penny stock at such trading ranges. Maybe management will settle for a consolidation ratio well above 10.

That said, there is still a challenge with the road to consolidation – a delayed acquisition deal.

Delayed Alcanna acquisition could increase delisting risk

Sundial Growers is in the midst of a major acquisition of Alcanna, a Canadian liquor retail giant. Alcanna needed more time to rally its shareholder base to achieve the minimum number of votes required for the deal to go through. Thus, he moved his shareholder vote from December 14 to January 7.

When Alcanna’s vote finally took place, more than 90% of shareholders voted in favor of the deal. The final consideration includes a cash portion of C$1.50 and a conversion ratio of 8.85 Sundial shares for each Alcanna share held. Based on the total number of Alcanna shares issued and outstanding as of the record date, Sundial may issue approximately 320.6 million new ordinary shares to Alcanna investors upon closing of the transaction. Hopefully the transaction will close during this quarter.

Given an Alcanna exchange ratio already fixed, Sundial could choose to complete the acquisition of Alcanna before consolidating its shares. Ideally, the parties would like to accelerate the acquisition. However, it is up to the regulatory authorities to decide.

The essentials on SNDL shares

Management is highly unlikely to let SNDL stocks be delisted from Nasdaq without a fight. The company has no other North American listings and will not want such a potentially catastrophic event to occur for its common stock.

However, unless some bullish news comes out to take SNDL shares on a rally of over 90%, investors should expect the company to announce a reverse stock split any day. . This may happen even before Sundial completes its deal to acquire Alcanna.

As of the date of publication, Brian Paradza had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Brian Paradza is an investment enthusiast who received the CFA Charter in 2019. A strong believer in long-term, fundamental-based investing, Brian learns from gurus like Warren Buffett, but recognizes the human behavioral tendencies that lead to “ madness” in the short term. You may find him curious as he examines tech investment opportunities, cannabis, blockchains, and the new asset class of cryptocurrencies.

SNDL Stock: Sundial running out of time to avoid NASDAQ delisting

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