Sundial Growers (SNDL) stock soared 11% on Monday as a major shift in marijuana laws moved a step closer to passage. This will allow banks to legally do business with marijuana companies without fear of regulatory repercussions from the government. As the Canadian company has been looking for potential investment opportunities to prosper from, the passing of the SAFE Banking Act will be a quantum leap in expanding operations in the U.S. for Sundial Growers.
Recent Regulatory Changes and Their Impact on Cannabis Companies
In most states, the only way to influence marijuana laws is through the legislature. On Monday, April 19, the U.S. Congress passed the “Secure and Fair Enforcement (SAFE) Banking Act”, which enables banks and other financial institutions to legally provide services to cannabis companies. In the past, for fear of violating federal legislation, several banks have refused to deal with even state-licensed marijuana growers.
Many state-licensed cannabis companies have struggled to access even the most basic banking resources, such as bank accounts and payroll services. They’ve also had to work out more costly ways of funding because bank loans have been increasingly inaccessible to the industry. Should the democratic-led Senate pass the bill and President Biden sign it into law, it would be a game-changer for cannabis companies such as Sundial Growers and the economic recovery.
The SAFE Banking act will most likely make it much smoother and less expensive for companies in the cannabis industry to raise the money they need to finance their development strategies. Credit services will reduce the need for cash in day-to-day transactions, making cannabis companies safer and more profitable.
Soon, we can expect the bill to be on its way to the Senate for a vote, though a definite date hasn’t been set yet. Nonetheless, approval from the Senate on this is likely inevitable, given that both Democrats and more than half of Republicans in Congress voted in favor of the proposal.
Sundial Is Likely to Prosper from The SAFE Banking Act
Recently, possibly due to certain restrictions that persisted in the U.S., Sundial Growers has been looking for international opportunities to expand its business as many countries have legalized the use and sale of cannabis products outside of the United States. Before the new law was approved in Congress, the company entered the international market with an alliance with SAF Group.
Sundial’s 50/50 joint venture with SAF will help the company concentrate on cannabis-related verticals, exploring both Canadian and foreign opportunities and acquisitions. In this case, the company is expected to invest $100 million. BMO analyst Tamy Chen believes that many investors have raised concerns about this due to the number of debt investments the company has made so far. But, according to Sundial, it has discovered several “mispriced investment opportunities” in the global cannabis industry that yield “attractive risk-adjusted returns.”
Recent developments in the U.S. government places Sundial for profitability. With a survey indicating that 68% of Americans favor legalizing marijuana use and 90% favor medical marijuana, U.S. legislators are finally getting the message that people expect them to enact sensible and rational marijuana policies. This also signals a strong demand for cannabis products, which I believe would prompt Sundial to shift its focus back to the U.S. and commence new projects/initiatives with ease, as the company is aggressively searching for opportunities with high returns.
Takeaway
Sundial Growers is positioned for rapid growth. Marijuana use has grown in popularity among significant segments of the population, for both medical and recreational purposes. Recent macroeconomic trends, notably a Democrat-led Senate planning on going ahead with federal marijuana legislation, have pushed up valuations across the market. As we highlighted in an earlier article, we believe Sundial is a company to look out for.
Disclosure: The author does not own any shares mentioned in this article.
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