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Sundial Growers: The 209% Gain No One Saw Coming

Few, if any, industries have been hotter in recent months than cannabis. With Canada having waved the green flag on recreational pot in October 2018 and 36 states having legalized marijuana to some degree in the U.S., the North American cannabis industry looks ripe to deliver incredible growth throughout the 2020s.

We've also been witnessing a clear separation between the haves and have-nots in the cannabis space. U.S. multistate operators are among the haves, skyrocketing as they head toward recurring profitability in the largest marijuana market in the world by annual sales.

But among this veritable sea of opportunity, investors have latched onto a small Canadian licensed producer as their favorite play.

Sundial Growers is suddenly the most popular pot stock

Through this past weekend, marijuana penny stock Sundial Growers (NASDAQ: SNDL) was higher by nearly 550% over the trailing three-month period. On investing app Robinhood, which is known for attracting young and novice investors, Sundial had clawed its way to the No. 8 spot on the platform's leaderboard -- ahead of established winners like Amazon, Walt Disney, and Microsoft.

If you're wondering why Sundial has been so unstoppable of late, the answer appears to lie with three catalysts.

To begin with, investors are clearly excited about Democrats being in control in Washington. In Gallup's annual survey of cannabis sentiment, a record 68% of respondents favored legalization in 2020. More importantly, 83% of self-identified Democrats were in favor of legalizing cannabis, compared to just 48% of Republicans. With Sen. Mitch McConnell no longer able to block legislation from reaching the Senate floor for a vote, the possibility of federal change is greater than it's ever been. Legalizing weed at the federal level would allow Sundial and its Canadian peers to enter the considerably more lucrative U.S. market.

Secondly, Sundial Growers is one of around a dozen stocks that's been swept up in the recent Reddit rally frenzy. Retail investors in the WallStreetBets chatroom on Reddit have essentially banded together to buy shares and out-of-the-money call options on stocks with high levels of short interest. Sundial doesn't have a high level of short interest. It is, however, a penny stock -- and low-priced stocks have always fascinated young retail investors.

Third, Sundial's management team has worked hard over the past couple of months to repay debt and improve the company's cash position. A relatively clean balance sheet could come in handy if Sundial Growers gets the green light to enter the U.S. market.

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