Zenabis enters C$60 million revolving credit agreement to refinance debt held by Sundial Growers Inc. (SNDL)

Zenabis Global Inc.  said Friday it has entered a revolving credit agreement with a Canadian private debt fund for up to C$60 million ($47 million) that it will use to refinance more expensive debt held by Sundial Growers Inc. The credit facility carries an interest rate per annum of the greater of 10% or the Toronto-Dominion Bank’s prime rate, from time to time, plus 7.55% calculated daily and payable monthly.

The debt held by Sundial has an interest rate of 14% per annum. “This committed revolving credit facility will enable the Company to substantially reduce its cost of capital while providing increased liquidity with which to finance Zenabis’ continuing revenue growth and increase its operating flexibility,” Chief Executive Shai Altman said in a statement. In December, Sundial closed the acquisition of a special purpose vehicle for C$58.9 million in cash. The special purpose vehicle owns C$58.9 million of senior secured debt issued by Zenabis Investment Ltd, a unit of Zenabis Global. Zenabis’ U.S.-listed shares were not active premarket. Sundial was down 3%.

On Thursday,  shares of Sundial Growers Inc. (NASDAQ:SNDL) reached at $0.60 price level during last trade its distance from 20 days simple moving average was -1.78%, and its distance from 50 days simple moving average was 16.72% while it has a distance of 15.47% from the 200 days simple moving average.

Past 5 years growth of SNDL observed at 0, and for the next five years the analysts that follow this company are expecting its growth at 0. The average true range (ATR) is a measure of volatility introduced by Welles Wilder in his book, “New Concepts in Technical Trading Systems.” The true range indicator is the greatest of the following: current high less the current low, the absolute value of the current high less the previous close and the absolute value of the current low less the previous close. The average true range is a moving average, generally 14 days, of the true ranges.

Is Sundial Growers Planning a Splashy Deal?

The recent merger involving pot giants Tilray and Aphria is one of the largest deals that the industry has seen in a while. But with 2021 looking challenging for the economy as the COVID-19 pandemic continues to create uncertainty, there could be more consolidation to come this year, especially if the markets crash and it gets more difficult for cannabis companies to raise money.

One company cannabis investors should keep a close eye on is Sundial Growers (NASDAQ:SNDL). In its most recent earnings report, Sundial dropped a small but significant hint that it could be a buyer or a seller in a potential transaction. And the company has been busy since then, suggesting that something big could be on the horizon.

Where there’s drama…there’s a potential deal brewing

There’s one company that’s been of interest to Sundial Growers of late, and that’s microcap cannabis stock Zenabis (OTC:ZBISF). On Dec. 30, 2020, Sundial announced it had acquired a special purpose vehicle that at the time owned 58.9 million Canadian dollars worth of Zenabis’s senior secured debt. Sundial will also collect a royalty under the agreement of between 2% and 3.5%, depending on the company’s net cannabis revenue.

Zenabis made a payment on that debt of CA$7 million on Dec. 31, 2020, but Sundial still issued it a notice of default. Zenabis contests the default and, in a statement issued on Jan. 6, says that “Sundial made such investment in an attempt to coerce Zenabis into being acquired by Sundial.” Zenabis says that prior to Sundial’s investment, it was in discussions with its lender to get an extension on its CA$7 million debt repayment. As of Sept. 30, 2020, the company reported cash and cash equivalents of just CA$4.8 million, and so liquidity is a clear concern for Zenabis.

Over the nine-month period ending Sept. 30, 2020, Sundial reported net revenue of CA$47.1 million. Zenabis, meanwhile, posted sales of CA$71 million over the same period, giving Sundial plenty of motivation to acquire the troubled cannabis company if it were to decide to go that route. However, with only CA$110 million in cash reserves available just before buying Zenabis’s debt, Sundial isn’t sitting on a boatload of money and may not be in a strong enough financial position to make a big move.

Sundial could end up being the acquiree in a transaction

When management announced on Nov. 11, 2020, that Sundial was undergoing a “strategic alternatives review,” it didn’t specify whether it would be the buyer or seller in any potential deal, only that it will “ensure that all opportunities to maximize value are explored.”

And if Sundial is considering anything, including a merger or being acquired, there’s a much better chance of some sort of deal coming together. One company that’s been interested in some M&A activity is Aurora Cannabis. Aurora was in talks with Aphria in the past about merging, and although that fell through, it could be looking for another suitor. However, that’s just one example, and there could be other options out there, especially since an acquisition could be a quick way for a cannabis company to bolster its sales numbers and increase market share, potentially making it look more attractive to investors.

Should you invest in Sundial today?

In just three months, shares of Sundial have soared more than 260%, largely due to these recent developments and the recent election results where five states passed marijuana reform, including four that legalized marijuana for recreational use — Arizona, Montana, New Jersey, and South Dakota. The Horizons Marijuana Life Sciences ETF has jumped 78% during the same time frame.

Sundial’s stock is scorching hot right now, but buying based on a potential deal is very risky, as there’s no telling who it could partner with and whether investors will view the terms of the transaction favorably. Sundial is a pot stock worth watching right now, but investors shouldn’t rush out to invest in it until after there’s some clarity about its future and whether its strategic review will result in an acquisition.

Liquidity:

The stock has a market cap of $638.90M with 1.11B shares outstanding, of which the float was 435.76M shares. Analysts consider this stock active, since it switched Trading volume reached 1,092,578,688 shares as compared to its average volume of 345.60M shares. The Average Daily Trading Volume (ADTV) demonstrates trading activity related to the liquidity of the security. When Ave Volume tends to increase, it shows enhanced liquidity.

But when Ave Volume is lower, the security will tend to be cheap as people are not as keen to purchase it. Hence, it might have an effect on the worth of the security. SNDL’s relative volume was 2.48. Relative volume is a great indicator to keep a close eye on, but like most indicators it works best in conjunction with other indicators and on different time frames. Higher relative volume you will have more liquidity in the stock which will tighten spreads and allow you to trade with more size without a ton of slippage.

Important Technical Indicators Analysis Report and Volatility Measures:

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the predictable return of an asset based on its beta and predictable market returns. Beta is also known as the beta coefficient.

A beta of 1 indicates that the security’s price moves with the market. A beta of less than 1 means that the security is theoretically less volatile than the market. A beta of greater than 1 indicates that the security’s price is theoretically more volatile than the market. After a recent check, beta value for this stock comes out to be 0. A statistical measure of the dispersion of returns (volatility) for SNDL producing salvation in Investors mouth, it has week volatility of 15.87% and for the month booked as 12.27%. Regardless of which metric you utilize, a firm understanding of the concept of volatility and how it is measured is essential to successful investing. A stock that maintains a relatively stable price has low volatility. When investing in a volatile security, the risk of success is increased just as much as the risk of failure.

The volatility value is used by the investors for various reasons and purposes in measuring the fundamental price change and the rate of variation in SNDL’s price. The ART is a specific type of indicator, which is capable of weighing up stock volatility in the financial markets effectively.

Sundial Growers Inc. has an average true range (ATR) of 0.08. Other technical indicators are worth considering in assessing the prospects for EQT. SNDL’s price to sales ratio for trailing twelve months was 11.77 and price to book ratio for most recent quarter was 1.43, whereas price to cash per share for the most recent quarter was 38.26. The Company’s price to free cash flow for trailing twelve months was 0. Its quick ratio for most recent quarter was 0.50. Analysts mean recommendation for the stock was 3.20. This number is based on a 1 to 5 scale where 1 indicates a Strong Buy recommendation while 5 represents a Strong Sell.

Should You Go With High Insider Ownership?

Many value investors look for stocks with a high percent of insider ownership, under the theory that when management are shareholders, they will act in its own self interest, and create shareholder value in the long-term. This aligns the interests of shareholders with management, thus benefiting everyone. While this sounds great in theory, high insider ownership can actually lead to the opposite result, a management team that is unaccountable because they can keep their jobs under almost any circumstance.

Sundial Growers Inc.‘s shares owned by insiders remained 1.63%, whereas shares owned by institutional owners are 2.70%.

Meanwhile, SNDL traded under umbrella of Healthcare sector, the stock was traded -77.24% ahead of its 52-week high and 335.05% beyond its 52-week low. So, both the price and 52-week high indicators would give you a clear-cut picture to evaluate the price direction.

Eden Shearer

About Eden Shearer

I am Eden Shearer and I focus on breaking news stories and ensuring we “Stocks Equity” offer timely reporting on some of the most recent stories released through market wires about “Healthcare” sector companies. I have formerly spent over 5 years as a trader in U.S. Stock Market and is now semi-stepped down. I work on a full time basis for stocksequity.com specializing in quicker moving active shares with a short term view on investment opportunities and trends. In my free time I enjoy participating in half marathons and triathlons, but I have sworn of full marathons.

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