Back in January, I covered Sundial Growers (NASDAQ:SNDL) and wrote a bearish article. Essentially, I called SNDL stock a gamble. Now, seven months later, things have not changed much.

Of course, it’s hard for a company to present enough news and positive financial performance to radically change an investment thesis over such a short period of time. Plus, I am not a financial analyst who changes my opinion very easily.

This Canadian producer and distributor of cannabis products proved unconvincing in January. So, with virtually the same dim business prospects that it had months ago, what’s my opinion on SNDL stock today? Like I said, not much has changed.

SNDL Stock: When Will the U.S. Legalize Marijuana?

When it comes to SNDL stock, there are three things investors should be watching: its business, its operations and its profitability. However, all of these items seem to depend on one crucial decision — when (or rather, whether or not) the U.S. will legalize marijuana on the federal level.

Basically, Sundial’s home country of Canada is only so big. To really succeed, it needs to expand out of that domestic market. To that end, there has been some news which could prove fruitful for Sundial and its stock. Specifically, Senate Majority Leader Chuck Schumer recently “proposed legislation to legalize marijuana at the federal level.”

True, this is good news. But at the same time, there’s another factor to consider here — one that could change the whole excitement surrounding it. That factor? The timing.

Politics and business are hardly a good mix. Add in bureaucracy — plus how much time it will take just to vote on the bill — and my point is made. Despite introducing legislation, the when of U.S. legalization is still unknown. Maybe legalization will happen, but no matter what, it’s unlikely to happen any time soon.

Additionally, there’s another piece to worry about when it comes to the regulatory side of the cannabis industry. That is, whenever legalization does occur, I believe regulators will be extremely strict. That possibility should not be neglected, as it could cost a lot of extra time and money for companies like Sundial.

Lastly, there’s also the chance that the U.S. doesn’t legalize marijuana at all. With President Joe Biden and his administration ultimately focused on beating Covid-19, cannabis is not exactly a top priority.

Business Developments for Sundial Growers

Of course, we could speculate about U.S. legalization all day, but that will only get us so far. If we’re going to talk about SNDL stock, we should also talk about some of the company’s business developments.

Lately, this company has focused on fundraising, which has resulted in cash of 873 million CAD ($696 million). However, this fundraising also caused massive stock dilution, which significantly deteriorated the valuation of SNDL stock. Now the question is how will this cash be used?

So far, Sundial seems to be using the money for acquisitions and to further commit to its joint venture with SAF Group. One of its recent press releases states the following:

“SunStream is a joint venture between Sundial and the SAF Group that leverages a strategic financial and operational partnership to target asymmetrically enhanced risk-return opportunities in the cannabis industry to provide exposure to a portfolio of attractive debt, equity and hybrid investments.”

That’s all well and good, but I myself am still trying to figure out what exactly these investments will be.

Maybe more promising, then, is Sundial’s recent purchase of Spiritleaf. That move shows that management is trying to create value and growth opportunities here. I do like that. Still, the news doesn’t undo the company’s poor fundamentals.

Sundial Reported a Poor Q1

When looking at this company’s first-quarter 2021 results, you might be initially excited. The report states that Sundial saw its “[f]irst positive quarterly earnings from operations in the Company’s history.” However, there’s still more bad news than good news in the Q1 report. Some of the key highlights are as follows.

• “Net loss of $134.4 million as a result of $130.0 million of non-cash amounts reflecting the impact of share price volatility on accounting valuation of derivative warrants.”
• “Gross cannabis revenue was $11.7 million, a decrease of 30% from the prior quarter.”

While management appeared to be enthusiastic about positive earnings from operations and adjusted EBITDA for the first-ever quarter, the broader financial performance shows a company that is unprofitable. Sundial has negative free cash flows. SNDL stock has also seen huge dilution in 2021 so far.

All in all, Sundial’s fundamentals remain a major headwind.

Closing Thoughts on SNDL Stock Price

SNDL stock has been a rollercoaster in 2021, with a 52-week high price of $3.96 in February and a recent price of about $0.82. That’s a decline of around 80% from Sundial’s all-time peak. Additionally, the stock is at risk of being delisted, with its price now below the $1 level.

Overall, the stock is one of the less attractive marijuana stocks right now. It’s valuation is out of place and the company is seeing net losses. In fact, although it may look it, Sundial is not cheap at 82 cents. That’s still far too much to pay.

Why invest in this name at all when the bad far outweighs the good? Avoid SNDL stock.

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On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.