Sundial Growers (NASDAQ:SNDL) is a cannabis stock that had flown under the radar before its meme stock rally this year. The Canadian marijuana producer took advantage of the wild swings in the market to strengthen its balance sheet and change the negative sentiment around its stock.

Thanks to the massive cash infusion, SNDL stock is trading at a market capitalization inflated by the sheer size of its balance sheet. Nevertheless, despite the recent positives, it remains a “show me” story.

SNDL stock rallied impressively after posting strong third-quarter results and a share buyback program. The stock almost touched the $1 mark on Nov. 12 after posting a 28% gain for the day.

However, most of those gains were reversed in the following days, which was a regular occurrence for the stock. Moreover, there are plenty of variables that make SNDL stock a risky bet at this stage.

Strong Third-Quarter

No matter what the bears say, Sundial’s third-quarter is a major positive for the company. Gross cannabis revenues were up 57% from the second quarter and 12% from the same quarter last year to CA$ 14.4 million.

It also includes sales revenue from Spiritleaf and its franchises. Moreover, cultivation revenues amounted to CA$8.2 million while retail revenues equaled CA$6.1 million.  Additionally, Spiritleaf sales attributable to the company amounted to CA$33.5 million.

Looking ahead, Sundial expects a healthy bump in revenues in the fourth quarter to CA$19.1 million. A much larger revenue increase will come when Alcanna’s sales are included in the deal. Most importantly, the company reported a net income for the first time in its history.

Its net income amounted to CA$11.3 million and an adjusted EBITDA of CA$10.5 million. However, a good portion of the net income was attributable to its income tax recovery and fair value changes in derivatives.

In terms of its financial flexibility, the company reported a whopping CA$1.1 billion in cash equivalents in September. Moreover, it has CA$571 million on unrestricted with zero debt.  Hence, it is in a great position to invest further in new targets.

The Road Ahead

Sundial’s recent acquisition of Alcanna and its controlling interest in Nova Cannabis will be a major boost for its financials. Alcanna has a colossal footprint in Alberta, Canada, with 171 retail liquor outlets and 63 retail outlets due to its majority state in Nova Cannabis. Alcanna’s last quarterly revenues of CA$189 million are significantly higher than Sundial’s numbers and promise a much larger valuation.

Sundial is likely to have a massive market outreach with sales from 341 retail locations though the financial rewards from Nova Cannabis are rather unclear. Gross profit margins are currently negative at 19% on a trailing-twelve-month basis. The declining prices have severely impacted this.

The company’s investment operations are perhaps a critical aspect underpinning future growth. It has over $350 million in investments to accelerate its operations. Moreover, it has formed a joint venture called; SunStream Bancorp with SAF Group in pursuing attractive opportunities in the marijuana sector. So far, SNDL has recognized over $25 million in investment income so far this year, pointing to some early signs of success.

Bottom Line 

Sundial Growers has been a popular meme stock in the marijuana sector, a status that has helped the company fortify its balance sheet. It has been performing well lately, and its recent acquisitions will significantly expand its growth runway ahead.

However, it still has plenty to prove on the fundamentals and investment side to be considered a long-term marijuana play. Moreover, SNDL stock trades at over 29 times forward sales significantly higher than profitable US cannabis counterparts.

On the date of publication, Muslim Farooque 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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.