Sundial Signs License Agreement with Simply Solventless; Street Sees 50% Downside

Sundial Growers Inc. has entered into a license agreement with Simply Solventless Concentrates Ltd. (SSC) to produce its solventless cannabis concentrates products. The Agreement will enable Sundial to utilize its Rocky View facility, while using SSC’s intellectual property to produce premium inhalable products. It will also allow Sundial to leverage SSC’s knowledge and expertise to expand its product line.

Furthermore, the parties are negotiating the possible sale of Sundial’s (SNDL) Rocky View facility for $5 million, pending the completion of due diligence and licensing approvals.

“As part of our continued cost and process optimization initiatives, we are pleased to enter into a licensing agreement with SSC that includes a non-binding purchase agreement to sell the Rocky View facility,” said Andrew Stordeur, President and Chief Operating Officer of Sundial. “We believe that this collaboration with SSC will improve our returns on invested capital and provide consumers with an excellent addition to our portfolio of cannabis products.”

Sundial will receive a monthly administration fee from SSC, who in turn, will receive royalties on the sale of products manufactured using the SSC brand and technology. In addition, SSC will supply the non-cannabis materials to produce SSC concentrate products. Sundial will provide, dependent on availability, a minimum of 75% of the cannabis materials required for the processing and manufacturing of SSC products.

Sundial will utilize its established sales and distribution channels to speed and scale up the delivery of SCC’s products across the country. The first SSC products are expected to be available in stores by the second quarter of 2021. (See SNDL stock analysis on TipRanks)

ATB Capital analyst David Kideckel downgraded his rating on Sundial from a Hold to a Sell a month ago, setting a price target of $0.20. This implies downside potential of around 58%. Kideckel cites a “decline in Sundial’s recreational cannabis market share, a weaker free cash flow (FCF) outlook, and concerns over the Company’s shareholder dilution,” as reasons for his bearish outlook. He believes factors like product oversupply and pricing pressures pose significant risks that are beyond management’s control, in a highly competitive environment.

Consensus among analysts is a Moderate Sell based on 1 Hold and 1 Sell. The average price target of $0.25 suggests that Sundial shares show downside potential of almost 50% over the next 12 months.