Tilray and SNDL Stock Forecasts: Canadian cannabis companies turning the page

• Tilray stock aded 6.45% on Monday to settle at $4.29. 
• SNDL settled at $3.17, up by 5.67% at the beginning of the week.
• Sundial released Q2 earnings that showed a large jump in revenue.

Update: Wall Street started the week on a positive footing, shrugging off early market fears. Risk-off dominated the first half of the day amid news coming from China denting investors' mood.  Retail Sales in the country were up 2.7% YoY in July, while Industrial Production rose by 3.8% in the same period, both missing the market’s expectations. At the same time, the central bank unexpectedly cut a key policy interest rate and drained liquidity. Also, China has announced more drills around Taiwan after a new delegation of US lawmakers met with Taiwanese President Tsai Ing-wen. 

Nevertheless, the sentiment improved as US indexes rallied. The Dow Jones Industrial Average added 151 points, while the Nasdaq Composite gained 80 points. The S&P 500 posted a modest 0.37% advance. Earnings reports are maintaining Wall Street afloat, despite persistent growth-related concerns.

 

Canadian cannabis companies are looking to continue their recent success after a positive statement on marijuana legalization from its southern neighbor last week drew the industry back into focus. Senator Cory Booker (D-NJ) said in an interview with Cheddar News on August 3 that a federal legalization bill compromise might still be on the table before the end of this congressional term.

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"The bill seeks to de-schedule cannabis from the Controlled Substances Act and regulate it at the federal level while allowing states to decide whether they want to legalize cannabis or keep it prohibited. It also institutes a 25 percent excise tax rate for big businesses and 12.5 percent for small and mid-sized cannabis producers," Booker said in reference to the Cannabis Administration and Opportunity Act (CAOA) that was introduced in July. The compromise he mentioned referred to adding certain measures to the SAFE Banking bill that would allow cannabis companies to utilize licensed banks.

The interview drew more eyeballs last week, because the US Senate was able to pass the Inflation Reduction Act, a wide-ranging bill that showed the upper house was finally getting the ball rolling a year and a half into President Joe Biden's first term. Until now Senators Joe Manchin (D-WVa) and Kyrsten Sinema (D-AZ) have been standing in the way of passing major reform, but two recent bills touching on climate change and semiconductors have turned the tables and make it appear more likely that the Democrats will pass even more legislation before the mid-term elections in November.

Tilray (TLRY) stock advanced 4.7% to $4.02 on Friday, and SNDL, formerly known as Sundial Growers, added 15% last week.

Tilray stock news

Over the weekend Tilray CEO Irwin Simon told Yahoo Finance broadcasters that legalization would likely take place suddenly since the legislation is broadly popular with the public.

"If you look at cannabis today in the US, 93% of Americans want medical cannabis legalized and about 63%-65% want adult use," Simon said. "Today, it's legal in about 33 states, plus DC, so [...] a majority of people want cannabis legally."

In its latest quarterly filing, Tilray reported revenue growth of 8% YoY. Simon said that Tilray's liquor, beer, and cannabis-infused food company Manitoba Harvest would hold the line until US legalization was finalized but that its cannabis-infused beverage line would explode with full legalization. The company continues to run at a loss, but that is not stopping Irwin from seeking out new acquisitions.

"We're not going to stop on the acquisition trail. We're going to look at additional acquisitions to fold in within Tilray brands," Irwin said.

SNDL stock news

Sundial Growers reported earnings on Friday that showed shareholders their first glimpse of promise from the penny stock. SNDL reported second-quarter revenue just under C$224 million, a giant move from the C$7 million in revenue a year ago. The company's acquisition streak is the reason for the jump, especially its liquor business. The company's net loss of C$74 million in the quarter largely reflected a C$35 million loss from investments. SNDL's C$43 million gross margin was the largest in its history. In the quarter one year ago the company ran a gross margin loss.

Sundial has been making a flurry of changes of late. Besides changing its name to its stock market ticker, SNDL, the cannabis producer and alcohol distributor also completed a 1-for-10 reverse stock split on July 26. This was a must to comply with Nasdaq listing rules that can jettison a stock if it continually trades below $1. SNDL stock closed at $3 on Friday.

It is somewhat difficult to even think of SNDL as a cannabis company at this point. In the second quarter, liquor distribution and retail brought in 66% of revenue and 77% of gross margin. Like Tilray, SNDL believes that US legalization will bring the cannabis segment to the fore.

Tilray stock forecast

Tilray stock has been trading within a widening price channel since late June. An ascending bottom trend line is rising at an extremely gradual angle, while the top trend line is poised more ambitiously. This tends to give the chart a slightly more bullish posture. To break out of the channel, TLRY needs to move above $4.60 or below $3.30 at the moment.

A base of support for TLRY stock has formed at $3.85, and beneath there is medium-term support at $3.72. These nearby points of support make a long from $4 easier to swallow. Above the top trend line lies resistance at $5.17 stemming from a range high in mid-May. The Relative Strength Index (RSI) has been trending higher since bottoming in mid-June but is far from overbought at the moment. The risk-return is definitely biased toward the upside this week.

TLRY daily chart

SNDL stock forecast

Unlike its Canadian counterpart, SNDL stock remains in a downtrend. The current descending price channel began in May, but SNDL has been in a long-term downtrend due to near-constant dilution over the past two years. The good news is that this dilution may be coming to an end as management purchased half a million shares on the open market during the second quarter. Once SNDL turns a profit, shareholders are expecting these buybacks to grow in size, helping the share price to recover.

The possible good news is that a slight divergence between the share price and the Relative Strength Index (RSI) occurred between mid-June and late July. The daily chart below shows the bottoming from those periods on the RSI sloping up, while the price action was very much trending down. Sometimes this foreshadows a reversal in price action. To confirm this reversal, SNDL will need to surmount the descending top trend line by breaking up to $3.20. This is only a 7% advance.

With price action already up against the top of the channel, however, there is a good chance that SNDL shares sell off after meeting resistance. Support is at $2.45 and $2.20.

SNDL daily chart