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HIGHLIGHTS
  1. Sundial Growers stock fell 35 per cent during its first trading day
  2. CEO attributes decline to nerves related to CannTrust scandal
  3. Money manager says poor debut raises “lots of questions”

Calgary-based Sundial Growers lost roughly one third of its market value during its first day as a public company on Thursday.

The Nasdaq-listed stock closed down 35 per cent to US$8.48 per share after the licensed cannabis producer raised US$143-million in one of the largest initial public offerings for a marijuana company. Sundial priced its IPO at US$13 per share, the midpoint of its previously announced range of US$12 to US$14 per share.

“There are lots of questions around what happened today,” said Greg Taylor, chief investment officer for Purpose Investments and manager of the firm’s Marijuana Opportunities Fund. “The deal was priced within the range [but] maybe everyone that got a small, not material, fill just decided to flip it out.”

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Sundial CEO Torsten Kuenzlen, who worked in executive roles at Coca-Cola and Molson Coors before joining the cannabis industry, blamed the poor performance on investors being “a little nervous” as a result of the ongoing scandal surrounding CannTrust. In addition to regulatory violations, the Toronto-based company is now also under investigation for potentially contravening Ontario securities law as well.

“We fully expected volatility, we continue to expect volatility,” Mr. Kuenzlen told Bloomberg News.

Thursday was also a down day for markets broadly, with virtually all cannabis stocks on both sides of the border ending the session lower than where they started. That “didn’t help at all so this looks a little overdone,” Mr. Taylor said.

“But August markets are always scary so may be dead money for a while.”

Lack of money might also be part of the issue facing Sundial. The company posted its first-ever revenues of US$1.5-million in Q1 of 2019, but remains unprofitable. Net losses for the quarter more than doubled from the same period in 2018 to US$16.7-million from US$7.2-million previously.

According to its IPO prospectus, Sundial expects to grow revenues by more than ten fold in its second quarter, to roughly US$20-million. However, the document also warns of a “significant net loss” expected for Q2.

The company operates two cannabis cultivation facilities in Alberta, and a third in British Columbia is currently under construction. In June, the company acquired the United Kingdom-based Bridge Farm Group, which has three U.K.-based production facilities focused on CBD products, for an undisclosed sum.

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“There has been too much money thrown at too many companies and they are not all going to win,” Mr. Taylor said of the current cannabis investment climate during an exclusive Q&A session with Cannabis Professional subscribers last month.

“For a while people were buying almost every deal out there because you wanted your allocation and to bet on all the horses. That has changed dramatically,” Mr. Taylor said.

“There are a lot of people who have been pulling back [and] the people who can’t deliver are going to fade away.”

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