Finding high-quality pot has been a challenge for cannabis retailers, as a surge of low-quality weed has made it difficult for companies on both sides of the supply chain. However, news broke recently that one producer’s marijuana is so low quality that it’s been having a chronic problem of product returns.
The company in question, Sundial Growers (NASDAQ: SNDL), is the most recent marijuana company to go public with a billion-dollar-plus valuation. However, the stock ended up tumbling in response to the revelation that customers were finding mold, plastic pieces and other non-weed contaminants in their cannabis.
Wall Street’s newest pot stock has tumbled significantly since going public in earlier August and has since declined even further in response to this new piece of news that the company was trying to keep under wraps.
The return of half a ton worth of pot represents 10 percent of the companies total second-quarter cannabis sales of around five metric tons. Sundial hasn’t disclosed whether a shipment has been returned, and a spokeswoman for the company refused to respond to requests for any comment.
Analysts first started to put the pieces together earlier when Sundial announced its earnings. At the same time, another company, Zenabis Global, disclosed that it had to return half a ton of marijuana due to exceedingly low-quality product and terminated its agreement to buy future pot from a “third party” supplier they did not name. People familiar with the story ended up confirming the third party in question was Sundial, and that much of the marijuana in question was moldy and filled with rubbery bits and other contaminants.
Sundial went public on August 1st with a market valuation of around $1 billion. While the company includes a number of risk factors in their IPO filing, including potential inventory spoilage, but they didn’t mention at all the half a ton of returned product. Nor did the company’s management team mention this returned weed during a roadshow presentation to potential investors. If investors had known about this, they likely would have stayed away from the stock altogether.
Shares of Sundial Growers fell by 5 percent in response to the news, and many are expecting the stock to fall even further in the days to come.
While other companies have dealt with rumors of poor-quality products, such as in the case of Aphria during its scandal where rumors began to circulate that its Canadian assets were not complying with Health Canada standards, Aphria has already been on the market for a while. In contrast, Sundial has been on the market for a relatively short period of time and has already been off to a terrible start.
The stock has since tumbled more than 30 percent from its IPO price. In response to this new development, it seems likely that the stock will continue to fall more as the company deals with the fallout from this revelation.
Sundial Growers Company Profile
Sundial Growers Inc is engaged in producing and marketing of cannabis for the adult-use market. Some of its products are Lemon Riot, Daydream, Zen Berry, Twilight, Tropical Bliss, Pillow Talk, Citrus Punch, and others. – Warrior Trading News
