I've recently shared an analysis on my prediction for SNDL climbing to $1.20 which I still fully support. However...I did not have $2,000 riding on that prediction happening by 1/15. The chances of catching this breakout this week are still looking good (+3.88% 1/11; +30% Trailing 5 days; +222% last 3m) but I am now 2 days past my prediction date. So now I'm forced to put my money where my mouth is and I'm interested to see what you would do in my situation.
So in teaching my cousin how to place options orders, I accidentally bought 20 x $1 call options with expiry date 1/15 for SNDL...In short, I wasn't paying attention while explaining and thought I selected a $0.5 strike. Faced with the decision to take an 88.8% loss to sell the contracts at $0.01 or wait until Friday and risk losing it all, I've had to put a price on my own confidence in fundamental and technical analysis. At $0.71 close on 1/11, assuming SNDL finishes flat by Friday, I will effectively take a $300 loss up front and miss out on reclaiming those losses in that potential price action as we move to $1. However, eating the contract will cost me $200 and I'll be left with 0 shares in hand during what has the potential to be the biggest move SNDL has made since its IPO.
Consider the following and tell me what you would do.
1) Would you let the contracts expire?(-$200)
2) Would you exercise it on Friday if price action is favorable towards $1? (-$300 @ $0.71 +2000 shares) or,
3) Would you list the contracts for $0.01 and take a 89% loss in order to free up some margin for the rest of the week?
TL;DR - Recap of events
The turning point - News of SNDL expanding into the edibles market by partnering with Canadian chocolate company "Choklat" on Monday, Nov. 9 triggered a breakout of 112% over Friday's closing. This was only 7 day's after closing at an all time low of $0.1435. The breakout was short lived after a disappointing Q3 earnings call reporting a net loss of $71.4M. While the company was able to clean $100M in debt and reduce operating costs by 63% in Q3, investors remained hesitant given its string of what some may call "bad luck" since going public. A promising $1B pot shop trading at $13 a share on the day of the IPO was smoked down to a debt crippled Chocolate company....
2 weeks later on Nov. 25, it's announced that the house will vote on the "MORE Act" which "would remove marijuana from the schedules of controlled substances under the Controlled Substances Act (CSA)", the day before Thanksgiving. The news prompted a 200% run from 11/25 close through 11/30 (2 trading days considering Thanksgiving and weekend dark hours). On 11/30, it was announced that SNDL also cleared $73.2M in second lien convertible notes against its cash balance $85M effectively eliminating their debt to financial institutions, though this came with heavy costs. In regards to the announcement, SNDL CFO Jim Keough stated "while the process of raising capital and converting debt into equity has placed near-term pressure on the price of our common shares, it has been essential to improving the company's financial strength, providing us with the resources and strategic flexibility to pursue a path of profitability"
Over 2 BILLION SNDL shares were traded on November 30th and 1.27 BILLION on December 1st reaching a high of $0.95 before settling at a more reasonable $0.65.
December 2 saw another strong trading day following the Bulls On Parade in the previous trading days finishing +23.83% at $0.80.
December 3rd....Remember what Jim said about the common share price taking a hit while they fix themselves? On the 3rd highest volume trading day in SNDL's history (950M), Bulls rallied to support a $200M shelf offering resulting in a big fat Doji for the day. The price action on this day is wild and worth a gander.
Since Dec. 3, SNDL bulls have been taken on a ride with price action as steep moves as violent as 50% in a single trading day or even in extended hours. Biden's win in the presidential election has since helped the price find support ~$.45 and solidify a bullish trend with higher highs and higher lows since Nov. 1. In fact, this is the LONGEST bullish trend this market has seen since going public.
Dec. 21st, SNDL announces they are "debt free" after "financial restructuring" citing $62M cash on hand.
Dec. 28th. SNDL announces partnership with Simply Solventless which will allow them to use their technology and manufacturing assets to produce solventless cannais concentrate products. Simply Solventless will receive royalties from sales of the product. This brings value to SNDL that is somewhat unique. Solventless concentrates yield less product then products that use solvents and have a higher cost to manufacture. Legal action has been taken in recent years on vape products - including cannabis concentrates - that use solvents in their extraction and manufacturing process citing hospitalizations and even death contributed to lung damage chemicals used in solvent based vape products. Concentrates are also the cheapest and easiest form of cannabis to mass distribute as more can be shipped while the manufacturing can be performed onsite or in conjunction with the grow operation. States like Florida have difficulties supplying the demand for flower cannabis forcing consumers to ration and setting monthly limits on flower. Concentrates however, are in no short supply and are still the preferred form of consumption in public.
On Dec. 30th, SNDL makes a "strategic investment" of $58.9M through means of a senior loan to Zenabis. SNDL's payment comes from their cash holdings and did not accrue the company more debt. The loan matures March 2025 with an interest rate of 14% per annum. It's important to note that this loan is not an investment grade loan and is subject to substantial risk of Zenabis defaulting. The deal as a whole is controversial for multiple reasons but the takeaway here is that SNDL is willing to take on considerable risk out of pocket as they bet on an optimistic future for the cannabis industry.
On Jan. 11, with only ~$4M cash from their "strategic investment" with Zenabis, SNDL announces they may sell up to $50M in common shares "from time to time" through an equity distribution agreement with Canaccord. The prospectus also outlines SNDL's commitment to comply with Nasdaq's "minimum bid requirement." In order to continue being listed on NASDAQ, SNDL needs to trade 10 consecutive days over $1 by June 28, 2021 as bart of Nasqad's "minimum bid requirement". SNDL initially had until Dec. 20th but avoided penalty after transferring its listing from the Nasdaq Global Select Market to the Nasdaq Capital Market which allows another 180 days to meet the requirement. SNDL also provided written notice to Nasdaq declaring their intent to remedy the non-compliance by the deadline of June 28 by implementing a reverse share split, if necessary.
So in teaching my cousin how to place options orders, I accidentally bought 20 x $1 call options with expiry date 1/15 for SNDL...In short, I wasn't paying attention while explaining and thought I selected a $0.5 strike. Faced with the decision to take an 88.8% loss to sell the contracts at $0.01 or wait until Friday and risk losing it all, I've had to put a price on my own confidence in fundamental and technical analysis. At $0.71 close on 1/11, assuming SNDL finishes flat by Friday, I will effectively take a $300 loss up front and miss out on reclaiming those losses in that potential price action as we move to $1. However, eating the contract will cost me $200 and I'll be left with 0 shares in hand during what has the potential to be the biggest move SNDL has made since its IPO.
Consider the following and tell me what you would do.
1) Would you let the contracts expire?(-$200)
2) Would you exercise it on Friday if price action is favorable towards $1? (-$300 @ $0.71 +2000 shares) or,
3) Would you list the contracts for $0.01 and take a 89% loss in order to free up some margin for the rest of the week?
TL;DR - Recap of events
The turning point - News of SNDL expanding into the edibles market by partnering with Canadian chocolate company "Choklat" on Monday, Nov. 9 triggered a breakout of 112% over Friday's closing. This was only 7 day's after closing at an all time low of $0.1435. The breakout was short lived after a disappointing Q3 earnings call reporting a net loss of $71.4M. While the company was able to clean $100M in debt and reduce operating costs by 63% in Q3, investors remained hesitant given its string of what some may call "bad luck" since going public. A promising $1B pot shop trading at $13 a share on the day of the IPO was smoked down to a debt crippled Chocolate company....
2 weeks later on Nov. 25, it's announced that the house will vote on the "MORE Act" which "would remove marijuana from the schedules of controlled substances under the Controlled Substances Act (CSA)", the day before Thanksgiving. The news prompted a 200% run from 11/25 close through 11/30 (2 trading days considering Thanksgiving and weekend dark hours). On 11/30, it was announced that SNDL also cleared $73.2M in second lien convertible notes against its cash balance $85M effectively eliminating their debt to financial institutions, though this came with heavy costs. In regards to the announcement, SNDL CFO Jim Keough stated "while the process of raising capital and converting debt into equity has placed near-term pressure on the price of our common shares, it has been essential to improving the company's financial strength, providing us with the resources and strategic flexibility to pursue a path of profitability"
Over 2 BILLION SNDL shares were traded on November 30th and 1.27 BILLION on December 1st reaching a high of $0.95 before settling at a more reasonable $0.65.
December 2 saw another strong trading day following the Bulls On Parade in the previous trading days finishing +23.83% at $0.80.
December 3rd....Remember what Jim said about the common share price taking a hit while they fix themselves? On the 3rd highest volume trading day in SNDL's history (950M), Bulls rallied to support a $200M shelf offering resulting in a big fat Doji for the day. The price action on this day is wild and worth a gander.
Since Dec. 3, SNDL bulls have been taken on a ride with price action as steep moves as violent as 50% in a single trading day or even in extended hours. Biden's win in the presidential election has since helped the price find support ~$.45 and solidify a bullish trend with higher highs and higher lows since Nov. 1. In fact, this is the LONGEST bullish trend this market has seen since going public.
Dec. 21st, SNDL announces they are "debt free" after "financial restructuring" citing $62M cash on hand.
Dec. 28th. SNDL announces partnership with Simply Solventless which will allow them to use their technology and manufacturing assets to produce solventless cannais concentrate products. Simply Solventless will receive royalties from sales of the product. This brings value to SNDL that is somewhat unique. Solventless concentrates yield less product then products that use solvents and have a higher cost to manufacture. Legal action has been taken in recent years on vape products - including cannabis concentrates - that use solvents in their extraction and manufacturing process citing hospitalizations and even death contributed to lung damage chemicals used in solvent based vape products. Concentrates are also the cheapest and easiest form of cannabis to mass distribute as more can be shipped while the manufacturing can be performed onsite or in conjunction with the grow operation. States like Florida have difficulties supplying the demand for flower cannabis forcing consumers to ration and setting monthly limits on flower. Concentrates however, are in no short supply and are still the preferred form of consumption in public.
On Dec. 30th, SNDL makes a "strategic investment" of $58.9M through means of a senior loan to Zenabis. SNDL's payment comes from their cash holdings and did not accrue the company more debt. The loan matures March 2025 with an interest rate of 14% per annum. It's important to note that this loan is not an investment grade loan and is subject to substantial risk of Zenabis defaulting. The deal as a whole is controversial for multiple reasons but the takeaway here is that SNDL is willing to take on considerable risk out of pocket as they bet on an optimistic future for the cannabis industry.
On Jan. 11, with only ~$4M cash from their "strategic investment" with Zenabis, SNDL announces they may sell up to $50M in common shares "from time to time" through an equity distribution agreement with Canaccord. The prospectus also outlines SNDL's commitment to comply with Nasdaq's "minimum bid requirement." In order to continue being listed on NASDAQ, SNDL needs to trade 10 consecutive days over $1 by June 28, 2021 as bart of Nasqad's "minimum bid requirement". SNDL initially had until Dec. 20th but avoided penalty after transferring its listing from the Nasdaq Global Select Market to the Nasdaq Capital Market which allows another 180 days to meet the requirement. SNDL also provided written notice to Nasdaq declaring their intent to remedy the non-compliance by the deadline of June 28 by implementing a reverse share split, if necessary.
Comment:
Some interesting price action is noted and highlighted in the chart to the left of default view. Specifically a near clone of previous action immediately following Q1 earnings.
Comment:
Nice perky bounce off green trend line on a generally bearish day of trading. Back in on those cheap .5 calls