Sundial Growers (NASDAQ:SNDL) stock has been incredibly volatile, but what else can we expect from a cannabis penny stock? After rallying 740% from its 2021 low to its high in February, Sundial stock has plunged more than 70% to its recent trading levels.

Does that represent elevated risk or an opportunity?

Well, investors need to understand something right off the bat: SNDL stock is risky. There’s rarely such a thing as a “safe penny stock.” It trades with a sub-$1 price for a reason. Throw in the fact that it swims in the volatile waters of the cannabis industry and Sundial makes it that much more speculative.

But let’s understand something else. I’m not being critical of speculative stocks. In fact, I like speculative holdings at certain times. After all, SNDL stock did rally more than 700% in a few weeks. So, who cares if it’s not the highest-quality business in the world. If we can flip an assets for several hundred percent in a few weeks, that’s all that really matters.

The question is, can Sundial stock do it again?

Breaking Down SNDL Stock

Sundial’s momentum is completely tied to the cannabis space. That means keeping an eye on Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), Aphria (NYSE:APHA), Tilray (NASDAQ:TLRY) and others.

Unfortunately, Sundial is based in Canada. Not that there’s anything wrong with Canadian cannabis, of course. However, the real momentum rests in the companies that are either based in the United States or have exposure to the U.S. markets.

More and more states are legalizing cannabis, both medicinally and recreationally. Much of the bullish thesis also lies in the federal government eventually decriminalizing marijuana. It appears that it’s more of a “when” not “if” scenario, although other measures — like a response to the novel coronavirus pandemic — are clearly a priority.

Still, if the U.S. continues to take these steps, cannabis companies with U.S. exposure will be the ones to see the biggest impact.

Now it’s possible Canadian companies ride that momentum too, whether it’s deserved or not. If that’s the case and cannabis stocks start another strong rally, then SNDL stock can likely rally hard.

A look at the company’s stock shows that it’s in a bit more of a precarious position. It’s below support near 92 cents, while trading below most of its key moving averages. The one notable measure it’s above its 200-day moving average.

That measure was previously support in late January before the stock went on its explosive rally. For now, it’s hoped that it will be support again should SNDL stock test it.

In order to be tradable, we either need a potentially deeper dip or some type of rotation higher. A weekly or monthly up rotation could get the party started, but a close above $1.00 could do it as well.

On the downside, a dip down toward 58 cents may find some buyers. But let’s not be overly aggressive. After all, this is a spec play and we need the technicals working in our favor, not against us.

Bottom Line on Sundial Growers

Let’s not forget that at its lows, SNDL stock was changing hands at 13 cents in October. I’d love to see traders make a big return in this one, but this isn’t a set-it-and-forget-it stock. If support fails to hold and momentum doesn’t return, Sundial could easily plunge.

Sundial is based in Calgary and operates under several brands, including Top Leaf, Sundial Cannabis, Palmetto and Grasslands. It produces and distributes inhalable products such as flower, pre-rolls and vapes.

However, the company has struggled with growth, with its two previous quarterly earnings reports showing revenue declines of 27.4% and 61%, respectively. It also hasn’t turned in a year of positive free cash flow in the last three years, yet has just $60 million of cash on hand.

On the plus side, the company raised capital last year and restructured some of its debt. Further, analysts expect 11.5% revenue growth this year and more than 30% growth in the following year. Additionally, they’re forecasting for almost break-even operations in each of the next two years. So that may alleviate concern of Sundial’s cash flow situation.

Either way, I’m not a bull on SNDL stock until the industry has the wind at its back. Then it’s worth a consideration.

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