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As shareholders already know, SNDL (NASDAQ: SNDL) stock is having a great year, as it's up by 35% through the first five months of 2024. The Canadian alcohol and cannabis business is finally picking up steam after spending many quarters on improving its operational efficiency and slimming down its operation.

And there's a good chance the stock is just getting started.

Operations are starting to look more efficient

SNDL isn't currently profitable. But thanks to facility closures and a cost-cutting drive, its quarterly gross margin has increased significantly over the last three years, reaching more than 25% in the first quarter.

This month, management plans to meet to discuss how to drive further operational improvements by reducing expenses. And that means it's within striking distance of potentially reporting positive annual free cash flow (FCF) for 2024, a goal that company leaders have endorsed.

Attaining that objective would do a lot to allay investors' persistent fears that SNDL is merely another money-burning cannabis business, and it'd also likely send the stock higher on investor optimism. But that raises the question of why those fears aren't already completely at rest.

After all, the company has no long-term debt, 189 million Canadian dollars ($138.65 million) in unrestricted cash, and its operating losses were only CA$15.9 million ($11.7 million) in Q1 despite reporting CA$197.7 million ($145.03 million) in sales. This isn't a company that's on the verge of needing to issue more stock or take out fresh debt to raise capital to keep the lights on, and there are no indications that management is planning major downsizing of its operations. The problem is likely that its trailing-12-month (TTM) revenue rose by only 1.7% over the last 12 months.

Still, there's reason to believe that faster growth is on the way, and if it occurs around the same time that efficiency improvements finally open the door to reporting actual profit, it'll be a pair of strong tailwinds for the stock.

Catalysts could pave the way for more growth

In its home market of Canada, SNDL plans to continue to expand its cannabis-retail footprint by opening more stores. That should stoke some top-line growth, but it isn't the only growth driver in play right now.

Interestingly, in Q1 it also reported CA$3.5 million ($2.6 million) in revenue from its new data-licensing platform wherein it sells information about the Canadian marijuana market and consumer habits to other players. It's also pioneering a similar program for its alcohol segment, so moving forward it'll benefit from the two low-cost revenue sources, and it's clear that management is excited about the performance of both so far.

More importantly, its investing segment, SunStream Bancorp, has made preparations to escalate its activities in the U.S. cannabis market. That means it will be making more investments in buying the equity and debt of American operators. Buying more debt means realizing more interest payments, and, if there is cannabis legalization or a significant loosening of the relevant U.S. regulations, it could pave the way for SNDL to have large controlling equity stakes in businesses in key regions.

Given that the U.S. is currently in the process of rescheduling marijuana, SNDL's shares will also likely get a bump when the process concludes, along with shares of all of its competitors.

So, thanks to its combination of better efficiency, expansion plans, plans for even more efficiency, and regulatory catalysts, SNDL's stock is probably going to keep rising for some time. It's still an investment that's on the riskier side, but within the next couple of years, that may no longer be the case.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends SNDL. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.