By John Whitefoot, BA @ Profit Confidential
Wall Street Says High Tide Stock Will at Least Double
I’ve been following High Tide Inc (NASDAQ:HITI) for a while now. The Calgary, AB, Canada-based cannabis company is one of the more interesting pot companies out there—and it keeps getting better.
You’d never know it from the price of HITI stock, though. While High Tide stock is up by 193% year-over-year and 80% year-to-date, it’s down by 35% over the last six months.
But there’s every reason to think that the trajectory for High Tide Inc will reverse over the coming quarters.
Even stodgy Wall Street is increasingly bullish on HITI stock. Of the analysts providing a 12-month share-price forecast, their average target is $13.85, with a high target of $15.00. This suggests potential upside of 157% and 178%, respectively.
Heck, even the analysts’ lowest target of $12.00 suggests that High Tide stock would advance a whopping 122% over the next year.
Chart courtesy of StockCharts.com
Why are analysts finally cluing into one of the best-kept cannabis secrets on Wall Street?
In addition to reporting another strong quarter of financial results, significantly increasing its U.S. revenue, expanding its retail footprint in Canada, completing a strategic acquisition, and strengthening its balance sheet, High Tide Inc has made a number of recent blockbuster announcements that position it for serious growth.
About HITI Stock
High Tide is a vertically-integrated cannabis company with operations in Canada, the U.S., and other countries.
It’s the first non-franchised Canadian cannabis retailer to surpass the 100-store milestone, giving it the largest marijuana retail network in the Great White North. (Source: “High Tide Investor Presentation: October 2021,” High Tide Inc, last accessed November 1, 2021.)
The company’s operations include a dominant Canadian cannabis retail chain, a global manufacturer and distributor of cutting-edge marijuana consumption accessories, and three of the five most popular pot accessory e-commerce platforms in the world. Combined, High Tide Inc’s e-commerce sites had almost 100 million visits in 2020.
The company has more than 5,000 stock-keeping units (SKUs) of pot consumption accessories for sale in Canada.
High Tide Inc Poised to Become the “Costco of Cannabis”
High Tide recently announced that it’s pivoting its highly successful retail network of “Canna Cabana” stores in Canada toward a discount retail club model. (Source: “High Tide Becomes North America’s First Cannabis Discount Club Retailer With Over 245,000 Members,” High Tide Inc, October 20, 2021.)
If that model sounds familiar, it is.
Costco Wholesale Corporation (NYSE:COST) is a retail club with a loyal base of 110 million members who are more than willing to pay for the privilege of shopping in its no-frills warehouse-style stores. The company’s membership retention rate hovers around 90%. (Source: “Corporate Profile,” Costco Wholesale Corporation, last accessed November 1, 2021.)
Following in Costco’s footsteps, High Tide Inc will leverage its existing in-house brands and product line to provide exclusive benefits and steep discounts to its 245,000 “Cabana Club” members. That’s expected to drive customer loyalty and expand the company’s market share.
High Tide didn’t decide to do this overnight; since April, it has been conducting two successful pilot projects.
Those projects brought a 184% increase in marijuana consumption accessory sales, a 76%–100% increase in tetrahydrocannabinol (THC) product sales, and a 272% increase in new signups for Cabana Club. (Source: “High Tide Becomes North America’s First Cannabis Discount Club Retailer With Over 245,000 Members,” High Tide Inc, October 20, 2021.)
While High Tide’s membership is currently free, it said it expects to implement a membership fee and subscription-based box model in the future (as regulations permit).
“While other retailers have made moves to service the value segment, our strategy sets us apart as the only retailer in Canada which will have a discount club loyalty plan,” said Raj Grover, High Tide’s president and CEO. (Source: Ibid.)
High Tide Enters U.K. Market
There are also other exciting things going on at High Tide Inc.
On October 19, the company said it had completed its acquisition of an 80% interest in Enigmaa Ltd., operating as Blessed CBD, for £9.1 million (US$12.5 million). (Source: “High Tide Closes Acquisition of Blessed CBD and Enters U.K. Market,” High Tide Inc, October 19, 2021.)
High Tide also has a three-year option to acquire the remaining 20% of Blessed CBD at any time.
Scotland-based Blessed CBD is one of the most popular direct-to-consumer brands for hemp-derived cannabidiol (CBD) products in the U.K.
Its products include oils, creams, gummies, and capsules. In 2020, Blessed had almost five million visits to its site and an average order value of approximately £75.00 (US$105.00).
This transaction represents High Tide Inc’s fifth acquisition in the global e-commerce space in 2021. It brings the company’s online portfolio to a total of eight e-commerce platforms, serving customers across the U.K., E.U., and North America.
This deal has increased the company’s annual run-rate e-commerce revenue from approximately $10.6 million at the end of October 2020 to just under $60.0 million in October 2021.
6th Consecutive Quarter of Positive Adjusted EBITDA
For the third quarter of fiscal 2021 ended July 31, High Tide announced that its revenue doubled to $48.1 million from $24.1 million in the same period last year. (Source: “High Tide Reports Third Quarter 2021 Financial Results Featuring a 99% Increase in Revenue and Sixth Consecutive Quarter of Positive Adjusted EBITDA,” High Tide Inc, September 14, 2021.)
Of that total, $38.4 million of the revenue was earned in Canada. Revenue from the U.S increased by 69% sequentially to $9.6 million.
High Tide Inc’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $1.5 million, versus $3.4 million in the same quarter last year. The decrease in adjusted EBITDA was primarily due to expenses related to the uplisting of High Tide stock to the Nasdaq.
The company’s gross profit increased by 75% to $16.7 million from $9.5 million in the same quarter last year. Its gross profit margin was 35%, versus 40% in the same quarter last year.
High Tide finished the third fiscal quarter with $26.6 million of cash on hand, compared to $7.5 million on October 31, 2020.
Analyst Take
As shown above, there’s a lot going on at High Tide Inc.
In addition to operating more than 100 stores in Canada, the company is transitioning its dispensaries toward a discount retail club model and positioning itself as the largest cannabis value retailer.
Not only will this transformation differentiate High Tide from other cannabis retailers, but it should help juice sales, boost customer loyalty, and increase the value of HITI stock.