Toronto Star Coverage of High Tide Q2 Earnings
July 4, 2022

By Joshua Chong @ the Toronto Star

Fire & Flower not so fiery hot over the last quarter

More than three years after the federal government legalized cannabis, there are more than 870 licensed cultivators, processors and sellers in Canada. But despite piqued interest following legalization, high supply and low demand have led to billions of dollars in writedowns and millions of grams of unsold marijuana.

Fire & Flower, a Toronto-based cannabis consumer retail and technology platform, acknowledged the market challenges in its recent quarterly report to investors, released in mid-June.

“Competitive pressures, licence expansion outpacing market growth, and a growing value-oriented customer base have created challenging market conditions for the industry as a whole,” said CEO Stéphane Trudel in a statement.

The retailer, which operates more than 100 corporate-owned stores, reported a total revenue of $40.9 million for the quarter, down seven per cent from the same period last year. The company also reported a net loss of $9.9 million over the last reporting period, a significant improvement from about $61.6 million in losses last year.

Matt Bottomley, equity research analyst at Canaccord Genuity with a focus on the U.S. and Canadian cannabis sectors, notes it has been difficult for companies to make gains in the sector due to the competition.

“Ontario has seen, in particular, a very large increase in the number of retail stores over the last 24 months, and because of that, the overall (market share) each store on average is able to get continues to decline,” he said.

Fire & Flower’s most recent quarterly financial report comes after a shakeup in the company’s leadership. Trudel, a former executive at Alimentation Couche-Tard, was appointed CEO in early June. Couche-Tard, which owns Circle K convenience stores, also announced in April it intends to boost its stake in the cannabis company to 35 per cent, from approximately 20 per cent.

High Tide riding a wave of strong sales, though still reporting net loss

Despite market challenges, High Tide rode a wave of strong sales in the last quarter. The Alberta-based cannabis company, with 126 locations across Ontario, Alberta, Manitoba, and Saskatchewan, reported $81.0 million in revenue for the second quarter of 2022, up by 98 per cent compared to the same quarter last year.

It also marked the ninth-straight quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Same-store sales rose by 23 per cent this quarter compared to last year, the company noted.

“Once again, I can proudly report that High Tide continues to see consistent and significant growth year-over-year and sequentially with every passing quarter, despite a persistently challenging macro environment and the state of the capital markets,” said president and CEO Raj Grover in a statement.

The company also touted the success of its membership program, Cabana Club, which has more than 550,000 members, a 124 per cent increase over eight months. But despite growth in a number of areas, High Tide still reported a net loss of about $8.2 million for the quarter, down from the net loss of about $12.2 million the same time last year.

Additionally, many companies, including High Tide and Fire & Flower, have seen their share price decrease significantly over the past year. However, the declines throughout the industry do not come as a surprise to Bottomley.

“There’s a lot of companies that probably merit further downsiding,” he said, speaking to the sector as a whole, “just given how much capital has been allocated to a sector that is not yet able to provide profitability, on average.”

The Bottom Line

It’s been turbulent times for the cannabis industry over the last few months. Bottomley expects many stores to close due to market oversaturation. Although both High Tide and Fire & Flower posted net losses over the last quarter, High Tide comes out as the winner. The Calgary-based company has consistently reported positive adjusted EBITDA. Plus, High Tide’s large revenue gains over the last quarter made it the second-largest revenue-generating Canadian cannabis company that reports in Canadian dollars. It appears to be heading on the right trajectory.