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Investors Need To Take A Very Close Look At Canadian Cannabis Retailers And Plan Accordingly

Feb 3, 2022 • 7:59 AM EST
4 MIN READ  •  By Michael Berger
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In January, High Tide Inc. (NASDAQ: HITI) (TSX Venture: HITI) (FSE: 2LYA) reported fourth quarter financial results and we were impressed with how the business closed out the year. 

High Tide is a leading Canadian cannabis retailer which owns more than 100 brick and mortar dispensaries across the country as well as global e-commerce assets. During the fourth quarter, the Canadian cannabis retailer reported strong growth and below, we highlighted 9 data points from the earnings report that we found to be significant:

  1. When compared to the same period last year, High Tide generated 117% more revenue (almost $54 million in the quarter). When compared to the prior quarter, revenue increased by 12% and we expect the cannabis retailer to report strong growth in 2022
  2. The quarter only included 12 days from Blessed CBD and none from NuLeaf Naturals. In the current quarter, High Tide announced that it expects to generate more than $70 million of revenue and we will monitor how the acquisitions support the growth of the business 
  3. Although High Tide has been primarily focused on the Canadian cannabis market, international markets are starting to serve as more significant revenue drivers for the business. When the 2021 fiscal year started, the company’s international business had an run rate of approx. $11 million. Now, the company said the international run rate is approx. $80 million and we will closely follow this metric to see how the management team can achieve this goal 
  4. High Tide has a leading position in the Canadian cannabis retail market with 109 locations across the country. By the end of 2022, the company plans to own at least 150 locations and will a primary focus on Ontario. In the near future, High Tide plans to enter British Columbia and we will monitor how the business continues to evolve.
  5. During the fourth quarter, High Tide opened 15 new retail stores. From a geographic standpoint, the new store openings were highly concentrated on Ontario where the company opened 11 new locations. Saskatchewan has also been a growth market and the company opening 2 new locations in the fourth quarter and 3 new locations in the current quarter.
  6. High Tide completed several acquisitions of brick and mortar retailers and of strategic technologies to enhance the e-commerce side of the business. For example, the company plans to use its customized Fastendr™ technology to improve efficiency, lower overhead and labor costs, and improve the customer experience. We are favorable on the types of assets the management team focused on acquiring and expect the business to find significant synergies between them
  7. Last year, High Tide launched a discount club model for its retail stores which had a negative impact on gross profit margins. Although gross margins for the entire fiscal year were 35%, the number fell to 33% in the fourth quarter. Going forward, we will monitor how margins are further impacted by the discount club model
  8. During the fiscal year, the company generated $64 million of gross profit (approx. $17.5 million in the fourth quarter) and $12.4 million of adjusted EBITDA (approx. $1.6 million in the fourth quarter). On a year-over-year comparative basis, gross profit increased by more than 100% and we will monitor how the business advances from here. 
  9. When compared to the prior fiscal year, High Tide has a much stronger balance sheet and we consider this to be especially important due to the rate the business is expanding. At the end of the year, the Canadian cannabis retailer reported to have $14 million of cash which is almost 100% higher than the amount of cash it ended the prior fiscal year with. During the quarter, the company closed on a non-dilutive credit line and eliminated all the convertible debentures that were associated with the META acquisition. We plan to monitor how the management team uses existing resources to grow the business 

Although High Tide reported impressive fourth quarter and full year numbers, Desjardins Securities lowered its price target on the business to C$11.50 from C$13.50. We will monitor how the management team is able to execute on series of growth initiatives to advance the business and believe it is an operator that our readers should be aware of. 

If you are interested in learning about High Tide’s earnings report, please send an email to support@technical420.com with the subject “High Tide Quarterly Earnings” to learn more. 

For the fastest access to data on High Tide’s earnings report,  sign up for our free newsletter!

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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