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Investors Should Be Watching Canadian Retail Stocks As Cannabis Sales Continue To Climb

Sep 24, 2021 • 7:15 AM EDT
4 MIN READ  •  By Michael Berger
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During the last year, the Canadian cannabis sector has recorded impressive growth at the retail level and we attribute much of the growth to the increased number of stores and the expanded types of cannabis products that are available for sale. 

Although we are bullish on the Canadian cannabis retail market, several leading operators have been trending to the downside. These operators have been reporting impressive growth and we will be monitoring how these businesses continue to evolve.

Today, we have highlighted 2 leading Canadian cannabis retail operators that recently reported quarterly financial results. When compared to the same period last year, these operators recorded substantial growth on a variety of key metrics and believe that our readers should be aware of these operators. 

High Tide’s Price Target Was Cut Post-Earnings

Last week, High Tide Inc. (TSX Venture: HITI) (Nasdaq: HITI) had its price target cut by ATB Capital after it released third quarter financial results that showed impressive top-line growth and positive Adjusted EBITDA (an non-IFRS financial measure).

During the quarter, High Tide generated more than $48 million revenue, 99% higher than the same period in 2020. The third quarter results included revenue from the previously completed acquisitions of META Growth, Smoke Cartel, Fab Nutrition, and DHC Supply. The addition of these assets played an important role in the growth of the business and we will monitor how numbers ramp in future quarters. 

The Canadian cannabis retailer reported positive Adjusted EBITDA for the sixth consecutive quarter and we find this trend to be significant. When compared to the same quarter in 2020, gross profit increased by 75% and came in at $16.7 million. 

Although High Tide reported positive Adjusted EBITDA, the amount was lower than the same quarter in 2020. The decrease can be attributed to expenses associated with up-listing to the Nasdaq, one-time professional fees, and additional human resources to support the integration of businesses that were acquired. 

We believe the geographic diversity of the business was one of the most important metrics that was reported. During the third quarter, High Tide generated $38.4 million of revenue in Canada and $9.6 million in the United States. With a current annual run rate of more than $50 million of revenue from the US, the business is well positioned to continue to report strong growth and this is a market that we are bullish on.

A key metric that High Tide reported in the third quarter was related to its liquidity and balance sheet. Since last year, the Canadian cannabis retailer has strengthened its balance sheet and reported to have $26.6 million of cash on hand (reported to have $7.5 million of cash on hand as of October 31, 2020).

High Tide reported to have 93 retail cannabis stores located across Canada and expects to have approx. 110 stores by the end of the calendar year. We are favorable on the size of the company’s retail footprint and believe our readers should be aware of the opportunity. 

Fire and Flower: A Coast-to-Coast Growth Story 

Fire & Flower Holdings Corp. (TSX: FAF) (OTCQX: FFLWF) is another leading Canadian cannabis retailer that recently reported second quarter financial and operational results that showed impressive growth.

The Canadian cannabis retailer reported positive Adjusted EBITDA for the fifth consecutive quarter and we find this trend to be significant. When compared to the same quarter in 2020, gross profit increased by more than 60% and came in at $16.1 million. 

During the quarter, Fire and Flower generated $43.3 million of revenue, a more than 50% increase on a year-over-year basis. One of the biggest contributors to the revenue growth was Hifyre™, which generated $3.7 million in revenue for the quarter. This amount represents an increase of 293% on a year-over-year basis and we will monitor how the company’s digital retail and analytics platform can support the growth of the business in future quarters.

Fire & Flower CEO Trevor Fencott said the business was able to lay the foundation for its expanded digital strategy in the quarter as it strengthened the number of strategic partnerships that it has. The management team expects the Hifyre digital platform to play an important role with near and long-term growth and we will monitor how the business continues to evolve. 

Like High Tide, Fire and Flower has strengthened its balance sheet and reported to have $29.3 million of cash and short-term investment (as of July 31st). The Canadian cannabis retailer is well positioned to expand its footprint across Canada and will monitor how the management team is able to continue to grow the business.

If you are interested in learning more about Canadian cannabis retailers, please send an email to support@technical420.com with the subject “Canadian Cannabis Retailers” to be added to our distribution list. 

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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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