Pot stock High Tide (NASDAQ: HITI) is down 30% in the past year. Will HITI stock bring shareholder returns in 2022?
What is High Tide?
Founded in 2009, High Tide manufactures and sells cannabis-related smoking accessories and lifestyle products. It sells these via wholesale, retail, and corporate segments.
High Tide brands include:
Canna Cabana
NewLeaf Cannabis
Meta Cannabis Co
KushBar
Grasscity
Smoke Cartel
CBDcity
Valiant Distribution
High Tide is based in Calgary, Canada. And it is now a leading enterprise operating across Canada, Europe and The United States.
How does High Tide make money?
High Tide makes money selling its cannabis products, related paraphernalia and accessories. It plans to bring a membership fee and subscription box to its Cannabis Discount Club in the future.
HITI Financial Overview and Metrics
High Tide is not yet turning a profit. It has a market cap of $255m. On February 1, 2022, High Tide announced a temporary delay in filing its 2021 annual financial statements. This is a red flag for investors as it does not usually bode well when a company misses its filing deadline.
Nevertheless, the company management team answered analyst questions at High Tide's Q4 2021 financial and Operational Results Conference Call on January 31.
P/BV: 1.9
P/S: 1.7
Q4 2021 fiscal year highlights:
Revenue: CAD$53.9m (up 117% Y/Y and 12% from Q321)
Gross margin: 33% (below the 35% generated in Q3)
Adjusted EBITDA: CAD$1.6m
Announced anticipated acquisition of Bud Room Inc., a cannabis retail store in Ottawa, along with its Fastendr technology.
Launch of discount club model (unbeatable prices, consumption accessories, loyalty plan, own brands)
It quadrupled its weekly sales of accessories between April and October.
Membership in its Cabana Club loyalty program saw 55% growth in three months.
Full fiscal year ended October 31, 2021 highlights:
Revenue: CAD$181.1m (up 118% Y/Y)
CEO Harkirat Grover explained gross margins were slightly reduced due to the launch of the discount club model for its retail stores.
Q1 2022 Projections:
Revenue: CAD$70m (up 30% sequentially over Q421) – This would represent the third-highest quarterly income level reported by a Canadian cannabis company.
Hopes to exceed 150 stores by calendar 2022
Aiming for 75 locations in Ontario and 8 in British Columbia.
HITI Stock: $11.50 Price Target from Desjardins Securities
Research Analyst & VP at Desjardins Securities, Inc. John Chu, CFA MBA, downgraded his October price target of $13.50 to $11.50 on January 28, maintaining a Buy rating on HITI stock.
Analyst outlook is optimistic, and FactSet consensus has a Buy rating on HITI shares.
Canadian cannabis industry boosts government coffers
This week, an interesting report released by Deloitte showed how Canada's legal pot industry has helped the country economically.
The report shows the cannabis sector has generated more than $15bn in direct and indirect tax revenue for Canadian and provincial governments. It has also created over 151k jobs since legalization began in October 2018. During this time, Canada's cannabis industry has contributed $43.5bn to the country's economy through direct and indirect routes.
Rishi Malkani, a partner at Deloitte, commented:
"Our hope with this report is that people would realise that the industry's done a lot more than simply provide [licensed producers] with $4 billion of retail access… It's loaded government coffers and it's been a boon to the construction industry."
Is HITI a good investment?
Cannabis stocks are a risky investment, and as such High Tide comes with a risk warning.
COVID has led to store closures, and the delay in filing its financial statements may indicate all is not well. However, the latest earnings call was very upbeat with apparent optimism in the strength of HITI's new discount club model.
Fastendr™ is a unique and fully automated technology that integrates retail kiosks and smart lockers to facilitate a better buying experience through browsing, ordering, and pickup.
High Tide's Fastendr preparations have begun, and the company hopes to roll this out to stores soon, with five to seven stores completed by the end of March. It also hopes to sell or license the Fastendr tech to third-party retailers.
The company appears to be aggressively expanding and is not short of news flow to keep retail investors interested. Analyst price targets are above the current stock price.