High Tide: The Rising Tide Of Cannabis

Grocery stores, pharmacies, and gas stations have been essential business during the pandemic, do cannabis dispensaries fall under that category as well? High Tide Inc (OTCMKTS: HITIF) has been dominating the industry. With all the stay-at-home orders put in place all around the world, people have had more time on their hands. People are seizing this opportunity to experiment with the relaxation effects of marijuana in the comfort of their homes. High Tide is a manufacturer, distributor, and retailer of cannabis products and accessories that are located in Canada. With their slogan "One Stop Shop of Cannabis'' they have an unmated potential from the growing cannabis market.

person holding white flower during sunset

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The Green Expansion

High Tide is becoming a dominant force in the weed accessories market with the help of an explosive expansion. This undervalued company should have you foaming at the mouth with all the strong fundamentals that surround it. Their cannabis retail brands include Canna Cabana, Kush Bar, New Leaf, and META creating one of the largest footprints in Canada. After researching HITIF, the company had a total of 67 stores with a projection of doubling their brick-and-mortar locations. Currently, High Tide has expanded its shops and opened its 83rd location in a prime tourist destination. High Tide completed the acquisition of META Growth Crop. and became the leading Canadian cannabis retailer. The addition of new stores and the business combination of META into the Company contributed $23M of the increase in revenue while existing businesses contributed $1M. META Growth was not its only acquisition, GrassCity was one of their recent acquisitions as well. Based in Amsterdam, the Netherlands, GrassCity is the world's #1 online store for smoking accessories and cannabis lifestyle products. It is the most searchable smoking accessories retailer, with approximately 5.8 million site visits annually. With 550,000 customers that log into grasscity.com, the website generates over 90% of its revenues from customers in the United States. HITIF is taking aggressive steps to adjust its business model by pursuing expansion opportunities in the United States and Europe.

High Tide currently has a footprint in the United States market, they recently acquired Smoke Cartel located in Savannah, Georgia. Raj Grover the President and Chief Executive Officer of High Tide had this to say about it "The acquisition of Smoke Cartel is a great way to further vertically integrate our accessories business and expand our footprint in the United States, especially in parallel with our current application to list on the Nasdaq. We expect Smoke Cartel's proprietary and licensable drop-shipping technology to enhance our e-commerce business right away, along with the cross-listing of inventories between its website and our Grasscity and CBDcity platforms." Both Smoke Cartel and High Tide will greatly benefit from this transaction and will encourage overall growth. High Tide has also stated that they are one transaction away from establishing a brick-and-mortar retail market in the U.S. when legalization inevitably happens.

Financials: The Current and Future Outlook

The company has reported its fiscal first-quarter 2021 on March 30, 2021, and have shown their financial stability. Reported revenues are up 179% to $38.3M in the first quarter of 2021 from 2020 at $13.7M. Gross profits rose 208% to $14.7M in the first quarter of 2021 from $4.7M in 2020. Not only have they made money but they also slashed operating expenses, loss from operational needs decreased to $2M in the first quarter from $2M in 2019. One of the driving factors for this amazing quarter was its merchandise sales. During the three-month period, the large growth in merchandise sales was made possible by the acquired businesses representing an increase of $14M of total sales.

You can see the revenue that keeps trending upwards since 2019, this shows the growth potential of High Tide. The legal cannabis market is growing quickly, High Tide is seeing strong revenue growth while still being dramatically undervalued. “Despite the global slump in retail sales associated with the pandemic, and thanks to the tireless efforts of our team, we closed the year with approximately $8 million in Adjusted EBITDA making 2020 the best year in High Tide's history,” says Mr. Grover. For the upcoming fiscal year in 2021, projections are roughly $186 million in revenue, further growing to $268 million by 2022. Furthermore, a study done by Grand View Research states that “the global legal marijuana market size is expected to reach USD 73.6 billion by 2027.” High Tide is one of the cheapest cannabis stocks on the market even though it outperforms its competitors. Rallying over 300% from its lows of just $0.17, it has reached all-time highs at $0.80 but pulled back currently sitting at $0.57. I believe that there is a significant upside in investing in this company, it just needs to be seen by more investors, which brings us to our risks.

Risk

All investments have risks, which vary from large to small, part of the risk for High Tide is not being listed in major market indexes. High Tide is currently listed on the OTC however the company has applied for NASDAQ listing. HITIF meets all requirements except for the $3 stock price threshold, a reverse split might come in the foreseeable future. However, if it is rejected, you can see the share price plummet to $0.20. Critics also point to a bull market in the cannabis sector for its major run, and that points to High Tide’s stagnant movement during this bear market. Access to the United States market needs to be adopted in order for HITIF to explode. With the current administration pushing back on legalization, High Tide may be stuck in limbo for the next coming years. On the other hand, if cannabis is legalized, it will lead to new competitors causing sales and revenue to decrease. There is still a strong upside that clearly cancels out the bad.

Current Evaluation

Currently trading at $0.50 High Tide is vastly undervalued, with its outstanding rate of growth, exceptional financials, and prospects of entering the United States market. With more countries legalizing cannabis, the market will continue to grow in High Tide’s creating revenue opportunities every quarter. The major catalyst for this particular stock is the Nasdaq listing, with the influx of new traders you will see this pop once it hits brokers like Robinhood and WeBull. Another catalyst I am looking forward to is the legalization of cannabis in the United States. We already saw a spike when congress in Mexico legalized cannabis which could put pressure on the United States to do the same. Figures in the U.S. government like Chuck Schumer have stated he will act on marijuana legalization with or without the Biden administration. This is promising for the expansion of High Tide to reach the United States Market.

Overview

High Tide's strategy as a parent company is to strengthen its multiple chains while providing a welcoming customer experience and maximizing shareholder value. The legal cannabis market is growing rapidly and High Tide is taking advantage by expanding throughout Canada and stabilizing foundations worldwide through their acquisitions of Grass City and Smoke Cartel. With eye-catching financials and outstanding growth potential, there is a real opportunity to enter the cannabis market at such a low price. High Tide can multiply many times over from its current level, it is just a matter of time until HITIF starts getting recognition.

Conclusion

In conclusion, High Tide is an undervalued company that can reach the maximum potential within the coming years. I currently own 713 shares at $0.67 and I will continue to add before the price hits $1. Anything under $1 is dramatically undervalued, I am looking for a price target by the end of the year at $1.33 using Fibonacci retracement levels. With the new wave of legalization sweeping countries around the world, High Tide is at the forefront of capitalizing on the new cannabis market. Despite the risks featuring a lack of being in a major market index and slow U.S. expansion, High Tide is a force to reckon with. With a firm grasp on the cannabis market in Canada, High Tide is expanding to parts all around the globe. An already incredibly undervalued company solely based on current financial fundamentals, HITIF becomes more intriguing every step of the way. This is an undervalued long-term hold that can skyrocket in the near future. This isn't speculative; HITIF popping to the $2-5+ range is a matter of when not if. This is a definite long-term hold, with acquisitions like GrassCity and Smoke Cartel you can see the undeniable growth potential High Tide has yet to reach.

Disclosure: I currently own 713 shares at $0.67 and I will continue to add before the price hits $1.

Disclaimer: This article is not an investment recommendation,  more

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Carl Schwartz 1 year ago Member's comment

Great article! I particularly like, “$HITIF hitting the $2-$5 range is a matter of “when”, not “if”!