High Tide Inc (CVE:HITI, OTCMKTS:HITI) is an unjustly overlooked pot stock with exceptional long-term growth potential. The cannabis retail chain, with operations in both the U.S. and Canada, just reported strong third-quarter results, swinging to third-quarter profitability.
At the end of August, the company announced it was acquiring competitor Meta Growth Corp (CVE:META).
With this acquisition, High Tide is set to become the largest single cannabis retailer in Canada, with annualized proforma revenue of $133.0 million. To put this into perspective, in fiscal 2019, High Tide reported total revenue of $31,294.
However, as you can see in the following chart, High Tide Inc stock hasn’t made the kind of moves you’d expect it to. HITI stock is down 46.5% year-over-year, but it’s up 6.6% year-to-date. It has advanced 225% since bottoming in March.
Once High Tide starts reporting revenue from its Meta Growth acquisition, this should change.
Chart courtesy of StockCharts.com
HITI Stock Overview
High Tide operates a chain of retail cannabis stores in Canada, under the Meta Cannabis Co., Meta Cannabis Supply Co., and NewLeaf Cannabis banners. U.S. cannabis lovers can access High Tide’s products through the e-commerce platforms www.Grasscity.com and CBDcity.com, as well as cannabis accessory distributors Famous Brandz and RGR. (Source: “About Us,” High Tide Inc, last accessed September 17, 2020.)
The company’s Canadian operations span 34 locations in Ontario, Alberta, and Saskatchewan. It is working on opening up operations in other jurisdictions, including British Columbia, Manitoba, the Northwest Territories, and Yukon Territories.
Poised to Become Largest Cannabis Retailer in Canada
On August 21, High Tide Inc announced it had entered into a definitive agreement to acquire all of the issued and outstanding shares of Meta Growth Corp. (Source: “High Tide to Combine with Meta Growth, Creating the Largest Cannabis Retailer in Canada,” High Tide Inc, August 21, 2020.)
Meta Growth’s retail network consists of 33 stores.
The combined entity will become the largest cannabis retailer in Canada with 63 locations across Ontario, Alberta, Manitoba, and Saskatchewan, and annualized revenue of $133.0 million.
By the end of 2021, the company expects to double its current footprint to 115 locations, with a focus on Ontario, Canada’s largest cannabis market.
- The combined entity will rank #1 in Ontario based on corporate-owned store count
- The combined entity is expected to be adjusted EBITDA-positive with, additional upside from cross-selling opportunities
- Annual cost and operational synergies of approximately $8.0 million to $9.0 million are expected within 12 months of the transaction closing
- The combined entity’s anticipated $21 .0 million in cash provides a balance sheet to execute on future growth initiatives
“The combination with META is a watershed moment in High Tide’s evolution as we become Canada’s largest and strongest cannabis retailer,” said Raj Grover, High Tide’s president and CEO. (Source: Ibid.)
He continued, “Over the last decade High Tide has built a strong foundation for sustainable growth, and this transaction is another example of our ability to execute on our strategy with customers and shareholders in mind.”
Q3 Revenue up 180%
On September 15, High Tide announced that revenue, for the third quarter of fiscal 2020 ended July 31, increased 180% year-over-year and 18.5% sequentially to $23.2 million. All quotes are in Canadian dollars. (Source: “High Tide Reports Third Quarter 2020 Financial Results, Featuring $2.1 Million Of Operating Income,” High Tide Inc, September 15, 2020.)
By segment, 89% came from Retail and 11% from Wholesale, compared with 80% Retail and 17% Wholesale in the same period last year. Geographically, 75% of revenue was generated in Canada, 23% came from the U.S., and two percent was from international sales.
High Tide reported third-quarter net income of $4.2 million compared to a third-quarter 2019 net loss of $3.7 million. Gross profit increased 202% to $9.2 million, from $3.1 million in the same period of 2019.
Income from operations was $2.1 million, compared to a loss from operations of $4.0 million in the third quarter of fiscal 2019.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was almost $4.0 million, compared to an adjusted EBITDA loss of $3.4 million during the same quarter last year.
The company ended the third quarter with cash and cash equivalents of $7.1 million, from $0.8 million on October 31, 2019.
This exceptional combination of quarterly financial metrics, specifically the record levels and continued growth trends in revenue, gross profit margin, operating income, positive adjusted EBITDA and net income, reinforces our conviction that High Tide is one of the top performing cannabis companies in Canada today.
He added, “High Tide’s diversified and integrated businesses, including its best-in-class e-commerce platform, were strategically positioned to generate the company’s strongest results since inception.”
There aren’t a lot of pot stocks you can truly say are overlooked. But High Tide Inc is certainly one of them.
The company recently reported record third-quarter financial results. It also announced a blockbuster acquisition, one that will see its retail footprint increase from 33 cannabis stores to 63 locations. And that’s just the beginning; thanks to its strong balance sheet, this number is expected to double before the end of 2021.