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• Content META

  Title	Research and detailed analysis on High Tide inc ( $HITI : Nasdaq)
  ID	4668866
  External ID	1h4s2cv
  Author	WilliamBlack97AI
  Published Date	Dec. 2, 2024, 4:32 a.m.
  Summary	**Background** \- How [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) became the leading cannabis retailer in Canada https://preview.redd.it/g1nfeyvzve4e1.png?width=876&format=png&a
  Tags	None
  URL	https://www.reddit.com/r/smallstreetbets/comments/1h4s2cv/research_and_detailed_analysis_on_high_tide_inc/
  Sentiment	Negative: 0.01020    Neutral: 0.25082    Positive: 0.73898
  Relevance	0.00000

• Content Details

  Content ID	2797137
  Key	210f9808-64bc-4dda-8e86-b4289b7e6fd4
  Content	**Background** \- How [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) became the leading cannabis retailer in Canada https://preview.redd.it/g1nfeyvzve4e1.png?width=876&format=png&auto=webp&s=e68077da388bb82e569e63219c9676204d4d5d7a **The beginning**: Raj Grover, the founder and CEO who owns \~9% of the company and has never sold a single share (not even when it was trading 5x higher than it is today), comes from an entrepreneurial family and had already experienced success with several smaller businesses before establishing [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click). During a business trip to India in search of opportunities in fashion accessories or body jewelry, Raj stumbled upon the potential of cannabis consumption accessories. Recognizing the margin arbitrage opportunity, he shipped $10,000 worth of consumption accessories from New Delhi to Canada and sold everything overnight. After replicating this success a few more times, Raj decided to open a store. **This marked the beginning of High Tide's story**. In 2009, Raj opened Smokers’ Corner with an initial investment of less than $50,000 and grew it into a multimillion-dollar empire. At that time, there were only two or three competitors with unappealing stores. Raj believed that by creating a differentiated store in a smart location, he could easily capture market share, and he was right. By leveraging his established roots in Indonesia, Thailand, China, and India, he was able to not only provide a better customer experience but also offer much cheaper products. **Cannabis legalization in Canada**: Always looking to stay ahead, Raj seized the opportunity when the Prime Minister of Canada announced that recreational cannabis would soon be legalized. With an existing customer base of cannabis users, it made perfect sense for Raj to expand into selling cannabis itself. He realized that if he only sold accessories, he would eventually lose customers to shops that offered both cannabis and accessories. After nine years of focusing on consumption accessories and accumulating nearly $10M in retained earnings, Raj raised $88.5M for the first time in 2018 and ventured into the equity markets, marking **the beginning of High Tide's journey as a publicly traded company**. With easier access to capital when compared to its peers, High Tide expanded its footprint across Canada, highlighted by the significant acquisition of its competitor Meta in 2020, which increased the number of stores from 37 to 67. **The strategy shift that made everything change**: Around the same time, [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) began acquiring e-commerce businesses selling accessories and CBD-related products (mostly oils) with higher margin profiles, **a pivotal decision for the company**. From acquiring several brands in the U.S., such as Smoke Cartel, FABCBD, Daily High Club, DankStop, and NuLeaf Holdings, to later acquiring BlessedCBD in the UK, High Tide leveraged its market power to **enhance margins** and diversify its revenue streams. https://preview.redd.it/lhinga2vve4e1.png?width=857&format=png&auto=webp&s=8479c5f781af5e8d49f5e1f2c0393c459bf5754a In the summer of 2021, [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) was accepted for listing on the Nasdaq, marking a significant milestone. Later that year, a transformative decision was made: **High Tide launched a discount club model for its retail stores in October 2021**. With consolidated margins higher than any competitor due to the previously mentioned CBD-related acquisitions, High Tide could offer cannabis at remarkably low prices, **attracting loyal members and rapidly gaining market share**. Although this discount model initially involved selling cannabis at a loss, **the move proved to be incredibly successful**. High Tide's market share increased from less than 4% to over 10% in less than three years, despite representing less than 5% of the total cannabis retail store count. **Today, the discount model program has more than 1.5M members and continues to grow each quarter**. Being the first-of-its-kind discount model was the key differentiating factor that propelled High Tide to become the leading cannabis retailer in Canada. **No competitor could match their prices**, and Raj targeted cannabis users who consumed regularly and were highly price-sensitive. When I first started investing in High Tide, one of its closest competitors was Fire & Flower Holdings, which ultimately went bankrupt following this price war. There are many more examples of competitors that went bankrupt following this (Four20, Tokyo Smoke, etc), showing how strong [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) has become in the sector. And the consolidation of the market in Canada is just starting. This strategy also significantly diminished the illicit market, further strengthening High Tide’s market share. **After capturing market share, it was time to turn profitable**: While Raj sacrificed margins to achieve this, economies of scale and several initiatives aimed at improving margins allowed [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) to become **positive free cash flow** again in 2023 (\~8% margin as of last quarter), as well as **positive net income** in the most recent quarterly results, with a consolidated leadership position stronger than ever. Overall, **High Tide took a calculated risk to become the leader in the country**, and it proved to be incredibly successful. This success was only possible due to the CEO's extensive experience in the sector and deep understanding of the cannabis consumer, surpassing that of any other management team. **What's next for** [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)**?** \- The best is yet to come. https://preview.redd.it/bvride3jve4e1.png?width=900&format=png&auto=webp&s=4b3a211b7039f55419d3518b82539b6748cb0353 While the focus on becoming FCF+ led to a notable deceleration in revenue growth, [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) **is now returning to its high-growth strategy**. Despite cannabis being legal for over five years, there's still significant market potential to capture in Canada. A recent regulatory change in Ontario now allows one company to operate up to 150 recreational cannabis stores, doubling the previous cap of 75. This change is benefiting large retail chains like [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click). Raj Grover has outlined plans to open 20-30 stores this year (already opened 20 so far), capitalizing on the opportunity and targeting the high presence of the illicit market in the region. Moreover, the Canadian market is experiencing significant consolidation, allowing High Tide to expand its market share organically and through acquisitions at depressed multiples. For example, High Tide recently acquired a store for 1.5x last quarter's annualized Adj. EBITDA. The CEO mentioned in the last earnings call that he's in negotiations with a sizable player to acquire additional stores, aiming to accelerate its footprint expansion and surpass this year's initial target. Every month there are dozens of cannabis stores closing in Canada because they simply can't compete with [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click). Over the next two years, High Tide is expected to reach a 15% market share, up from 12% today. https://preview.redd.it/i9iodrupve4e1.png?width=900&format=png&auto=webp&s=b570f757af12086d7fb9150a9aa57f909cf4cf7f It's worth mentioning that Raj and his team have always been methodical in selecting store locations, ensuring each one yields significant returns, which is why the annual revenue per store at [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) surpasses the industry average by a wide margin. Over the next three to five years, there's **potential to reach an annual revenue of $1B in Canada alone**. [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is one of the very few cannabis companies that **does NOT depend on any new legislation** to keep growing and improving its bottom-line numbers. High Tide, with its vast e-commerce base of over 3M U.S. customers and profitable operations, is poised to leverage these developments. Raj Grover’s strategic approach as a second mover allows him to avoid pitfalls and strategically open stores in key states. The company is ready to capitalize on its strong foundation and scale efficiently, aiming to secure significant market share with well-chosen locations and a clear expansion strategy. Most U.S. operators struggle to turn a profit even with gross margins in the 40-50% range, while [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is both FCF and net income profitable with a gross margin below 30%. [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)'s same-store sales have increased by 118% since the end of FY2021, when the discount club model was launched. In contrast, total sales across the five provinces where it operates are up only 12% during the same period, implying the average operator’s same-store sales are down 21%. [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)'s **competitors are being completely outpaced**. https://preview.redd.it/uhz7o800xe4e1.png?width=756&format=png&auto=webp&s=3376f393e45b7a6f71826932fcc3ee3ad295cf2c High Tide is becoming the **Costco of Cannabis** After the success of its free discount model, which gathered over 1.5M members in under three years, [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) launched ELITE, **a paid membership with even better offers**. https://preview.redd.it/jfw8rr3mwe4e1.png?width=900&format=png&auto=webp&s=9ff7730847c104dc81e2846b55d0214c3ec9c073 The rollout began slowly, but **membership is now growing at a record pace** — 226% YoY and 38% QoQ last quarter. It's worth noting that this growth is happening while the subscription price is being raised. Although the absolute number is still relatively small, at 46,000, the conversion rate of regular club members to ELITE ones is getting better every quarter. You only need to make a small purchase for the membership price to pay for itself, it's exactly like [$COST](https://x.com/search?q=%24COST&src=cashtag_click). The long-term vision is for High Tide to be the [$COST](https://x.com/search?q=%24COST&src=cashtag_click) of cannabis, **driving strong and predictable cash flows and strengthening High Tide's competitive edge**. I believe this is one of the catalysts that will help [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) further improve bottom line margins. Despite being a retailer with relatively low margins, [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)'s gross and FCF margins (\~8% as of last quarter) have **room to grow**. Cannabis prices in Canada are just starting to stabilize, and [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is waiting for full market stabilization before aggressively launching white labels. While many independents are closing and the market is consolidating, [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) isn’t raising prices yet to avoid aiding competitors. **The long-term strategy is to leverage pricing power gradually**. When I asked the CEO if [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)'s FCF margins are nearing a peak, the response was clear: No, **there are still many growth opportunities**. As the market consolidates and [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)'s market share increases, they anticipate further improvements in both gross and FCF margins, plus new areas to explore with scale and other initiatives. **Valuation** \- [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is the most superior cannabis business, yet the cheapest. Retail investors in Canada alone have lost over $130B since the 2017 bubble popped, so I understand why everyone is wary of this sector. But I have demonstrated how [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is different from the most well-known cannabis companies like [$CGC](https://x.com/search?q=%24CGC&src=cashtag_click), [$TLRY](https://x.com/search?q=%24TLRY&src=cashtag_click), [$ACB](https://x.com/search?q=%24ACB&src=cashtag_click), and others. **High Tide generates strong FCF and has a track record of consistently impressive execution**. Most importantly, it has a highly aligned management team that cares about shareholders, which is rare in the sector. The fact that this sector is at its peak of pessimism is what makes it possible for us to buy [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) at such a cheap valuation. It's also worth mentioning that, unlike the other names mentioned, High Tide went public late in the game and was not part of the bubble in 2017-2018. That's why it is so underfollowed and why most people don't even know about it.Let's check the numbers. [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) generated CAD $22.7M in FCF over the last 12 months, so it is currently trading at 10x LTM FCF. It's worth noting that this was the first full year of FCF profitability, so this number should improve further from here. But since most cannabis companies are not FCF-positive, let's use EV/EBITDA as a proxy. [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is trading at \~5x its NTM Adj. EBITDA, while the average for [$MSOS](https://x.com/search?q=%24MSOS&src=cashtag_click) is \~7-8x. Importantly, its Adj. EBITDA from these last 12 months increased 82.7% from the previous year. It's mind-blowing that it can trade at such a low multiple. The disparity is even larger when we look at other Nasdaq-listed cannabis stocks. For instance, [$TLRY](https://x.com/search?q=%24TLRY&src=cashtag_click) is trading at almost 20x, [$ACB](https://x.com/search?q=%24ACB&src=cashtag_click) at the same, and [$CGC](https://x.com/search?q=%24CGC&src=cashtag_click) isn't even EBITDA-positive. [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is **the best-performing cannabis company** and one of the very few that is already generating both FCF and net income, **yet it remains the cheapest**. Faster growth + better margins + a superior management team + a winning business model + the lowest valuation = **a complete bargain**, at least in my view. While most investors are avoiding this sector due to the well-known companies that destroy shareholder value, I'm taking advantage of this opportunity by investing in what I consider a hidden gem. The recent acquisition of Nova Cannabis by [$SNDL](https://x.com/search?q=%24SNDL&src=cashtag_click) at a low valuation multiple might have highlighted how undervalued [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is. Nova Cannabis was one of the few competitors to High Tide, but under [$SNDL](https://x.com/search?q=%24SNDL&src=cashtag_click)'s ownership, it has lost direction. This acquisition occurred at an EV/TTM Revenue multiple of 0.55-0.6, while [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click), a more established and superior business, was trading at 0.4x. Similarly, [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)'s EV/TTM Gross Profit multiple of 1.4x contrasts sharply with Nova's 2.4x. This disparity indicates that [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) is undervalued, and the market is beginning to recognize this. [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click)'s annualized sales per sq. ft. compared to those of other well-known names, such as [$COST](https://x.com/search?q=%24COST&src=cashtag_click), [$LULU](https://x.com/search?q=%24LULU&src=cashtag_click), [$WMT](https://x.com/search?q=%24WMT&src=cashtag_click), [$TGT](https://x.com/search?q=%24TGT&src=cashtag_click), and more. https://preview.redd.it/1spd9mz9xe4e1.png?width=900&format=png&auto=webp&s=6a88c61d9513a92f476925dee04c1fb605bedb67 Before finishing, I'd like to highlight this: [$HITI](https://x.com/search?q=%24HITI&src=cashtag_click) has **less than 10% institutional ownership**, while over 75% of the market is owned by institutions. **Peter Lynch often talks about this**. If you want to achieve multibagger returns, find a hidden gem before the institutions do. For greater understanding look at the company presentation, since images are not allowed, in the presentation they better reflect the overview and the deep competitive moat that the company enjoys Thank you Latest company presentation : [https://hightideinc.com/presentation/](https://hightideinc.com/presentation/)
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