High Tide is a Buy, says Beacon Securities

Despite a slowdown in growth in the Canadian cannabis market, retailer High Tide (High Tide Stock Quote, Charts, News, Analysts, Financials TSXV:HITI) continues to show solid progress, according to Beacon Securities analyst Doug Cooper. And with competitor Fire & Flower recently filing for bankruptcy protection, the long-awaited consolidation in the cannabis retail market is now happening, Cooper said in his Thursday report, with HITI set to benefit.

High Tide, which owns the Canna Cabana line of cannabis stores in Canada, with currently 153 locations across British Columbia, Alberta, Saskatchewan, Manitoba and Ontario, announced its fiscal second quarter 2023 financials on Wednesday for the period ended April 30. 

The company reported its 13th straight positive adjusted EBITDA quarter, delivering Q2 adjusted EBITDA of $6.6 million compared to $2.4 million a year ago. Revenue increased by 46 per cent year-over-year to $118.1 million. 

High Tide said its share of the Canadian retail market outside of Quebec rose from nine per cent to 9.5 per cent, while its same-store sales grew by 30 per cent year-over-year to $687,000 for an annualized revenue per store of $2.7 million.

“We remain on track towards achieving our communicated goal of generating positive free cash flow by the end of calendar 2023,” said President and CEO Raj Grover in a statement.

“Our focus on operating efficiencies and the continued execution of our business plan has set us apart from many of our competitors, some of whom continue to experience significant operational and financial headwinds,” he said.

Cooper said the fiscal Q2 financials were better than expected, pointing to key performance indicators that continue to trend in the right direction, notably, market share at 9.5 per cent, revenue per store, which Cooper said will go up as more consolidation in the space occurs, and costs per store, which continue to decline for High Tide and help support EBITDA growth. 

On the Fire & Flower news, Cooper said it’s still TBD what will happen to its retail stores, but it’s fair to say that HITI will benefit, either directly from buying some of FAF’s stores or from picking up sales if and when some of those stores close.

“We believe we are (finally) seeing the consolidation in the Canadian retail market that, as the largest retailer in the country, will benefit HITI from both a revenue and margin perspective,” Cooper said.

With the update, Cooper maintained a “Buy” rating and $4.50 target price on High Tide, which implied at the time of publication a 12-month projected return of 162 per cent.

“We expect the consolidation we are seeing amongst both the producers and retailers will continue to leave only a handful of viable players in each segment. We believe HITI will be one of those winners,” Cooper wrote.