HITI stock (TSX:HITI) is our cannabis Top Pick, says Echelon

Investors browsing the aisles for a good cannabis stock should be thinking about retail name High Tide (High Tide Stock Quote, Charts, News, Analysts, Financials TSX:HITI). That’s according to Echelon Capital Markets analyst Andrew Semple, who just named High Tide a Top Pick for the third quarter, saying HITI remains Echelon’s highest conviction investment idea in Canadian cannabis. 

“We maintain High Tide as an Echelon Top Pick for Q323,” Semple wrote in a Thursday report. “High Tide maintains exceptionally strong business momentum despite challenges faced by others. It recently announced its seventh consecutive quarter of beating revenue estimates and its 13th quarter of positive adj. EBITDA, making it one of the few Canadian cannabis companies to have sustained profitable growth.”

Semple pointed to High Tide’s unique discount club model, saying it continues to grow its market share from 3.6 per cent to 8.2 per cent since implementation. High Tide now has the highest amount of cannabis sales of any Canadian cannabis company, and its revenues are closing in on a $500 million run rate. 

Same-store sales growth was above 30 per cent year-over-year, while the company’s Cabana Club loyalty program has surpassed 1.04 million members, representing about 13 per cent of all cannabis users in Canada, Semple said.

On its financials, Semple has forecasted revenue to go from $356.9 million in 2022 to $474.9 million in 2023 and to $543.5 million in 2024, while on adjusted EBITDA the call is for it to go from $14.6 million in 2022 to $24.4 million in 2023 and to $33.9 million in 2024. Semple said management has reiterated its priority in achieving positive free cash flow by the end of the calendar 2023 year, despite the broader challenging market conditions in the Canadian cannabis industry. Semple said this will reduce High Tide’s reliance on volatile capital markets.

“High Tide is a standout in the Canadian cannabis industry. It is one of a few cannabis companies in Canada to sustain growing positive EBITDA while maintaining clear organic growth drivers ahead (near-to-medium term from the ongoing deployment of the discount club model and long term from the expansion into the German/American markets upon possible legalization),” Semple said.

“M&A offers to be another growth catalyst, with management recently remarking that targets are available at possibly 2.0-2.5x trailing EBITDA,” he said.

With the update, Semple maintained a “Speculative Buy” rating and $9.00 target on HITI, which at press time represented a one-year projected return of 442 per cent.