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High Tide Inc: Ignored Pot Stock Up 300% YoY; Reports Record 2020 Results
Investor Confidential
By: John Whitefoot, BA
March 11, 2021
High Tide Inc: Ignored Pot Stock Up 300% YoYHigh Tide Stock Up 180% in 2021; Just Getting Started
It’s tough to find an overlooked, undervalued pot stock these days, but High Tide Inc (CVE:HITI, OTCMKTS:HITIF) fits the bill.
The company’s portfolio includes a dominant presence in Canada’s retail marijuana industry; a global designer, manufacturer, and distributor of marijuana accessories; and a major marijuana accessories e-commerce platform.
I last wrote about High Tide back in September, when HITIF stock was trading at $0.14 per share. Thanks to back-to-back strong financial results, High Tide stock has since soared by 300%. The stock is also up 180% since the start of 2021.
There’s every reason to believe HITIF stock is just getting started.
In addition to opening a number of new retail dispensaries, High Tide Inc reported great 2020 financial results, which included 166% growth in revenue and full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $8.0 million.
HITIF Stock Overview
High Tide operates a chain of 73 retail cannabis stores in Canada under the “Meta Cannabis Co.,” “CANNA Cabana,” NewLeaf Cannabis,” and “KUSHBAR” banners. This makes High Tide the largest cannabis retail network in Canada by revenue, and one of the largest by store count. (Source: “Fact Sheet March 2021,” High Tide Inc, last accessed March 9, 2021.)
The company is actively focused on growing its presence in Ontario, the most populous province in the country. By the end of fiscal 2021 (ended October 31, 2021), High Tide expects to be operating 115 stores.
High Tide Inc’s Amsterdam-based “Grasscity.com” is the leading online destination for cannabis consumption accessories and lifestyle products. In 2020, the site attracted more than 26 million visits, 77% from North America.
The company’s site “CBDcity.com,” which was launched in May 2020, is a platform for selling cannabidiol (CBD) products.
Through “Valiant Distribution,” High Tide Inc designs, manufactures and distributes marijuana lifestyle products and consumption accessories. It has distribution facilities in Calgary, AB and Las Vegas, NV.
Of the more than 5,000 stock-keeping units (SKUs), 75% of the Valiant Distribution’s catalog is manufactured in-house, allowing it to maximize margins. Valiant has also partnered with celebrity brands including Snoop Dogg, Paramount Pictures, Hellboy, and Guns N’ Roses.
Plans to Uplist to the Nasdaq
Last December, High Tide announced that it had submitted an initial application to be listed on the Nasdaq. Management said uplisting to the Nasdaq would enhance the company’s investor profile and shareholder value. (Source: “High Tide Announces Application to List on Nasdaq,” High Tide Inc, December 9, 2020.)
The initiative allows High Tide to accelerate its business strategy focused on the U.S. by attracting institutional and retail investors, as well as merger-and-acquisition opportunities.
High Tide already earns approximately 23% of its revenue in the U.S, and it’s looking to expand its footprint in the U.S in businesses that complement the company’s business divisions.
Strong Fourth-Quarter & Fiscal 2020 Results
On March 1, High Tide announced its financial results for the fourth quarter and fiscal year ended October 31, 2000.
For fiscal year 2020, High Tide’s revenue increased 118% year-over-year to CA$83.3 million. Its gross profit increased 172% to CA$30.8 million. (Source: “High Tide Reports 2020 Financial Results Featuring a 166% Increase in Revenue and Record Adjusted EBITDA of $8.0 Million,” High Tide Inc, March 1, 2021.)
The company reported a full-year net loss of CA$6.3 million (CA$0.03 per share), a significant improvement over its 2019 net loss of CA$26.2 million (CA$0.13 per share).
High Tide Inc’s 2020 adjusted EBITDA was roughly CA$8.0 million, compared to its 2019 adjusted EBITDA loss of CA$16.2 million.
The company’s fourth-quarter revenue increased 118% year-over-year to CA$24.87 million while its gross profit increased 112% to CA$8.7 million.
High Tide reported a fourth-quarter 2020 net loss of CA$1.3 million (CA$0.01 per share). For the fourth quarter of 2019, the company reported a net loss of CA$15.4 million (CA$0.07 per share).
High Tide Inc ended the fourth quarter with cash on hand totaling CA$7.5 million. Its cash balance has increased significantly since then, to approximately CA$38.0 million.
“We continued to run our operations tightly, ending the year off with the record levels of revenue and Adjusted EBITDA,” said Raj Grover, president and CEO. (Source: Ibid.)
“We are excited about our trajectory in the United States and continue to prioritize and look for opportunities in that market.”
Analyst Take
There’s a lot to love about High Tide Inc. The company is expanding its retail footprint, and it’s already the largest legal marijuana retailer in Canada by revenue. The company has also improved its balance sheet through several transactions.
Despite the global slump in retail sales, High Tide closed the year with healthy adjusted EBITDA, making 2020 the best year in the company’s history. Looking ahead, its first-quarter revenue is projected to be in the range of CA$37.0 to $CA38.0 million, compared to CA$13,659 in the same period last year.
That bodes well for High Tide stock.
This is the unquestioned worst pot stock you can buy
The Motley Fool
March 20th 20121
The point is, there are a lot of bad marijuana stocks -- but one stands head and shoulders above the pack. In my view, the absolute worst pot stock that money can buy is penny stock Sundial Growers (NASDAQ:SNDL).
Shares of Sundial, a Canadian licensed producer, are up about 1,000% since late October on three developments. First, there was the victory of Joe Biden in November and the subsequent retaking of the Senate by Democrats in early January. Democrats have a considerably more favorable view of cannabis than Republicans do, making it more likely that we see some sort of cannabis reform enacted at the federal level in the months or years to come. Sundial investors are crossing their fingers for U.S. legalization, which would allow all Canadian growers to enter the U.S. weed market.
Second, investors seem pleased with Sundial cleaning up its balance sheet. As of March 15, the company had 719 million in Canadian dollars (about $580 million) in unrestricted cash. This implies that Sundial has more than enough capital to execute on its growth initiatives.
And third, Sundial has benefited from being a core holding of the retail-investor-focused Reddit frenzy. It's consistently been one of the most short-sold stocks of 2021, making it a perceived candidate for a short squeeze among Reddit traders.
Though all three of these factors explain why Sundial Growers has tacked on a quadruple-digit gain in six months, they don't come close to justifying the move.
Before Sundial, I thought Aurora Cannabis was one of the worst serial diluters I'd ever seen, but Sundial takes the cake. Although I'm still waiting for the company's official share count via its annual report filing in Canada at the time of this writing, I'd estimate that, following the exercising of 98.3 million warrants last month, Sundial has at least 1.66 billion shares outstanding. This implies the company increased its outstanding share count by over 1.15 billion shares in roughly five months. I know its CA$719 million cash figure looks attractive, but understand that it's been built by burying its most faithful followers under an avalanche of new stock.
With such overwhelming dilution, here are two things to consider. First, if and when Sundial does turn the corner to profitability, it's going to need to generate CA$17 million in profit (about $13.7 million ) just to produce a single penny in earnings per share. Considering that the company yielded only CA$60.9 million in net sales ($49.1 million) last year, it's highly unlikely that we're ever going to see a meaningful per-share profit from Sundial.
Second, with the company also having a $1 billion mixed shelf offering at its disposal, this dilution is almost assured to continue. The thing to realize is that share price is irrelevant and market cap is what matters. At the moment, we're looking at a company with a $2.6 billion (that's U.S.) market cap that didn't even generate $50 million in net sales last year. Sure, it may have a share price that's perceived to be low. But investors are paying roughly $2 billion (sans cash) for a company that's nowhere near profitable, saw net sales go in reverse in 2020, and continues to dilute its shareholders. In other words, Sundial is a good candidate to once again dip well below the $1 minimum share price required for continued listing on the Nasdaq exchange.
Emotions from young retail investors appear to be the only thing keeping Sundial Growers' stock above $1. If investors were to really dig into this company's operating performance and balance sheet, I'm convinced they'd come to the same conclusion: Sundial is the absolute worst marijuana stock your money can buy.
