High Tide HITI stock is positioned to move upwards should any of the cannabis stocks actually start moving. Recent financial data for High Tide shows expanding revenue from a cannabis company that is growing significantly and becoming one the best marijuana stocks to buy. Earlier guidance had High Tide revenue coming in at approximately $110M USD. That number appears that it will be easily blown out; I am expecting High Tide HITI stock to print about $120M – $125M revenue for the year. Further, should new acquisitions close in a timely manner for High Tide HITI stock, very likely, there will be an additional $25M added to the annual revenue. From a revenue perspective, there is a lot to cheer about.
From a margins perspective, numbers are still not entirely where they could be but, you have to break a few eggs in order to make an omelet. Given that, I see this as an opportunity. Surely High Tide will be able to achieve higher levels on their margins. Should they, there is a significant amount of upside potential.
There has not been much of a love fest for cannabis stock over the past few months; largely, cannabis has been ignored. Consistently, I have blamed the biggest cannabis stocks for this: Canopy Growth CGC stock, Hexo HEXO stock, Aurora ACB stock, Cronos CRON stock, et. al. Because of their stature, often these stocks get pushed upwards whenever there is a big rush into the cannabis sector. But, these behemoths do not have the same capabilities as, say, High Tide HITI stock. So, whenever these stocks rally, it is inevitable that they sell off. This brings all of the other cannabis stock down.
I see this as an opportunity for these lesser-known stocks.
Given the recent uplifting and new share count, I wanted to figure out where the stock could be trading at in the future. But, there may be headwinds. The Federal Reserve meets and it is very possible that they start to talk about tapering off the heavy-duty policy accommodation. This would mean that the future earnings multiples that stocks are trading at are likely to be reconsidered; stocks are likely to sell off.
Given this, let’s look at what potential is there for High Tide HITI stock and whether there is upside potential.
High Tide As a company
I mentioned in previous analysis that High Tide was looking they would print about $110M in revenue given future guidance. However, I also felt this was a bit on the low side. A lot of these cannabis companies understate their future revenues; this is par for the course. Right now, High Tide printed $62M in revenue for the first 2 quarters of this year. Expect about an addition $65M – $70M in the final two quarters for 2021. That would bring revenues up to about $127M – $132M. And, I think I am being conservative there that we may see $35M printed and then $37.5M after that which would total about $135M for the year.
Pro Forma Revenue Growth
At the same time, on a pro forma basis, High Tide is advising that they could add an additional $40M (C$50M) for the year should they conclude with its next acquisition. If this goes through this will be a serious boost to the revenue. Here is what was said in the last financial release:
High Tide believes it is well positioned to take advantage of the growing ancillary and hemp derived CBD markets and estimates its current revenue run rate in the U.S., pro forma for the announced acquisitions, to be approximately $50 million today.
This means they could be printing about $175M for this year’s run rate.
Then there is the fact that there are multiple new locations that will be opened up in Canada for High Tide dispensaries. While opening a new store involves costs, High Tide is already EBITDA profitable and so the eventuality is that net income positive is just around the corner.
By the numbers:
I put together the Complete list of Top 100 Cannabis Companies and on that sheet there are data points that show where a company ranks against other marijuana stocks. Here are the pertinent rankings for High Tide:
- #50 Revenue Growth: 6.2%
- #4 Revenue/Share: $0.637
- #47 Gross Margins: 38%
- #73 Operating Efficiencies: 47.7%
- #17 EBITDA/Revenue: 14.5%
- #50 Debt/Asset Ratio: 46.3%
There are some competitive numbers here and there are some numbers that are not-so-competitive. But, I can see how each of these metrics would improve overall in the coming quarters. Gross margins and operating efficiencies are very likely to improve noticeably and that will show in the bottom line.
High Tide HITI Stock Chart
Due to some issuing of stock, High Tide HITI stock may have softened:
There are a lot of reasons people have pegged the selling in High Tide HITI stock. In May, there was an ~$17.5M bought deal that sold in to the market but, those shares would have been held closely so, they would not have actually been offered ATM; It was a bought deal.
Others have speculated that now that the uplifting is over profit taking is ensuing. For me, I don’t worry too much about stock prices sliding like this. As cannabis investors, we need to be patient simply because there is value here and others are simply not appreciating that value as they could be. Time will pay those who are patient handsomely.
High Tide Financial Data
We are now looking at revenues hitting at about $155M in actual revenue for the year. The pro forma deal is for about $40M for the year so, perhaps High Tide only accretes the revenue the last two quarters, giving High Tide $20M in actual revenue.
I am showing revenues here with the future projections. Management gave us guidance at the beginning of the fiscal year but, they are surpassing that. I had imagined they would surpass these numbers. So, I projected numbers that were higher than what management guided. Even those elevated numbers are being blown out. Then, there is the new acquisition that is taking place that is likely to add an additional $20M in revenue, $10M per quarter:
If there is one metric that High Tide is nailing it then it is revenues. The revenue picture is expanding rapidly and, given the ambitions of High Tide management, they are very likely to see continued revenue growth.
I want to give readers an idea of where this puts the general cannabis industry numbers for YoY growth rates. The S&P 500 generally prints about 3.5% revenue growth rate YoY. Collectively, cannabis stocks are printing 7.25% QoQ, a multiple of 8x that of the general economy for growth.
Gross margins, on a competitive basis, have been somewhat elusive for High Tide management. The very best companies are printing about 60% – 65% for gross margins. High Tide’s sub-40% is well below the best levels. But, High Tide is still in a period where they are scaling up. given that, and the fact that they have already achieved EBTIDA profitability, this ensures that all High Tide needs to do at this point is scale upwards:
Should High Tide be able to increase margins to competitive levels, there would be considerable profits to trickle down. With the obtainment of EBTIDA profitability, scaling up would ensure that this could be achieved.
Still, the differences are striking. If High Tide were to print the $175M total and they maintained 40% gross margins, this would be $70M in gross profits. Add in 20% more to give High Tide 60% gross margins, then all of a sudden you are looking at $105M in gross profits; a difference of $35M. That is a very big deal.
Total Operating Costs
Here is another area there is some work to be done, but this is minimal, at best, as revenues will continue to increase:
On a relative basis, if High Tide were to maintain these margin cost levels with $175M in revenue, this would be about $87M in total operating costs. However, should High Tide start to slash costs and get to the point where they are more competitive, this could bring them back down to the lower 30% levels they were in just two quarters ago. This would mean that operating profits would see an additional $35M added to the bottom line.
EBTIDA & Net Income
Because High Tide achieved EBTIDA profitability, all I am wondering is how scaling up will continue to improve the bottom line. Economies of scale and production gains will continue to improve the overall picture. Buy having obtained EBTIDA profitability, all High Tide would need to do is scale up more in each dispensary and through the production facilities.
Again, if High Tide were to increase gross margins to competitive levels while cutting costs down to competitive levels (They were just there two quarters ago), this would add some $70M in total for the year on $175M in revenue (Pro Forma), about $17.5M per quarter. It adds up.
But, the operating costs are understandable as High Tide continues to increase its footprint aggressively. And, despite gross margins being where they are, with increased sales and the need for more production High Tide is very likely to get to these basic levels soon.
The key for me was that High Tide achieved EBITDA profitability, are increasing revenues significantly, and are also acquiring excellent companies.
Is High Tide HITI stock a Good Investment?
First, I have always liked this cannabis stock, it is one of the best marijuana stocks you can buy. And, I believe that another company may step in and acquire High Tide HITI stock. If that were to happen an investor could expect to receive a quick 30% premium and then be sitting on another cannabis company that will eventually expand even further.
High Tide has about 50M shares outstanding. If they were firing on all cylinders with regards to total numbers HITI stock would be through the ceiling.
At $175M in revenue, with 60% gross margins and 35% total operating costs, and an additional 10% in continuing costs, High Tide would be earning some 15% of revenue for net income. That is about $25M distributed over 50M shares, or $0.50 per share EPS. With a 100x forward earnings multiple that puts the HITI stock at $50.00 per share.
But, High Tide is not firing on all cylinders. However, they are laying out the foundation for that to happen. There are a multitude of variables that predicate this occurring. First, the S&P 500 needs to continue on its meteoric rise due to ultra-low interest rates. That is likely to not happen as the Federal Reserve is about to start its tapering policies.
Given that, because of the rate of growth for High Tide, if you dropped the forward multiple down to 50x future earnings you are still looking at a $25.00 stock. That is doable. But, this is predicated upon High Tide increasing its margins to 60%; clearly they are stuck in that regards. I can see a beginning of this being a metric that gets focused on and improvements. This is the one thing to watch.
High Tide is likely to bring its operating efficiencies in line again. But, that will take time. High Tide is EBITDA profitable so any increases in revenues are going to trickle down to the bottom line.
There are two eventualities:
- High Tide gets competitive with its metrics; and,
- High Tide increases its footprint.
All the while, High Tide is going to continue to increase its footprint and increase revenues. At the same time, matings will continually improve. The eventuality is that High Tide becomes a $25.00 – $50.00 stock, and then keeps on going as the increased revenues and improved margins will continually add to the bottom line and High Tide is valued appropriately by the market.
Just know this, however, building a business is not an event; it is a process. The same goes for investing. High Tide is a longterm hold.
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