Have not been comfortable bringing this ticker to the forums yet due to the poor performance of stock price this past year but the recent decrease in price making this trade at just above Book value makes this a decent long term opportunity if you get the right entry. This DD is not entirely by me most is taken from HighTideInc subreddit and discord, but I see no need to reinvent the wheel and I stand by it but please criticise it if you feel anything is incorrect I am always humbled and eager to listen to the vast amount of experience we have here at Valhalla.
HIGH TIDE (ticker: HITI on Nasdaq)
GLOBAL CANNABIS RETAIL & ECOMMERCE EMPIRE
THC, CBD, & Accessories
INVESTOR DECK (updated 5/3/22): Presentation | High Tide Inc.
Undervalued, hidden GEM w/ visionary CEO and team. Smart strategy of rapidly expanding a global DIGITAL footprint VS just a geographic brick&mortar footprint
POWDER KEG. Only ~53.5M share float = RAPID upside moves when sentiment towards the sector shifts back to positive
MUST WATCH 11/29/21 Raj Interview on the Dales Report: https://www.youtube.com/watch?v=dwOykKxkWPo
GLOBAL THC + CBD + ACCESSORIES STRATEGY
CannaCabana.com #1 in Canada for THC, CBD, & Accessories w/ 120 stores
BlessedCBD #1 in UK, just announced delivery to Germany, USA, Italy, & France. European takeover imminent.
NuLeaf (recently acquired!) & FabCBD are both top CBD brands in the USA. 70%+ margins on these CBD businesses.
Meanwhile, GrassCity.com, SmokeCartel.com, DailyHighClub.com, & DankStop.com are most of the top accessory websites in the world getting. $HITI has 3M High Lifetime Value customers (who bought pipes, bongs, vapes, dab rigs, etc) in a list segmented by US state, so they could do a partnership with a (NY for example) MSO to add a “Buy Weed” button in any state.
2021 Recap
Q4 / 2021 ER (1/27/22)
- Nasdaq uplisting. 4 new analysts
- Opened 48 stores. 150+ by EOY '22. 200 by EOY '23
- Accretive M&A of 3 Accessory biz & 3 CBD biz
- Club membership is booming w/ new discount model causing same store sales growth
- $280M (CAD) run rate
- $80M (CAD) run rate (internationally, mostly USA)
- Rolling out Fastendr kiosk tech to all stores in 2022
OVERVIEW
1) FINANCIALS.
A) ~266M (USD) market cap when the price is $4.32/share (USD).
B) Q1 ER $72+M (CAD) revenue BEAT expectations.
C) After Q1 ER the projected revenue was updated to $330M+ (CAD) in 2022 with a higher goal possible based on the pace of M&A and USA partnerships.
D) Rapid expansion of stores (105 EOY '21; 150+ EOY '22; 200 EOY '23) and M&A now = Big Net Profits later
2) NON-DILUTIVE FINANCING (NDF) – Management indicated on the Q1 ER call that they are working on securing a larger NDF soon.
3) ANALYSTS (5 of 6!) w/ BUY RATINGS.
ATB, Echelon were the first two analysts to issue BUY ratings. They were joined by ROTH & Desjardins a several months ago. Beacon Securities then initiated coverage and on 11/22 Cantor Fitzgerald initiated coverage with a HOLD rating preferring the underperforming/underwhelming (soon to be 40% Couche-Tard owned) F&F instead (oops!). It’s not just about the “BUY” ratings and the PTs – these analysts host “roadshows” (giving them access to Raj, the team, and the facilities) and distribute their in-depth reports to all their institutional clients.
4) M&A targets are always in a loaded deal pipeline. Negotiated several accretive deals on CBD & Accessory businesses to round out their diverse THC, CBD, & Accessory cannabis biz ecosystem:
ACCESSORIES
CBD
- www.FabCBD.com.
- www.BlessedCBD.co.uk.
- www.NuLeafNaturals.com (acquired 11/22)
5) ETFs (MJ, YOLO, THCX, BUDX, MJXL) hold & add. MJ ETF has accumulated 4.85M shares over several months, so they own 9%+ of the float.
6) INSTITUTIONS went from 0 to ~30 institutions in just a few quarters. Institutional ownership went up 420% from Q2 to Q3, and another 106% from Q3 to Q4 – with far more Calls than Puts. New institutions quietly buying in Q1 will be revealed mid-May.
FULL ANALYSIS
INSTITUTIONAL OWNERSHIP %: Mungy (@MungyboyStocks) | Stocktwits
CALLS/PUTS: Mungy (@MungyboyStocks) | Stocktwits
NOTE: Institutions have an much easier time owning HITI vs an OTC listed MSO because they are listed on the Nasdaq with no grow operation – which allows them to get past their compliance department.
7) VALUATION. Undervalued. ~1.25 P/S compared to other retailers like Dollarama at 5 P/S MSOS at ~3-5+ P/S and LPs at 8-10+ P/S. NASDAQ-listed Canadian LPs are unprofitable cash-burning machines, powered by dilution & delusion. MSOS can’t as much institutional love stuck on the OTC.
RAJ IS A SELF-MADE (BEAST) CEO
Raj is the biggest shareholder (~6.5M!) and has never sold a share.
He started this company with $40k and one store and grew it into the empire you see today. And he isn’t slowing down.
He wasn’t handed millions which he squandered paying themselves and their friends first or expanding too much too fast.
He is shrewd. Smart. Strategic. Charismatic. Transparent. And he does whatever he says he is going to do, when he says he is going to do it.
That’s rare.
You bet on visionary leaders like that.
That’s why there are 4-5x as many watchers on StockTwits than any USA MSO.
The passion we feel is contagious. It’s only a matter of time before more institutions and retail investors realize what we already did and trust Raj to take us to the promised land.
NULEAF NATURALS ACQUISITION SIGNIFICANCE
Located in Denver CO, NuLeaf Naturals is one of the top CBD brands in the USA in terms of CBD-blend research & IP, rapid growth, and industry-leading margins. $16M of the ~$20M revenue is direct-to-consumer, but the expanding agreement with Sprouts will allow for wider B&M retail distribution.
It’s notable that their facility is cGMP certified. It can generate up to 60,000 vegan soft-gels per hour, which is 25% of their business. Production of FabCBD and BlessedCBD will be moved to the facility for cost savings.
Once USA legalization allows, High Tide hinted that this facility could also create THC infused edibles and drinks.
DISCOUNT CLUB MODEL STRATEGY
High Tide Becomes North America’s First Cannabis Discount Club Retailer With Over 245,000 Members | High Tide Inc. (now 450K+ members with an estimated 70-90K+ members going to be added every quarter)
DATA DRIVEN decision based on successful pilot programs
Membership in this loyalty program is FREE …for now. Every person who walks into a Canna Cabana sees a high cost for non-members, and a discounted cost for members. When they realize signing up for FREE with their email address and phone # (SMS) makes them a MEMBER of the CABANA CLUB, they will do so in order to save money on that purchase and future purchases.
Stores are stocked w/ HIGH MARGIN products like consumption accessories, FabCBD & Blessed CBD, (VERY soon) house brands of shatter & gummies – with other form factors later.
Anecdotal reports/reviews of lines out the door are a sign this strategy is working.
This is a DATA and MARKET SHARE grab from other retailers and the black market by running them out of business.
FASTENDR (acquired 1/5/21) HOT TAKE
Watch Video
Discount model is causing long lines out the door. Taking a page from leading retailers in other sectors, this allows customers to order online or at a kiosk, and pick up from a “smart” locker. For those customers who know what they want and don’t need the budtender’s guidance, this is a slick convenience. Very few dispensaries in the world have this experience.
Also mentioned in the PR is the desire to license this tech to other dispensaries and industries which could turn into yet another revenue stream.
Delivery will be made available in as many location as allowed by law, but this offers a fast, convenient, slick way of ordering / picking up. It also cuts down on $$$ spent on budtenders while keeping lines moving.
CATALYSTS
A) NON-DILUTIVE FINANCING. Allows rapid expansion without just issuing shares.
B) NEW DISCOUNT CLUB MODEL + PRIVATE LABEL LAUNCH. 2.0 products (launching soon!) & CBD will mega-boost margins.
C) FUNDAMENTALS improving through rapid store opening&maturation and M&A aligned w/ eCommerce domination STRATEGY. 3M+ high lifetime value customer emails + data + social across USA = most valuable asset
D) LEGALIZATION “working-on-it” headlines sparking another forward-looking cannabis sector bull run. Most institutions can’t invest in USA MSOs stuck on the OTC (likely several more mo), so they invest in NASDAQ companies w/ higher valuations. And we all know HITI’s superior fundamentals, valuation, & profit projections stack up very well vs LPs & comps
E) MORE ANALYSTS & INSTITUTIONAL INVESTORS
F) NARRATIVE shift from LP to RETAIL. See: https://www.youtube.com/watch?v=KSdyhx11iJM
G) USA STRATEGIC PARTNERSHIP. Read:
BEAR CASE
Check out AlexM’s video
https://www.youtube.com/watch?v=gkthZBd59TY.
He does a nice job covering major High Tide events and his bear case video is no exception.
My hot take on saturation / competition concerns…
People worried about “saturation” don’t get that big boys like High Tide are the ones that will benefit in the long run. Mom & Pops will get run out of business due to margin pressure. Meanwhile High Tide uses their position to negotiate better prices, which only serves to accelerate this process. Then High Tide gets to buy the best locations based on data while letting the underperformers close their doors.
Coffee shops close. Starbucks gets bigger/stronger.
Department stores close. Target gets bigger/stronger.
Taking pages from the playbooks of Amazon, Walmart, Costco, and Grocery Stores is how HITI. will win in. this Retail game.
High Tide is engaging in a price war it knows it can win.
ISSUES
High Tide is unprofitable currently, although their positive adjusted EBITDA and other metrics show they could be profitable if they wanted to be. This is a rapidly growing company. However, Raj (the CEO) has just announced they are slowing M&A a little bit to be even more diligent as to not get too far away from profitability, while still making great moves to continue to take market share. This brings me to the next issue. They dilute shareholders quite a bit, but if you look at any company that grows this fast, this is what happens, especially in the cannabis sector. Raj holds 6.5M shares and has never sold any and says he does not intend to for a long time. When he dilutes, he dilutes himself, so you can know that he does it for the benefit of the company. The reason you want to be invested here is because cannabis is legal in Canada and banks can cover them. Raj is working hard on non-dilutive credit. They do not dilute because they have to, they dilute because they want to and they have not made a single bad move yet as far as M&A goes. Finally, US legalization is far away. HITI would likely benefit greatly from this. However, while the US drags its feet, HITI is taking over Canada, placing a strong E-Commerce footprint in the US, and expanding into other countries as well such as Germany and Britain.
GROWTH > STAGNATION
The entire cannabis sector is in rapid growth mode. Top operators do all they can to expand their geographic footprint. They use cash, loans, and shares to buy & build assets that allow them to sell cannabis in as many locations as possible.
(High Tide’s strategy is unique because they have been more focused on expanding their DIGITAL footprint, but I’ve covered the brilliance of that strategy in other posts.)
The reason they are all expanding this quickly is because they are confident the demand will continue we to rise and those assets will be worth far more in the future. Frankly, if they don’t expand into X state, their competition will.
What if High Tide never bought META or any of these profitable eCommerce CBD & Accessory biz. High Tide would be net profitable with 30ish locations, and Raj could still own 51% of the shares.
No “dilution” (yay!?), BUT…
No Growth. No World Domination. No Nasdaq. No institutions. No '20-'21 stock price boom.
GROWTH is better than Stagnation
COMMANDING ECOMM RETAILER MULTIPLES
High margin private label THC (edibles, shatter – later flower, vape, etc) & FabCBD.com / BlessedCBD / NuLeaf a big reason High Tide is projected to be net profitable later in 2022.
When High Tide…
A) Sells the most Accessories & CBD worldwide.
B) Owns multiple businesses in the USA.
C) Sells cannabis data.
D) Produces/creates THC edible, vape, & flower brands.
E) Provides accessories to dispensaries across multiple states.
F) PARTNERS WITH STATE OPERATORS TO GIVE THEM ACCESS TO SELL THC TO THEIR 3M+ HIGH LIFETIME VALUE CANNABIS CONSUMERS(!!)
…is it still considered “just a Canadian Cannabis Retailer” ???
It’s all about flippening the LP vs Retail narrative and COMMANDING NASDAQ-listed NET PROFITABLE GLOBAL / MULTI-STATE USA ECOMM RETAILER TECH MULTIPLES
Diverse income streams and a nimble plan makes HITI DANGEROUS in any scenario
RECENT SELL OFF
In the past week we have seen a huge drop on the stock on no news. With a bit of theorycrafting we found that nearly every weed stock with < $5 m in average daily liquidity was basically obliterated by $MJ sell off. HITI has low liquidity and a small float and that kind of sell pressure can send the stock diving the same way it sent it soaring the past two days. MJ selling is forced due to their investment mandate. It’s not actively managed so nobody decided to sell. It’s just part of the rules of their offering. It doesn’t hit the higher liquidity stocks like TLRY as much and HITI was already at oversold. Since MJ completed selling off we have seen a huge influx of volume return to the stock at this low price, the past two days have seen 20% gains in a swing up from being oversold. We are seeing people seeing this ETF rebalancing as an opportunity to add more / average down however this past week can also serve as a reminder how fast this stock can go both ways. I am bullish long-term but assume they will dilute shares soon, there will hopefully be more opportunities for entry however it’s playing a risky game.
CHART
MACD is still bearish and so is RSI, however it is possibly about to cross the 30 and black MACD line would likely turn bullish with it. Before recently, HITI had always bounced off the 30 and had never fallen below 25 before. It sat around 10 last weak, which is outrageously oversold. It still is oversold. The same way HITI fell through a massive hole before, it now has a massive gap up area to 3.39 and trades well below 20, 50, and 200 MAs. Support is around 1.47, but it did put a fat candle in today on nice volume. Basically there is potential for a breakout, but nothing is close to confirmed and the stock has not built support in the range it trades in (won’t get into Fibonacci). The chart shows undervalue and potential for continued gap ups, but this would be a speculative trade at this point, especially considering any more bad news in our horrible planet could defy any and all TA anyways. The point is that everything points to this stock being undervalued and over time, it will not matter.
For purposes of transparency - I have a large long term position in this company.