Analyzing Small Cap Stocks: High Tide

The TDR Three Key Takeaways regarding High Tide and small-cap stock:

  1. High Tide’s growth from a $50,000 investment to a $189M small-cap stock draws investor interest.
  2. High Tide reports a 23.6% revenue increase, demonstrating its small-cap company growth.
  3. For every $10 spent at High Tide stores, the company makes $0.60 in profit, six times higher than Walmart’s $0.10.

High Tide Inc. (NASDAQ: HITI), a small-cap stock in the cannabis industry, has attracted investor attention with its growth and strategic market positioning. Founded by an initial investment of $50,000, Hightide has grown and now has a market capitalization of $189 million. The company’s success is due to its customer base, many of whom are part of the Cabana Club, a membership program that fosters customer retention and recurring revenue.

High Tide’s financial performance has been strong. Last year, the company reported revenue of $497 million, a 23.6% year-over-year increase. Over a three-year period, the revenue growth is 80.3%, showcasing company’s ability to scale in a competitive market. One of the most intriguing aspects of Hightide’s financial health is its levered free cash flow, which was $19.1 million last year, up from $1.35 million the previous year. This indicates strong cash flow generation, essential for funding further expansion.

Despite reporting a net loss of $5 million last year, this includes $18 million in depreciation, acting as a tax shield. Adjusted for this, the company’s underlying profitability is stronger than the net income figure suggests. The company’s operational efficiency is highlighted by a comparative analysis with major retailers. For every $10 spent at High Tide stores, the company makes $0.60 in profit, six times higher than Walmart’s $0.10. This efficiency is attributed to High Tide’s extensive range of white label products, which yield higher margins. In contrast, spending $10 at GameStop results in a $0.04 loss, emphasizing cmpany’s high profitability within the retail sector.

High Tide’s growth strategy includes aggressive retail expansion, capitalizing on regulatory changes in Ontario, where the cap on the number of stores for licensed companies increased from 75 to 150. This shift enabled the company to expand its footprint, with new Canna Cabana dispensaries opening across Ontario. Research and Markets project a 26.65% increase in the legal cannabis market over the next decade in North America. This growth trajectory provides a strong tailwind for Hightide, positioning it well to capitalize on the expanding market.

High Tide is exploring opportunities in the U.S. market, where regulatory changes are creating a favorable environment for cannabis companies. Polls indicated 70% of Americans support the legalization of cannabis, suggesting imminent regulatory shifts. The company, already listed on the NASDAQ, stands to benefit from such changes, facilitating quicker market entry compared to competitors still dealing with listing processes.

High Tide Inc. is a promising small-cap stock with strong financial performance, strategic retail expansion, and operational efficiency in the cannabis industry. Investors seeking exposure to a cannabis small-cap company should consider Hightide for its solid foundation in Canada and prospects in the U.S. Want to keep up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.

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