High Tide (HITI.C) forges ahead with new stores despite sinking cannabis market

High Tide’s (HITI.C) stores in Calgary, Edmonton and Red Deer, all received their first deliveries of cannabis products from Alberta Gaming, Liquor and Cannabis and will begin selling recreational cannabis for adult use on Friday, Aug. 30

Despite the flagging cannabis market, grand opening festivities will be held at the new stores on Aug. 31, as the company thumbs their nose at the wave of losses expected to come about as a consequence of the downturn in the cannabis markets.

Adding more locations in Calgary and Edmonton to our growing portfolio, while also establishing a presence in the famous Gasoline Alley area of Red Deer, is an exciting development for our Canna Cabana business. We have been eager to open this trio of stores and have many more great locations being constructed with opening dates scheduled in the near future.” said Raj Grover, president and chief executive officer of High Tide.

The new additions bring the company to 21 branded Canna Cabana stores across Canada, including one in Swift Current, Sask., and three stores in Hamilton, Sudbury and Toronto, Ontario.

High Tide is an Alberta-based vertically integrated cannabis company focused on expanding their retail offerings, but with interests in the manufacturing and distribution of cannabis lifestyle products.

It’s subsidiaries include:

  • RGR Canada
  • Famous Brandz
  • Kush West Distribution
  • Smoker’s Corner
  • Grasscity.com
  • Canna Cabana
  • KushBar

The tide goes out

At this early stage, it’s difficult to tell if companies like High Tide are going to be around this time next year, but they look like a good bet given how they’re expanding.

Source: stockwatch.com

Their chart suggests that they’re starting to follow the general downward trajectory of the cannabis market, kicked off by Canopy Growth’s (WEED.T) precipitous drop, but it’s still entirely possible that they could whether the storm.

For example, their balance sheet looks healthy.

Second quarter 2019 financial highlights (in thousands of Canadian dollars):

  • Revenue for the three months ended April 30, 2019, increased by 325 per cent, to $6,596 from $1,554 for the same period in the previous year. Revenue for the six months ended April 30, 2019, increased by 159 per cent, to $11,596 from $4,477 for the same period in the previous year. The increases are primarily due to the acquisition of Grasscity, the retail cannabis operations of Canna Cabana which began generating revenue on Oct. 27, 2018, and sales made to new customers in the company’s wholesale segment.
  • Gross margin for the three months ended April 30, 2019, increased by 181 per cent, to $2,351 from $835 in the same period in 2018, primarily due to an increase in sales volume. Gross margin for the six months ended April 30, 2019, increased by 67 per cent, to $4,141 from $2,473 in the same period in 2018 as a result of increased sales volumes.
  • For the six months ended April 30, 2019, the company generated a loss of $7,140 (2018 — loss of $71) and had net operating cash outflows of $7,104 (2018 — outflows of $10,552). The loss and cash outflows are primarily driven by start-up costs to incorporate and staff High Tide and Canna Cabana, as well as from an increased amount of professional fees and rent paid.
  • For the quarter ended April 30, 2019, the total assets of the company increased by 84 per cent to $47,677 from $25,922 on Jan. 31, 2019.
  • High Tide had a working capital surplus of $16,163 for the three months ending April 30, 2019 (Oct. 31, 2018 — $14,920), mainly due to an increase in liabilities resulting from expanded operations as Canna Cabana began to operate and Grasscity was acquired.

Conspicuously absent from the above spread is this:

On June 17, 2019, High Tide closed the final tranche of the sale of the convertible debentures issued and announced on April 10, 2019. Gross proceeds from the final tranche were $3.2 million. The $3.2 million are convertible into common shares at the conversion price of $0.75 cents per share. High Tide also issued common share purchase warrants, such that each subscriber received one Warrant for each $0.75 cents original principal amount of the debenture, resulting in 4,266,667 warrants being issued. Each warrant entitles the holder to acquire one share at an exercise price of $0.85 cents per share for two years from the date of issuance.

Debt becomes a viable option as access to private fundraising dries up. It’s risky (but debt always is) but it’s not a crazy amount of debt, especially given the rate that High Tide’s been expanding.

One to watch.

—Joseph Morton

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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