By Marty Shtrubel @ Nasdaq.com
Just over a year ago, High Tide (HITI) completed the acquisition of Meta Growth – a major strategic move in the company’s history which firmly positioned it as one of Canada’s leading cannabis retailers.
The company’s latest actions could prove just as vital claims Andrew Semple, a 5-star analyst at Echelon.
Last week the company announced it plans on turning all its Canadian branded stores to a discount club model where members of its Cabana Club loyalty program will be offered substantial price savings. By doing so High Tide hopes to win “defendable market share.”
“After considering the market conditions and the preferences of consumers, we believe this decision will be positive for High Tide,” Semple said. “The announcement firmly cements management’s near-term focus on market share gains within the cannabis retail segment.”
As cannabis consumers have shown to be quite “price sensitive,” the analyst believes the new model will probably lead to much higher revenues due to a surge in transactional volumes.
In fact, the analyst thinks sales are already on the rise in converted stores based on higher traffic volumes.
That said, the move is not without repercussions; gross margins will initially suffer as sales reach the level required to counter the “lower gross margin profile.”
“We expect this period to take at least six months before stores have reached the appropriate run-rate revenues where the sales gains should begin to become a net positive to long-term EBITDA,” the analyst explained.
Over time via price increases on particular SKUs and new private label products, margins should “modestly” improve. That said, Semple no longer sees the company reaching retail margins “approaching or even above 30%.” The new model is probably “here to stay,” and Semple believes the company is in a great position to lead discount cannabis retail’s advance.
“High Tide has the largest corporate-owned store network in Canada, one of the widest selections of accessory products, is amongst the best capitalized, and has a captive audience through its Cabana Club membership program (already more than 245,000 members),” the analyst summed up.
Semple believes not only revenue should soar but that High Tide shares will be heading much higher too; going by the C$18 ($14.57) price target, shares will be changing hands for a 168% premium a year from now. The analyst’s rating stays a Speculative Buy. (To watch Semple’s track record, click here)
Two other colleagues have recently reviewed HITI’s prospects, and both are just as effusive; therefore, the stock has a Strong Buy consensus rating backed by a C$17.17 ($14.54) average price target, suggesting one-year gains of ~160%. (See High Tide stock analysis on TipRanks).