By Geordie Carragher @ Cantechletter
Canadian cannabis companies have been on the rise recently, and part of that wave includes High Tide, Inc. (High Tide Stock Quote, Chart, News, Analysts, Financials TSXV:HITI). Andrew Semple of Echelon Capital Markets Tuesday reiterated his “Speculative Buy” rating on the company, along with a $20.00/share target price, implying a potential upside of 150 per cent in the next 12 months.
High Tide is a Canadian retailer, distributor, and e-commerce provider of legal adult-use cannabis products and related accessories. The Company’s retail segment operates licensed cannabis stores in Canada, as well as e-commerce smoking accessory platforms. High Tide’s wholesale operations oversee the design, manufacture, and distribution of smoking accessory products.
Semple’s most recent analysis comes after High Tide announced a definitive agreement to acquire e-commerce consumption accessory product retailer DankStop for $3.85 million in stock considerations, which Semple believes will be an immediately accretive acquisition.
“DankStop generated TTM revenues of US$3M as of April 30 and produced low double-digit EBITDA margins,” he said. “We believe there are clear revenue growth and cross-selling opportunities upon closing the transaction, which is expected in the coming weeks.”
DankStop has been a leader in the online consumption supply industry since 2014, with B2B services for the cannabis industry serving as a complement to the company’s retail operations.
“This acquisition is yet another example of how High Tide’s U.S. e-commerce infrastructure and network keep getting stronger. Rolling multiple established e-commerce platforms into our network is positioning us nicely to create numerous synergies and efficiencies across our ecosystem. Along with this transaction, our last two acquisitions have increased High Tide’s social media reach by leaps and bounds, giving us access to an invaluable potential customer base,” said Raj Grover, President and Chief Executive Officer of High Tide in a July 20 press release. “Being vertically integrated in the consumption accessories space and having access to the end consumer will continue to result in our ability to make meaningful high margin sales across all of our channels. Having already commenced online cannabis sales in three Canadian provinces, and already possessing an established customer network in place in the U.S. positions us well to commence online cannabis sales and cannabis subscription boxes in the United States if and when federally permissible.”
Semple’s projections have High Tide’s revenues on a track to grow exponentially year-over-year, jumping from the reported $83.3 million the company made in 2020 to a projected $186.3 million in the 2021 fiscal year, with a further escalation to $314.5 million forecast for 2022.
Meanwhile, the company’s adjusted EBITDA is projected to experience a similar hike, as Semple has it rising from the 2020 figure of $8.2 million to a projected $22.7 million in 2021 before rising again to a projected $53.8 million, keeping the company’s projected gross margin largely consistent between 36 and 37 per cent over the next two years.
Accordingly, per Semple’s projections, valuation ratios are set to fall in the same timeframe, with the EV/Sales multiple dropping from 5.5x in 2020 to a projected 2.5x in 2021 against a target of 7.2x, then dropping to an estimated 1.5x in 2022 compared to the target of 4.3x.
2021 projects to be the first year High Tide will post a meaningful EV/EBITDA multiple, with a forecast of 20.2x for this year compared to a 59.1x target, while 2022 currently projects a multiple of 8.5x compared to the 24.9x target.
From a competitive standpoint, High Tide trades at an attractive valuation of 8.5x EV/2022E EBITDA based on our estimate compared to the cannabis retailer average multiple of 11.5x 2022E EBITDA, and ~14.5x 2021E multiple for comparable retailers from other industries.
High Tide has kept busy on all fronts in recent months, which includes closing the acquisition of another cannabis consumption accessory and subscription box retailer in Daily High Club on July 6. The company also launched a new store in Lethbridge, Alberta, as well as two more Ontario locations in Thunder Bay and Ottawa, with the new Rideau Street store serving as the company’s 20th retail operation in the province.
Finally, the company recently sold off its KushBar assets to Halo Collective Inc., with a price tag of $5.7 million.
With attractive valuations and continued potential for future growth, Semple remains optimistic about High Tide’s path going forward.
“We continue to see upside to High Tide’s valuation upon future M&A announcements, which should prove to be a tailwind to financial forecasts and valuation multiples,” he said.
Share of High Tide closed today down 4.16 per cent to $6.22.