Rising High: An exclusive talk with retail-focused cannabis company High Tide
April 22, 2021

By Kelly Carroll @ The Fly

High Tide SVP talks retail focus, Smoke Cartel acquisition, opportunities and more

In this edition of “Rising High,” The Fly conducted an exclusive interview with Omar Khan, senior vice president for corporate and public affairs of High Tide (HITIF), a Canadian retail-focused cannabis corporation. Here are some highlights:

RETAIL FOCUS: High Tide is a retail-focused cannabis company with 84 branded retail locations spanning Ontario, Alberta, Manitoba and Saskatchewan. The company’s retail segment includes the Canna Cabana, KushBar, Meta Cannabis Co., Meta Cannabis Supply Co. and NewLeaf Cannabis banners. High Tide also serves consumers through its consumption accessory businesses including Grasscity.com, Smokecartel.com and CBDcity.com as well as its wholesale distribution division under Valiant Distribution. “What sets HighTide apart is that we have a differentiated and broad ecosystem as compared to any other North American retailer,” Khan said. “Despite competing with other retailers on store counts, we are also marching ahead with our ancillary business divisions. Having the top two consumption accessory e-commerce platforms in the world, both of which are profitable and have a combined 33M annual site visits, sets us up nicely to take advantage of U.S. federal legalization if and when it happens.” The SVP added the company currently manufactures over 75% of consumption accessories it sells and  also has proprietary and licensed accessories through Famous Brandz. “All these products are a big hit with consumers and command shelf space in all retail settings, helping us further build relationships with bricks and mortar retailers, distributors, and brand manufacturers,” he said. “Our manufactured consumption products are of such high quality that we also supply them to several competing retailers in Canada and many dispensaries in the United States.  Our integrated value chain is our biggest strength, and we will keep capitalizing on our winning strategy.”

COMPETITIVE EDGE: When asked about the company’s key differentiators, Khan noted the company’s Canna Cabana strategy as well as the development of a retail value brand. “Our industry leading Canna Cabana concept revolves around the convenient one-stop-shop experience for our customers,” he said. “That includes an unparalleled selection of consumption accessories at unbeatable prices and features our educated and well-informed budtenders.” The SVP also noted the Cabana Club loyalty program, where loyal customers are offered a cash discount on every purchase. “We are also focused on strategic promotions that appeal to value consumers without jeopardizing our wide variety of cannabis products or impacting the margin profile across our core SKUs,” he said. “These features have led to over 50% of our daily transactions arising from our Cabana Club members.” Additionally, High Tide is creating its own retail value brand to strengthen its market position, Khan said, and the company expects that to launch shortly in target markets where appropriate. “In the meantime, we continue to strengthen our unique concept, which is very well-received, as evidenced by the strength of our repeat customer numbers,” he said. “We are also leveraging an aggressive accessories strategy that is being implemented across locations right now to further fortify stores. “

SMOKE CARTEL ACQUISITION: In March, High Tide announced it had completed the acquisition of Smoke Cartel, an online retailer of consumption accessories and hemp-derived CBD products, for $8M. “In 2020 Smoke Cartel was the second most visited e-commerce platform for consumption accessories in the world,” the SVP said. “This means that between Grasscity and Smoke Cartel, we now own the two biggest such platforms in the world with over 33M site visits last year alone.” He said he deal has created immediate synergies and is enhancing High Tide’s profitability by creating the necessary scale to take advantage of the continuing trend towards e-commerce as well as providing access to Smoke Cartel’s proprietary drop-shipping technology. Additionally, the acquisition is “allowing High Tide’s brands and existing inventory to reach Smoke Cartel’s 550,000 customers across the United States, Canada, the United Kingdom, Australia, Germany and Mexico, driving more sales opportunities and increased profit margin,” Khan said. He noted the purchase also gave the company access to Smoke Cartel’s database of over 1M email and social contacts. “Smoke Cartel’s numbers continue to rise on a stand alone basis driven by their proprietary drop shipping technology – which we can’t wait to implement across all of High Tide’s e-commerce channels,” the SVP said.  “Especially in this online world, it is key that we own the top two e-commerce accessories platforms. Meanwhile we instantly increased our penetration of the U.S. market.”

EXPANSION: Along with its first quarter earnings report, High Tide said it remained focused on the Ontario market and expected to open additional locations in Alberta. Khan said the company had a record-breaking March with eight new store openings in the two markets. “Recent pandemic related construction restrictions in Ontario have delayed some store openings,” he said. “Despite that we now have 17 stores open across the province, including a recently announced new location in Ottawa’s ByWard Market.” The SVP said the company expects to open more in the coming days and hopes to reach 30 stores across the province by September should construction restrictions ease in the spring. “We are also focused on growing our e-commerce and accessory distribution/manufacturing footprints in the United States and Europe,” he said.

LEGALIZATION: When asked about the potential federal legalization of cannabis in the U.S., the SVP said High Tide has been monitoring legislative development closely. “We are encouraged by signs that both the Democratic controlled Senate and House of Representatives seem keen on pursuing comprehensive cannabis reform within the life of this Congress,” he said. “That being said, we are realistic in our expectations and understand that comprehensive reform would require the Democratic congressional leadership to win over the support of some Senate Republicans and Conservative Senate Democrats in order to reach the 60-vote threshold needed to pass most legislation in the Senate.” Therefore, High Tide’s U.S. strategy is designed to pursue acquisitions that will be accretive to shareholders within the current federal regulatory and legislative framework, Khan said. “That is why the Smoke Cartel acquisition is so attractive to us as it solidifies our position as the top e-commerce provider of consumption accessories and hemp derived CBD in the United States,” he said. “Fortunately for High Tide, we are advancing our growth at a nice pace in the U.S. and expect to continue to do so throughout 2021 and beyond.”

DELIVERY METHODS: As technology advances and delivery systems for cannabinoids become more diverse, the SVP said High Tide is already seeing a consistent increase in demand for cannabis vaping products in the past few months. “We expect this to continue,” he said.  “We also expect to see further innovation in the 2.0 product category as several producers are spending a lot of money on research related to speeding up the onset of effect related to edible and drinkable products.”

CORONAVIRUS: The coronavirus pandemic has impacted many companies globally in the cannabis market and Khan said the outbreak did impact High Tide’s sales, as it did with all retailers. “In Canada, several provinces, especially Ontario, moved into complete lockdown and many of our stores have been limited in terms of operations and sales opportunities,” he said. “We have been able to partially mitigate this impact because our team quickly pivoted towards home delivery and curbside pickup options.” Despite the challenges, High Tide was still able to close 2020 with its strongest quarter and year since inception, the SVP said.  “As the pandemic subsides, we still believe it will take some time for in store sales to return to pre-pandemic levels,” he said. “To ensure that we are still able to drive growth and shareholder value in the meantime, we are taking aggressive steps to bolster our e-commerce presence, particularly in the United States.”

CHALLENGES: When asked about the biggest challenges facing the industry, the SVP pointed to the Canadian black market. “Although legal sales have been steadily rising in Canada, the illicit market remains resilient,” he said. “It’s taken more than two years for legal sales to outpace the illicit market.  This is finally accelerating now because of more competitive price points and innovative product offerings from producers.” Khan added that governments also need to play a role in ensuring the success of the cannabis industry. “In too many provinces, retailers are forced to compete with government e-commerce platforms while federal regulations make it difficult for producers to grow their brand awareness, which is critical to luring consumers away from the illicit market,” he said.

OPPORTUNITIES: As the cannabis space develops, Khan said e-commerce will become more prominent over time. “E-commerce will play a growing role moving forward for the cannabis industry,” he said. “The pandemic has seen a boom for e-commerce globally, including in the cannabis sector.  That is why we are so focused on expanding our e-commerce footprint in the U.S. and Europe related to the sale of hemp derived CBD and consumption accessories.”

OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Aphria (APHA), Aurora Cannabis (ACB), Auxly Cannabis (CBWTF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Clever Leaves (CLVR), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), CURE Pharmaceutical (CURR), Delta 9 (VRNDF), Emerald Health (EMHTF), Fire & Flower (FFLWF), FluroTech (FLURF), General Cannabis (CANN), Greenlane (GNLN), Green Thumb Industries (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HempFusion (CBDHF), HEXO (HEXO), IM Cannabis (IMC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Lowell Farms (LOWLF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Omnicanna (ENDO), Organigram (OGI), Planet 13 (PLNHF), Skye Biosciences (SKYE), Sproutly (SRUTF), Stem Holdings (STMH),  Sunniva (SNNVF), Supreme Cannabis (SPRWF), Valens (VLNCF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Village Farms (VFF), Vireo Health (VREOF), WeedMD (WDDMF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).