Cantor Fitzgerald Lowers Price Target On High Tide Stock

High Tide Inc. HITI released its 2022 financial results in January for the year ended October 31, 2022.

Here's a breakdown:

• Revenue increased by 97% year-over-year to CA$356.9 million ($265.4 million).

• Gross profit rose by 58% year-over-year to CA$101.0 million.

• Adjusted EBITDA hit a record of CA$14.6 million, up 17% versus the prior year.

• High Tide has entered into a non-binding letter of intent with the Berlin-based health and life science company, Sanity Group. The LOI is designed to leverage synergies between both complementary companies and position each to take advantage of potential German adult use legalization within their respective supply chain verticals.

The company completed its acquisition of 100% of the equity interest of 1171882 B.C. Ltd., operating as Jimmy's Cannabis Shop BC, in December.

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The Analyst

Cantor Fitzgerald’s Pablo Zuanic maintained a ‘Neutral’ rating on High Tide’s stock, reducing the price target from CA$2.75 ($2.03) to $2.7. 

The Thesis

Zuanic, who is a speaker at the April Cannabis Capital Conference in Miami, lowered the price target to address sectoral derating and industry challenges.

“High Tide continues to consolidate the Canadian retail industry, and management is pointing to >50% sales growth this calendar year on the back of 4-5% seq same-store sales growth, and by adding another 40-50 stores to its network," he said.

“Gross margins have rebounded since the launch of the discount strategy, and they could improve further given competitor attrition and also due to company initiatives. At 0.3x our FY23 (Oct) sales estimates and 6.3x EBITDA, the stock is seemingly attractively valued.” 

He pointed out that negative sentiment on the Canadian cannabis market tends to have an effect on the broader sector, with little differentiation between retail vs. LPs, or between operators, and that cannabis stocks tend to move in tandem with expectations about US federal-level reform.

“Investors must decide in which markets and parts of the value chain they want to invest,” he said. High Tide could fit the bill of 'profitable sustainable moat' if it becomes the clear leader in Canada’s cannabis retail space and shows EBITDA expansion." 

Price Action

High Tide shares were trading 1.46% lower at $1.35 per share at the time of writing Monday mid-morning.

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