We came across a bullish thesis on High Tide Inc. (HITI) on an X/Twitter thread by M. V. Cunha. In this article, we will summarize the bull’s thesis on HITI. High Tide Inc.’s share was trading at $2.49 as of Oct 17th. HITI’s forward P/E was 38.17 times, according to Yahoo Finance.
A close-up shot of a cannabis leaf on a cannabis cultivation farm.
High Tide (NASDAQ:HITI) has emerged as a standout in the cannabis industry. It started from a business focused on selling consumption accessories. The company’s CEO then used the legalization of cannabis in Canada to transform High Tide (NASDAQ:HITI) into the country’s leading cannabis retailer. Through a combination of calculated acquisitions and the implementation of an innovative discount club model, the company now controls over 10% of the Canadian cannabis market. That’s despite the fact that High Tide’s (NASDAQ:HITI) cannabis retail store count contributes to just 5% of stores of its kind. High Tide’s pricing strategy offers some of the lowest prices, and it has contributed to the decline of several competitors. This then allowed the company to strengthen its foothold in a rapidly consolidating industry.
Today, the discount model program has more than 1.5 million members and continues to grow each quarter.
A key component of High Tide’s (NASDAQ:HITI) success has been its expansion into e-commerce, achieved through acquisitions of companies like Smoke Cartel, FABCBD, and BlessedCBD. These moves have diversified the company’s revenue streams and boosted profitability by improving margins. CEO Raj Grover’s focus on driving sustainable growth–as evidenced by the company’s positive free cash flow and net income in recent quarters–positions High Tide for long-term success. The company is also eyeing international markets like Germany, while keeping an eye on potential entry into the U.S. market if cannabis is legalized at the federal level.
While competition remains–particularly from companies like SNDL–High Tide has been able to secure non-dilutive financing and achieve positive cash flow. This makes it much more shareholder-friendly than most cannabis stocks. The recent launch of High Tide’s ELITE membership program is expected to drive future revenue and improve margins–operating on a model similar to that of Costco–where membership offers additional value to loyal customers. This membership program is growing fast: up 226% year-over-year and 38% quarter-over-quarter.
Despite a challenging macro environment for cannabis companies, where many have struggled with profitability and operational issues, High Tide’s methodical approach has built a resilient and scalable business. Investors should keep an eye on regulatory developments in markets like the U.S. and Germany, which could act as future growth catalysts. In the meantime, High Tide remains focused on consolidating its leading position in the Canadian market.
The undervaluation of High Tide–despite its impressive execution and leadership–is notable. The overall negative sentiment surrounding cannabis stocks–which has persisted since the 2017 bubble burst–has kept investors cautious. After all, retail investors have lost billions in the sector.
That said, High Tide does not suffer from poor financials. Most of its peers are money pits with no profits in sight. Unlike these companies, High Tide is free cash flow positive and continues to grow its net income.
In terms of valuation, High Tide trades at significantly lower multiples compared to its peers, despite its market leadership and superior margins. Its gross margin of roughly 30% and free cash flow margin of 8% have the potential to improve as the Canadian market stabilizes and competitors exit. Thus, High Tide represents a compelling value proposition for long-term investors, offering superior management, execution, and profitability while trading at a steep discount to its peers. The company is well-positioned to capitalize on a stabilizing cannabis market and continued industry consolidation.
High Tide Inc. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 3 hedge fund portfolios held HITI at the end of the second quarter, which was 4 in the previous quarter. While we acknowledge the risk and potential of HITI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HITI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.