We came across a bullish thesis on High Tide Inc. (HITI) on Substack by Ray Myers. In this article, we will summarize the bulls’ thesis on HITI. High Tide Inc. (HITI)’s share was trading at $2.08 as of March 26th. HITI’s trailing P/E was 72.46 according to Yahoo Finance.
A close-up of a package of cannabis accessories, displayed on a brightly-lit retail shelf.
High Tide has solidified its position as a dominant force in Canada’s legal cannabis retail market by strategically focusing on retail expansion while avoiding the challenges of cultivation. Many cannabis companies overestimated demand in the early industry boom, leading to oversupply and financial struggles, but High Tide took a different approach, prioritizing scale, operational efficiency, and competitive pricing. Despite initial regulatory delays, high taxes, and the persistence of the illicit market, legal cannabis has steadily gained traction, with a 2024 survey showing that 72% of cannabis users now purchase legally, up from 24% in 2019. Regulatory shifts, such as Ontario doubling the store cap per entity and Manitoba reducing cannabis-specific taxes, are accelerating the decline of illegal sales, further strengthening High Tide’s position.
With 191 Canna Cabana stores across key provinces, High Tide operates Canada’s largest cannabis retail network. Initially focused on rapid expansion, the company paused in 2023 to prioritize free cash flow (FCF) generation, successfully achieving CA$14.9 million in FCF. Now, growth has resumed with 29 new stores opened in 2024 and plans for 20-30 more in 2025. High Tide’s market share has grown to 11% in the five provinces where it operates, leveraging its scale to negotiate better pricing from suppliers, enabling it to offer lower prices than independent retailers. In addition, the company is improving margins through private-label brands like Cabana Cannabis and Queen of Bud, following a model similar to Costco’s Kirkland Signature. By ensuring customers develop brand loyalty with the retailer rather than individual product manufacturers, High Tide strengthens its pricing power and competitive edge.
A crucial driver of High Tide’s success is its Cabana Club loyalty program, the first of its kind in recreational cannabis retail. With 1.72 million members, including 73,000 paying Elite members, the program fuels repeat purchases and customer retention. Elite membership, which grew 161% year-over-year, offers discounts and exclusive perks that attract frequent consumers—who account for 66% of total cannabis usage. By providing a superior shopping experience, competitive pricing, and convenience, High Tide is capturing an increasing share of Canada’s cannabis market while drawing customers away from illicit competitors.
High Tide’s long-term goal is to become the “Costco of cannabis,” leveraging scale and customer loyalty to dominate the market. Unlike illicit sellers, the company guarantees product quality and a seamless shopping experience, both in-store and online. As regulatory hurdles ease and industry consolidation removes weaker competitors, High Tide is poised to capitalize on the maturing cannabis sector. Financially, the company closed FY 2024 with CA$522 million in revenue, up 7.1% year-over-year, while operating income surged 667% to CA$15.3 million. Net income improved significantly, reaching -CA$4.3 million, a 99% increase, and FCF jumped 83% to CA$27.3 million. Though revenue growth has slowed in recent years, profitability is now the priority, setting the stage for a potential reacceleration.
Historically, High Tide struggled with profitability, but 2024 marked a turning point as it achieved operating profitability for the first time in years. The operating margin expanded to 2.9%, a significant improvement from -62.4% in 2019. While net income remains negative, it has improved dramatically, with the net margin rising from -20% two years ago to just -0.8% today. Past acquisitions led to impairments and asset write-downs, but those headwinds are largely behind the company. Adjusted EBITDA reached CA$38.3 million in 2024, up 25% year-over-year and 209% from 2021, while FCF margins nearly doubled to 5.2%. High Tide’s cash position has also strengthened, reaching a record CA$48 million, a 223% increase since 2021, while debt stands at CA$76.6 million. With a net debt-to-EBITDA ratio of 0.9 and an EBITDA-to-interest expense ratio of 2.3, High Tide is well-positioned to manage its financial obligations.
Dilution has been a concern, with shares outstanding increasing 406% from 2020 to 2024. However, share issuance has slowed significantly, rising only 13.8% in the past two years. Now that High Tide is FCF-positive and nearing GAAP profitability, future dilution is expected to be minimal. Wall Street analysts project revenue growth of 14.9% annually, reaching CA$689.7 million in 2026. Operating income is expected to rise 52% to CA$35.4 million, with 2026 marking the company’s first profitable year at an estimated CA$13.9 million in net income.
With a market cap of CA$301 million, High Tide trades at just 0.6x sales and 11x FCF, offering a 9.1% FCF yield. By 2026, P/S is projected to drop to 0.4, P/FCF to 8.6, and the FCF yield to improve to 11.6%. Valuation models suggest a potential 463% upside, with shares reaching CA$20.95 by 2030, implying a 33.4% CAGR. Even under a conservative scenario, shares could gain 181.5%, compounding at 18.8% annually. A more aggressive case, assuming strong store expansion and revenue acceleration, projects even higher returns. With improving fundamentals, accelerating growth prospects, and an attractive valuation, High Tide presents a compelling investment opportunity with significant upside potential.
High Tide Inc. (HITI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held HITI at the end of the fourth 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.