According to Cantor analyst Pablo Zuanic’s calculations, in the January quarter (FY1Q22), Canadian rec sales grew sequentially by just 1%. This represents a slowdown on the 10% growth seen in the October quarter and the July quarter’s 12% growth.
A resurgence in illicit trade, COVID-related restrictions, and “purchase power issues” have been cited as reasons behind the deceleration by some companies in the Canadian cannabis industry.
However, Zuanic thinks there’s more to it than just slower sales. Retail prices have “continued to compress” and have come under pressure from a rising store count which is also resulting in “cannibalization (in terms of rev/store).” For instance, as of Feb 7, there were 2,867 stores in Canada, more than twice as many than at the end of 2020, while since mid-October, another 200 stores have opened.
Therefore, Zuanic says that in a “slowing and more competitive Canadian market, both at wholesale and retail, we expect the retail channel to consolidate.” And it is companies such as High Tide (HITI.TO), which the analyst believes will “emerge stronger.”
In fact, should the company achieve its targets of having 250 stores “post” CY23, a loyalty program boasting 750,000 members sometime in CY23 and a market share of at least 10%, Zuanic believes the stock’s EV “could double.”
Additionally, after converting to a discount model in October, Zuanic notes that following talks with management, the company is “enthused with the current sales growth momentum.”
So, does all the above make the stock a Buy? not quite.
“Taking current Canadian market multiples and given inherent execution risks with the strategic pivot,” says Zuanic, “We prefer to remain sidelined for now.”
It’s a Neutral (i.e., Hold) rating, then, and factoring in “sectoral derating,” the price target drops from C$7.75 to C$7.25. Nevertheless, shares still have room for 30% growth in the year ahead. (To watch Zuanic’s track record, click here)
However, in contrast to Zuanic’s take, the 2 other recent reviews are positive, providing the stock with a Moderate Buy consensus rating. The average price target remains a bullish one, too; at C$11.58, the figure suggests investors could see returns of 108% over the coming months. (See High Tide stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
