In contrast to most cannabis stocks, shares of High Tide (HITI) started off the week on the front foot. Investors appeared to applaud the company’s move to purchase an 80% stake in Denver-based CBD company NuLeaf Naturals.
This is all part of the company’s strategy to diversify its offerings and comes off the back of several other CBD acquisitions made this year.
There have been other strategic moves recently. Perhaps the most important of all has been the company’s decision to convert all its Canadian branded stores to a discount club model where loyalty program members will be presented with substantial price savings. It is part of the company’s attempt to adapt to a more competitive and increasingly crowded retail environment.
However, Cantor analyst Pablo Zuanic is not sure these developments are positive ones.
“We see execution risk with that strategy,” the analyst said about the pivot to a discount model, “And are not so enthused either by HITI’s diversification moved into CBD and accessories (two fragmented markets).”
Zuanic concedes that in a market expected to double by 2024, there are opportunities for Canada’s largest cannabis retail chains. Moreover, the Canadian cannabis industry’s three-tier structure (where private producers and centralized state-owned wholesalers are not allowed to own retailers) offers some protection in the large provinces (sans the state-controlled Quebec).
That said, it is an increasingly crowded segment where the dispensary count has risen from 75 in April 2019 to 2,700 at present, with hundreds more on the way. This has resulted in lower retail margins, a situation which following cash-rich Sundial’s acquisition of discount chain Nova Cannabis, Zuamic thinks “may get worse.” And while the analyst claims High Tide is “well-placed to gain market share both organically and via M&A,” he does not think that among the retailers, its profile is the most appealing,
“We would become more constructive on High Tide as we begin to see results from the conversion to the discount membership model and organic growth at the various accessories/CBD assets recently acquired (six deals so far in CY21),” Zuanic summed up.
Accordingly, the analyst assumed coverage of HITI stock with a Neutral (i.e., Hold) rating and C$8.75 (US$6.89) price target, which suggests shares are fairly valued at the current price. (To watch Zuanic’s track record, click here)
In contrast, all 3 other recent High Tide reviews are positive, providing the stock with a Strong Buy consensus rating. What’s more, the average price target is a bullish one; at C$15.23 (US$12.02), the shares are expected to appreciate ~83% over the next 12 months. (See HITI stock analysis 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.