IUnlike most cannabis stocks, High Tide stocks (HITI) started the week off right. Investors appeared to applaud the company’s decision to acquire an 80% stake in Denver-based NuLeaf Naturals.
This is all part of the company’s strategy to diversify its offerings and follows several other CBD acquisitions made this year.
There have been other strategic moves recently. Perhaps most significant of all was the company’s decision to convert all of its Canadian branded stores to a discount club model where loyalty program members will be offered substantial price discounts. It’s part of the company’s attempt to adapt to a more competitive and increasingly crowded retail environment..
However, Cantor analyst Pablo Zuanic isn’t sure these developments are positive.
“We see execution risk with this strategy,” the analyst said of the pivot to a rebate model, “And we’re also not as excited about HITI’s diversification into CBD and accessories ( two fragmented markets).”
Zuanic admits that in a market set to double by 2024, there are opportunities for Canada’s largest cannabis retail chains. Additionally, the three-tier structure of the Canadian cannabis industry (where private producers and centralized public wholesalers are not allowed to own retailers) provides some protection in larger provinces (with the exception of controlled Quebec). by the state).
That said, this is an increasingly crowded segment where the number of dispensaries has grown from 75 in April 2019 to 2,700 currently, with hundreds more on the way. This has resulted in declining retail margins, a situation which, following Sundial’s cash-rich acquisition of discount chain Nova Cannabis, Zuamic thinks “could get worse”. And while the analyst says High Tide is “well positioned to gain market share both organically and through M&A”, he doesn’t think his profile is the most attractive among retailers,
“We would become more constructive on High Tide as we begin to see the results of the conversion to the discounted membership model and the organic growth of the various recently acquired CBD accessories/assets (six transactions so far in CY21) “, summed up Zuanic.
As a result, the analyst assumed that HITI shares were hedged by a neutral quote (i.e. Hold) and a price target of CA$8.75 (US$6.89), suggesting that the shares are fairly valued at the current price. (Look Zuanic’s track record, Click here)
In contrast, High Tide’s other 3 recent reviews are positive, giving the title a consensus Strong Buy rating. In addition, the average price target is bullish; at CA$15.23 (US$12.02), the stock is expected to appreciate about 83% over the next 12 months. (See HITI stock analysis on TipRanks)
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