The Canadian cannabis industry has suffered several waves of insolvencies and restructurings, but one of the industry’s biggest winners is plotting an ambitious yet prudent expansion plan.
High Tide Inc. (Nasdaq: HITI) (TXSV: HITI) remains solidly profitable, delivering robust second-quarter results that included a record $9.4 million in free cash flow. The cannabis retailer and ancillary services provider also grew its market share across its operating provinces to 10.9%, while its rivals faltered.
But rather than capitalize on others’ misfortunes by overpaying for distressed assets, High Tide’s management said it wants to drive continued growth through tightly controlled organic expansion, strategic tuck-in acquisitions at reasonable valuations, and entry into markets nearing broad legalization like Germany.
This comes after CEO Raj Grover dubbed the firm “underleveraged”.
“We are absolutely looking at everything,” Grover told analysts when asked during High Tide’s second-quarter earnings call about potential M&A plans. “We’re not going to get into bidding wars … We think 3.5 times, 4 times is an absolutely fair multiple.”
Price discipline
Grover said High Tide will avoid the type of overaggressive deal-making that has tripped up many of its rivals, some of whom paid premium prices for assets that later underwhelmed.
“There are some operators, both public and private … that have been overpaying in our opinion, and we’ve never historically done that,” he said. “And we don’t need to do that.”
In addition to acquisitions, High Tide is driving an aggressive organic growth plan. The company opened 10 new retail stores so far in calendar 2024 and aims to launch up to 30 more by year’s end. Its Canna Cabana loyalty program, a key driver of the company’s success, grew to 1.43 million members, up 38% year-over-year.
Beyond Canada’s borders, High Tide is preparing to export its discount club model to newly accessible markets like Germany, which Grover called “a highly lucrative market in Europe” that’s “twice the size of Canada.”
South of the border, the potential prize is even bigger. Grover said High Tide aspires to become a “top five multistate operator” if and when the U.S. federally legalizes cannabis. However, he dismissed the idea of employing complex ownership structures currently used by some Canadian companies to invest in U.S. operations while skirting federal prohibitions.
“We’ve seen a lot of players … come up with structures where you cannot consolidate your financials,” Grover said. “I don’t see a lot of value in that.”
For now, Grover said High Tide will tightly control its expansion through careful capital allocation and pricing discipline – a strategy seemingly validated as overstretched competitors retrench and restructure around them.
“We want to remain disciplined, and we don’t want to overpay just to get deals done,” the CEO said.
The post High Tide eyes disciplined growth in the thick of more industry shakeout appeared first on Green Market Report.
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