High Tide Faces 'Tough Market Climate' For Retail, Analyst Lowers Price Target On Cannabis Stock

High Tide (NASDAQ:HITI) recently closed a $10 million deal equity financing deal.

The agreement includes the exercise in full of the underwriter’s over-allotment option. In relation to the offering, the Canada-based company issues a total of 4.96 million units at a price of $2.32 per unit, for aggregate gross proceeds of $11.5 million. 

The company noted it plans to use the net proceeds from the offering for constructing and opening new retail cannabis stores, debt repayments, and standard corporate practices. 

The Analyst 

Cantor Fitzgerald’s Pablo Zuanic kept a ‘Neutral’ rating on High Tide stock lowering their price target to CA$2.80 ($2.18) from CA$4.45. 

The Thesis 

The analyst said he lowered the price target to address the increased share count and higher operations risks.

High Tide stock fell 25% over the last week, compared to AdvisorShares Pure Cannabis ETF (NYSE:YOLO) which gained 5%. 

The company, headquartered in Calgary, Alberta, aims to reach 150 stores by the end of the year, through mergers and acquisitions and organic openings. Through pricing strategy and discount loyalty offerings, High Times expects to continue gaining retail share in Canada. It also has plans to launch the recently acquired Fastendr kiosk technology by the end of the year, and projects for its private label program to account for 20-30% of marijuana retail sales. 

Based on Cantor Fitzgerald’s assessment, there are around 3,300 cannabis stores in Canada, with a density of 85 stores per 1 million people on average, being more than in most U.S. states (except for Colorado, Oregon, and Oklahoma). 

“While we understand HITI’s consolidation strategy, with 129 stores, the company is still only 4% of the total store count.,” Zuanic said.

In addition, with marijuana price deflation in Canada, the analyst believes that “this is a tough market climate for retailing.”

“While the valuation is seemingly attractive, given the challenges in the overall cannabis market in Canada, and specifically in retail, we are not comfortable with the risk/reward here and prefer to remain Neutral,” Zuanic said.

The Price Action

High Tide shares traded 0.65% higher at $1.56 per share during Monday’s pre-market session. 

Photo: Courtesy of chuck herrera from Pixabay

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