Here’s my look at High Tide’s ($HITI) 2019 year end, and here’s GoBlue’s quarter in pictures on their latest. As he pointed out, there was improvement, but, “one quarter is not a trend.”

The interested reader should have a look at both, as we’ve written about them at length.

To the financials!

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• Cash back up to $4MM from a rather meagre $800k at year end. They’d brought in some $6MM from a credit facility and a convertible, so they’re still lean.
• Sales increasing on weed, smoking accessories got a bump this quarter, bucking the general trend across Canadian retailers. The straight line growth in sales is likely the envy of several other retailers.
• Good to see an improvement in US Sales. Not so in International, where it’s remained flatlined over 4 quarters. More below.
• Inventory higher than most at $7MM, but contains at least $2MM in wholesale accessories.
• Some related party transactions I’m not a fan of prima facia. More next time, I’ve got a couple of questions into IR.
• Speaking of which, I’ve emailed maybe 40 questions into various IR departments over time, and I’ve gotten replies from about 5. $HITI’s been good to me before, they’re batting .1000. He’s hoping they’ll keep that average.
• Share count at 223MM, an increase of about 20MM in the quarter. Most optionality is out of the money, but not by far. There is a lot of pressure to increase share price, as there is a ton of warrants at around $0.27. Leverage at $HITI is about average in peers, but that doesn’t mean it’s good.

Ok. There isn’t much more incremental right now until additional store sales come online.

It’s one of the few companies I lean on the MD&A as hard as I do the core statements. Regarding sales mix, $HITI is consistent with others in peer-set, as ‘accessories’ (read, bongs and the like) continues to decline through time. I’m curious about the sales mix of initial and followup of vaporizers. The industry’s general adoption of the 510 format could be elbowing out the more exotics (like PAX), placing them as a ‘specialty’ category.

Regarding US sales, they got back to almost the high point of 3 quarters ago. The volatility QoQ though appears lumpy. International Sales are negligible, and flat. Their MD&A is silent on this too. If they are <still> in formation, I’d expect them to say so.

Their segmentation breaks out cannabis and accessory sales – the latter being very helpful. Growth in it is partially dependent on independent cannabis stores being permitted, and stocking bongs and vapes and papers and such. Other chains likely wouldn’t support $HITI unless stockouts, and in that case, if I was $HITI, I wouldn’t sell to them. Obtaining listings at the Provincial Monopolies would be very good:

As I’ve admitted, and I’ll do so again, Retail is a challenging creature for me: I’m an atypical ‘average consumer’ in many ways. Over beers once, a friend of mine said that if I ever opened a retail store that “it’d be the coolest store in the entire world to you and your 23 loyal customers.” The mass market eludes me in preferences and tastes. Sure, it’s easy enough to pick off the price hunters, it’s another thing to separate them and capture them and drive their cash into your register. Building loyalty is an intangible in many respects.

I think being successful in retailing is a very unique skillset.

$HITI is facing most of the same issues that all Canadian chain retailers are facing. Containment of SGA on the new high volume locations they’ve on-boarded is important, as is being able to ring-fence that existing customer base as Ontario retail looks like it’s now hitting second gear.

‘International’ needs to get traction, and exploit $HITI’s verticality. The UK market has a whack of consumers, and the $10MM they paid for the asset….which is producing $700k/yr in sales….looks just ‘meh’. If UK sales really start to move, it’d look ‘good’ fast. US sales are lumpy so far, and like the UK, show no real trend.

Watch for how much sales come online next financials. These guys have 6 weeks before COVID’s impact shows itself. To me, these guys remain in the best position in Canadian retail, and the biggest risk they face in the short term is access to capital, and as pressing a need to get cash in the door as any other. There’s no real standouts yet in Canadian Retail, it all remains potential.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds a position in $HITI