Thread by @mvcinvesting

How High Tide became the leading cannabis retailer in Canada 👇🏻🧵 $HITI

Here's the story of how High Tide evolved from day one until now.

The beginning 🌱

Raj Grover, the founder and CEO who owns ~9% of the company and has never sold a single share, comes from an entrepreneurial family and had already experienced success with several smaller businesses before establishing $HITI. During a business trip to India in search of opportunities in fashion accessories or body jewelry, Raj stumbled upon the potential of cannabis consumption accessories. Recognizing the margin arbitrage opportunity, he shipped $10,000 worth of consumption accessories to New Delhi and sold everything overnight. After replicating this success a few more times, Raj decided to open a store. This marked the beginning of High Tide's story.

In 2009, Raj opened Smokers’ Corner with an initial investment of less than $50,000 and grew it into a multimillion-dollar empire. At that time, there were only two or three competitors with unappealing stores. Raj believed that by creating a differentiated store in a smart location, he could easily capture market share, and he was right. By leveraging his established roots in Indonesia, Thailand, China, and India, he was able to not only provide a better customer experience but also offer cheaper products.

Cannabis legalization in Canada 🇨🇦

Always looking to stay ahead, Raj seized the opportunity when the Prime Minister of Canada announced that recreational cannabis would soon be legalized. With an existing customer base of cannabis users, it made perfect sense for Raj to expand into selling cannabis itself. He realized that if he only sold accessories, he would eventually lose customers to shops that offered both cannabis and accessories.

After nine years of focusing on consumption accessories and accumulating nearly $10 million in retained earnings, Raj raised $88.5 million for the first time in 2018 and ventured into the equity markets, marking the beginning of High Tide's journey as a publicly traded company. With easier access to capital when compared to its peers, High Tide expanded its footprint across Canada, highlighted by the significant acquisition of its competitor Meta in 2020, which increased the number of stores from 37 to 67.

Around the same time, $HITI began acquiring e-commerce businesses selling accessories and CBD-related products with higher margin profiles, a pivotal decision for the company. From acquiring several brands in the U.S., such as Smoke Cartel, FABCBD, Daily High Club, DankStop, and NuLeaf Holdings, to later acquiring BlessedCBD in the UK, High Tide leveraged its market power to enhance margins and diversify its revenue streams. The company continued to grow both organically and through acquisitions, expanding the number of brick-and-mortar stores across Canada.

The strategy shift that made everything change 👀

In the summer of 2021, $HITI was accepted for listing on the Nasdaq, marking a significant milestone. Later that year, a transformative decision was made: High Tide launched a discount club model for its retail stores in October 2021. With consolidated margins higher than those of any competitor due to the previously mentioned CBD-related acquisitions, High Tide could offer cannabis at remarkably low prices, attracting loyal members and rapidly gaining market share. Although this initially involved selling cannabis at a loss, the move proved to be incredibly successful. High Tide's market share increased from less than 4% to over 10% in less than three years, despite representing less than 5% of the total cannabis retail store count. Today, the discount model program has more than 1.4 million members and continues to grow each quarter.

Being the first-of-its-kind discount model was the key differentiating factor that propelled High Tide to become the leading cannabis retailer in Canada. No competitor could match their prices, and Raj targeted cannabis users who consumed regularly and were highly price-sensitive. When I first started investing in High Tide, one of its closest competitors was Fire & Flower Holdings, which ultimately went bankrupt following this price war. This strategy also significantly diminished the illicit market, further strengthening High Tide’s market share.

After capturing market share, it was time to turn profitable 💰

While Raj sacrificed margins to achieve this, economies of scale and various initiatives aimed at improving margins allowed $HITI to become positive free cash flow again in 2023, as well as positive net income in the most recent quarterly results, with a consolidated leadership position stronger than ever. Examples of these margin improvement initiatives include the acquisition of Fastendr™ Retail Kiosk and Smart Locker Technology, which, after installation in most stores, led to a decrease in General and Administrative costs. Additionally, the company began releasing white-label products with higher gross margins and introduced the new loyalty program ELITE, offering even higher discounts for a small monthly fee. This paid membership grew by 226% YoY last quarter, reaching its fastest pace ever.

Overall, High Tide took a calculated risk to become the leader in the country, and it proved to be incredibly successful. This success was only possible due to the CEO's extensive experience in the sector and deep understanding of the cannabis consumer, surpassing that of any other management team.

Thanks for reading! I really hope you enjoyed it.

While $HITI has been gradually solidifying its position in the Canadian market, the best is yet to come.

High Tide will continue to grow its market share domestically and expand into Germany and the U.S. as soon as possible.

Stay tuned.