Publicly traded Canadian cannabis retail chain High Tide has been on an acquisition tear in the United States.
The Calgary, Alberta-based company has spent $42.49 million buying U.S. cannabis e-commerce assets this year, including online head shop and CBD retailer Smoke Cartel and 80% of CBD outlet FabCBD as well as accessories retailers Daily High Club and DankStop.
The e-commerce acquisitions are part of High Tide’s plan to break into online cannabis sales in the event that the U.S. legalizes cannabis at the federal level.
But the retailer also has its eyes on American bricks-and-mortar dispensaries.
MJBizDaily interviewed High Tide CEO Raj Grover to learn more about the growth opportunities he sees south of the 49th parallel.
High Tide trades as HITI on the Nasdaq exchange and the TSX Venture exchange.
Broadly speaking, what’s the strategy behind those acquisitions?
The strategy is very simple. Playing in the U.S. is huge for us.
We all know that the draft Cannabis Administration and Opportunity Act can be the basis for a comprehensive cannabis bill to pass.
But we are realistic, and we understand that (the measure) faces an uphill battle, especially with the current polarized nature of U.S. politics.
If cannabis is legalized or decriminalized at the federal level, we’ll be in a position to enter the U.S. market very quickly through both our bricks-and-mortar and our online businesses.
That is why we’re setting up a robust online portfolio right now, that’s established and ready to make online cannabis sales when U.S. legalization takes place.
The customer that shops on our platforms today is the exact same customer that spends top dollar on cannabis, and we have data to prove it.
We’ve already rehearsed (for U.S. cannabis retail) with approximately 90 stores in Canada.
Combine that with our online edge – I don’t even think a multistate operator, or any other cannabis entity in North America, can speak to having such a robust cannabis online ecosystem which High Tide has today.
When High Tide acquired Daily High Club, you said you were considering leveraging its cannabis accessory subscription-box model to launch cannabis subscription boxes in the event of federal legalization. Why do subscription boxes interest you?
The biggest thing is the predictable revenue. You could do better planning. You could do more organized purchasing.
We have the opportunity to have this predictable revenue and grow our monthly subscriber base.
We already have 15,000 monthly subscribers in Daily High Club, which has been growing at 50% annualized, or approximately 4% to 5% per month.
Let’s say only 25% of U.S. states actually allow online cannabis sales. Our e-commerce platforms are sophisticated enough that we can turn on and turn off the various states and service our customers through our subscription-box model.
Daily High Club is seen as a lifestyle brand. We have a massive social media following.
We feel that we can turn those into cannabis subscription boxes upon federal legalization, depending on which states allow online sales and which states don’t.
You mentioned the possibility that some states might not allow online cannabis commerce. Wouldn’t that pose a bit of a risk to the plan to turn these accessory e-commerce assets into cannabis e-commerce assets?
I don’t think so. If we get this opportunity in 25% of the United States, we’re still talking about access to 75 million or 80 million people. We’re at zero right now, so it’s only upside from here.
Your plan goes beyond e-commerce. In July, you said the company was “engaged in several conversations with potential partners to ensure that High Tide is ready to begin bricks and mortar retail cannabis sales in the United States as soon as federally permissible.”
What might that bricks-and-mortar transaction look like?
There have been a few different option agreements (for Canadian companies to enter the U.S.) executed in the industry, whether it was Canopy or Fire & Flower or others. We have that option as well, and we’re assessing many different operators, independents and chains.
We feel very confident that we can do the exact same thing, where we have an option to purchase a chain of stores to enter the bricks-and-mortar opportunity in the U.S.
Are these dispensaries only that you’re looking at, or are you interested in potentially acquiring a vertically integrated company like a multistate operator?
At the moment, we are looking at dispensaries only. We want to remain within our comfort zone to begin with.
In Canada, we’re not vertically integrated. We are having conversations with U.S. players that are currently not vertically integrated.
But once we enter the U.S. market, once we get a handle on things, you can bet that we will be absolutely going after both vertically integrated opportunities as well as just dispensaries.
High Tide had 29.4 million Canadian dollars ($19.9 million) in cash on hand as of April 30. Are you going to need more capital to do this kind of transaction that you’re talking about?
No, we don’t. We’re very comfortable with the cash that we have on hand.
There’s other ways of doing transactions, (such as) providing opportunities with accessories and other things that we can partner up with these companies on.
What do you think are the odds of federal legalization during President Biden’s current term?
Initially, we thought the odds were very good.
But as we see the political theater unfold, the current polarized nature of U.S. politics doesn’t give me enough assurance that everything is heading in the right direction.
We think that decriminalization or full federal legalization could still be a couple of years away, but that doesn’t hamper our plans today.
We’re profitable there today, we can continue to make money there today; you can expect more of what we’ve been doing in the U.S.
But we’re also very strategically placing our platforms and establishing our business for when the big event happens. But … I don’t think it’s happening anytime soon.
This interview has been edited for length and clarity.
Solomon Israel can be reached at email@example.com.