High Tide Inc. (CSE:HITI) released its first-quarter results on Monday which showed significant growth from where The Company was a year ago. The quarter, ending January 31, included three full months of the recreational market being open for business. High Tide credits the increase in revenue primarily due to Grasscity, which it recently acquired, with the transaction completing in December. Grasscity owns retail brand Canna Cabana, which started generating revenues in October.
Canna Cabana operates in Alberta and recently launched its 11th store in the province, with more still on the way. Alberta has had one of the most successful cannabis rollouts since legalization and is likely a key reason behind the success of Canna Cabana as other provinces have been struggling with various issues. In total, sales came in at just over $5 million for High Tide during the quarter, which was nearly double the $2.7 million that The Company generated in the prior year.
The one downside is that the increase in sales was accompanied with a decrease in gross margin percentage, which The Company says is due to the higher sales volumes. As a result, High Tide only ended up adding a couple hundred thousand to its gross margin despite sales increasing by more than $2 million. The change in gross margin is a big one that investors will want to keep an eye out for in future quarters, especially once competition ramps up.
With expenses rising to $6.8 million from just $987,506 in the prior year, there wasn’t nearly enough of an increase in gross margin for The Company to come close to breaking even. Overall, Hide Tide incurred a net loss of $3.8 million this quarter compared to a profit of $325,496 a year ago. It would have been an even deeper loss if not for income tax recoveries of $1.2 million giving The Company’s bottom line a bit of a boost.
Expenses will only continue to mount
As the retail market continues to evolve, we’re likely to see expenses get even bigger for High Tide. As more staff comes on board to run its stores and manage operations, it’s going to be paramount for sales to be able to keep and for gross margin to at least hold steady.
The biggest increase in expense for the quarter came from salaries, wages and benefits which quadrupled and were up more than $1.7 million. Share-based compensation, which High Tide didn’t incur a year ago, was also up to $1.2 million. General and administrative expenses also rose by around $1 million from the prior year. However, the company claims that these increases were driven primarily related to launching Hige Tide and Canna Cabana, which it notes weren’t operating a year ago. This is another area where investors will want to keep a careful watch for in future quarters, to see if operating expenses do in fact stabilize or if there continues to be an uptick in these costs. Comparing to the prior year will unfortunately yield the same sort of explanations and rationale.
Since listing on the Canadian Securities Exchange back in December, High Tide has seen its share price rise by more than 20%. Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) has a 10% investment in The Company.