High Tide Inc. posted a net loss $4.5-million in 2018, as the firm’s wholesale revenues declined and its overall costs increased due to the pivot toward cannabis retail.
The Calgary-based marijuana retail and smoking accessory company did $8.7-million in revenue in 2018, down from $10-million in 2017. Gross margins declined by $1.6-million compared to 2017 (due to a change in how it calculates cost of goods sold), and net income dropped from around $300,000 to a loss of $4.5-million.
Most of the decline in revenue occurred on the wholesale side of the business, where subsidiaries Famous Brandz Inc., Kush West and RGR Canada Inc. sell smoking accessories. Famous Brandz saw the biggest revenue drop after losing a customer that had bought $700,000 worth of merchandise the previous year.
“The customer desired an exclusive distribution agreement with Famous Brandz, which the Company was unwilling to accept. Another large customer decided to move away from cannabis products towards more tobacco and novelty-based products,” High Tide said in its MD&A, published Monday after market close.
The wholesale side of the business also incurred a loss after the company wrote off $800,000 in loans made to a company called E-Liquid Therapeutics. ELT is owned by the sister of High Tide’s CEO Raj Grover.
“High Tide has loaned money to ELT over the course of the prior three years to help the company establish itself and secure its manufacturing process of E-Juice. This benefited High Tide by ensuring a stable supply at favourable rates however in 2018 management assessed that the loan would be uncollectible and has written it off,” High Tide said.
On the retail side, the company has yet to post significant revenues from its marijuana retail business. Meanwhile, year-over-year retail sales dropped around $400,000, “due to closing down Smoker’s Corner stores in order to revamp and rebrand them under the Canna Cabana brand.”
Total costs increased by around $3-million, “as the Company increased staffing costs and incurred expenses related to the construction of new retail stores under Canna Cabana.”
High Tide, like other cannabis retailers, is in something of a holding period, as provincial governments across the country have either halted or slowed the roll-out of private brick-and-mortar cannabis stores. High Tide has 10 stores open, but only four are licensed to sell cannabis. The other six are selling accessories.
“Another 17 retail locations are under construction and leases and licences for an additional 5 are being held,” the company said.
High Tide did have some bright spots in its MD&A. The company said it is “securing new significant customer contracts to supplement the decrease in sales volumes.
“The most notable was securing a sales contract with Aurora Cannabis Inc. to manufacture and distribute Aurora Cannabis Inc. products. A purchase order was received and executed prior to year-end, along with a 30-per-cent deposit from Aurora with an expected fulfilment to occur subsequent to year end.”
High Tide also revealed that it has signed deal with Bravado Canada, A Division of Universal Music Canada Inc. “to sell Guns N’ Roses-branded goods including bubblers, dugouts, grinders, hand pipes, rolling papers, trays, vaporizers, waterpipes and other smoking accessories.”