How High Tide Became the ‘Costco of Cannabis’

While 2022 has been a challenging year for the cannabis industry, one company has grown exponentially despite market challenges.

Founded in 2009 and headquartered in Alberta, Canada, High Tide operates as a retail-focused cannabis company with brick-and-mortar and global e-commerce assets.

The company is a lead player in the Canadian cannabis retail market through its flagship retail brand, Canna Cabana—which has 141 locations across Ontario, Alberta, British Columbia, Manitoba and Saskatchewan. High Tide also serves the U.S. and Europe through consumption accessories and CBD-focused e-commerce platforms.

High Tide has become known for its discount club retail model at its Canna Cabana locations, modeled after Costco’s membership-based program. Some have even deemed the company the “Costco of Cannabis.”

High Tide’s differentiated retail approach has contributed to its success. In the third quarter of 2022, High Tide’s revenue increased to $95.4 million—up 98% compared to quarter three last year ($48.1 million).

So, how has the company continued to position itself as a leader in the Canadian cannabis retail space using its differentiated discount club approach?

Becoming the Costco of Cannabis

Grover

High Tide knew it had to differentiate itself to stand out and be successful in Canada’s cannabis market, says Raj Grover, founder, president, and CEO of High Tide.

“We’ve always been innovative and differentiated in our approach and ideas,” he says. “We’ve always thought, ‘If I’m selling the exact same product as the next company, what differentiates us?’ And Canada’s a very mature market, so you have to come up with strategies that are going to diversify [you] and set your business apart.”

Canna Cabana offers two product prices for consumers: market price and member price. Canna Cabana loyalty members have access to the member prices—similar to how Costco advertises its Kirkland Signature brand, Grover says.

On the Canna Cabana website, market and member prices typically vary within a $10 range. For example, this .5-gram vape cartridge is selling for $43.99 at market price and $32.34 at the member price.

Now, High Tide is looking to upgrade its loyalty program and monetize its membership base, Grover says.

“Again, [we are] following exactly in Costco’s footsteps,” Grover says. “Just like they have their executive membership, we are about to launch Cabana Elite, which is the paid version of our Cabana club.”

While the company is still working to finalize the details of the Cabana Elite program, Grover says he anticipates the membership to cost $5 per month or $60 annually.

Despite the rollout of the Cabana Elite program, individuals will still have the option to join the non-paid Cabana Club loyalty program.

“We’re not taking anything away from the non-paid members,” Grover says. “So, currently, our … Cabana Club members will keep all their existing benefits, but we’re making the paid membership such a compelling proposition that we think they will find it very hard to refuse.”

Since High Tide launched the Cabana Club loyalty program last October, Grover says it has gained over 825,000 members, who account for over 90% of Canna Cabana’s daily transactions.

“This is where that loyalty is really strong in our company, which is again modeled after Costco,” he says. “We’re constantly building that brand loyalty and customer loyalty in the country.”

Forward Thinking Approach

Aside from its discount club business model, Grover says the company’s deep understanding and knowledge of its customer base and forward-thinking approach sets it apart from other businesses.

Canna Cabana retail store.

“We’ve been operating since 2009, of course, in the legal cannabis industry, in [the] consumption accessory space only,” he says. “We’ve been catering to the same customer that is a mature and heavy [consumer] of cannabis. … So, knowing our customer really well has helped us design this concept.”

In quarter three of 2022, High Tide reported a 98% revenue increase compared to quarter three last year. This past quarter’s results also showcased a 10th straight quarter of Adjusted positive EBITDA and a 77% sequential increase. The company has also reported a three-year growth rate of 1,970%, and recently became the top-revenue generating cannabis company in Canada, outpacing Canopy Growth, SNDL Inc., Nova Cannabis, Aurora Cannabis, and more.

“To get this kind of aggressive revenue growth while maintaining EBITDA growth is an extreme rarity amongst Canadian cannabis companies,” he says. “This is being achieved because we are forward thinkers; we are innovators. When the industry was about to get mature and the competition was just getting started, we knew what was coming our way.”

Grover says the company focuses on continued execution and bases its business plan and next moves on where the market is versus where it could be in two to three years.

“We already started plotting moves. [We think about] ‘How do we differentiate ourselves, not only in [the] Canadian cannabis retail [market], but even when the going gets very tough in Canada, what else can we do to continue raking in the revenue to continue being profitable on an EBITDA level while growing aggressively?’” he says.

Looking Ahead

Grover says the company plans to expand its Canna Cabana retail operations to the U.S. if cannabis is descheduled or federally legalized. With Biden announcing his three-step cannabis policy reform plan Oct. 6, which includes calling for a review of how cannabis is scheduled under the Controlled Substances Act, that could become a reality sooner than later.

Currently, it’s difficult for publicly traded companies, like High Tide, who are under Nasdaq (or another U.S. stock exchange), to enter the U.S. cannabis market without the fear of being delisted.

High Tide currently operates within the U.S. through CBD-related e-commerce platforms and consumption accessory platforms, and Grover says the company is well positioned to operate within the U.S. cannabis retail market once allowed to do so.

“Between all of these e-commerce platforms and businesses, we already have 3 million international customers in our database that have purchased from us, whether they purchased a … smoking accessory of any sort or a CBD product,” he says. “And 80% of this customer base actually resides in the United States.

“Given our e-commerce expertise, … we feel given a descheduling event, which could become a reality with Nasdaq allowing companies to touch plant-touching businesses in the United States, we are very well established at the moment and really well positioned to start commencing online cannabis sales when federal legalization occurs, or [a] descheduling event occurs.”

Grover says Europe is also an important market for High Tide. Like the U.S., the company operates within the European market through CBD-e-commerce and consumption accessory brands. The company acquired 80% of Blessed CBD, an online CBD retailer in the United Kingdom, in October 2021, and the company expanded the brand into Germany this year.

The company also has a consumption accessories distribution facility in Amsterdam.

“We are very active in the European market, and we feel that European cannabis legalization or German cannabis legalization might happen even before the U.S. federal legalization,” he says. “We feel Germany is trending in the right direction, and German legalization could become a reality in the last quarter of 2023 or the first quarter of 2024. We are having active discussions with multiple parties in Germany with potential opportunities on how we can enter Germany with our Canna Cabana brand.”

Moreover, High Tide’s focus for 2023 will be on its Canna Cabana retail business, and the company hopes to expand to 200 storefronts by the end of 2023 and 250 by the end of 2024, Grover says.

“Customers are loving our concept, and I’m looking forward to introducing it in Germany as well. We know that if [we] can do so well in a smaller market like Canada, Germans will really appreciate this model, and then, [we] look forward to bringing it to the United States.”

]]>