Calgary-based High Tide Inc. (Nasdaq: HITI) (TXSV: HITI) continues to grow its store count alongside its balance sheet, all while some of its largest competitors file for bankruptcy or shutter locations amid industry headwinds.

On an earnings call Monday, High Tide CEO Raj Grover said the company has opened 21 new stores so far this year and expects to reach the upper end of its guidance for 20-30 new locations in 2024. That  optimism comes as major rivals like Tokyo Smoke and Fire & Flower have filed for creditor protection or closed numerous stores.

“We found our secret mantra of growing organically,” Grover told analysts.

The expansion comes as High Tide reported reaching 12% market share in the provinces where it operates, up from 10% a year ago.

Meanwhile, Tokyo Smoke recently announced plans to close 29 of its roughly 100 stores after filing for creditor protection. Fire & Flower shuttered over 60 locations this year as part of restructuring efforts.

“Fire & Flower, Kiaro, Trees, Tokyo Smoke — I can keep going … ShinyBud,” he said. “There (are) endless companies that have gone bankrupt.”

Grover attributed some competitors’ struggles to poor real estate decisions and unfavorable lease terms, in addition to “how they’ve managed their operating expenses.”

“But again, let me remind everyone listening on this call that these companies are not going bankrupt because they’ve done a great job on site selection criteria and the size of these units and the rental rates that they’re paying,” he said.

He noted that High Tide spends just $260,000 to build out new locations plus about $100,000 for inventory and working capital. That allows the company to “cherry pick” prime locations and achieve “better, higher quality growth” compared to acquisitions.

He pointed out examples of rivals leasing oversized stores at inflated rates.

“I look at a lot of these stores with our real estate team, and I’m shocked sometimes to see a 3,000, 4,000, 5,000-square-foot store in Canada pop up,” he said. “Who’s going to take that at $100 a square foot, even if it’s in the best location ever?”

High Tide’s adopted a more disciplined approach, targeting smaller (typically around 1,500 square foot) locations with favorable rents.

“We like quality locations, we like square footages that we can live with, and we like rental rates that can stand the test of time, which is an opportunity for the landlord and the tenant and not one directional,” Grover said.

That strategy has allowed the company to generate positive free cash flow for five straight quarters even while expanding its store count to 183 locations.

That’s not to say that High Tide won’t make acquisitions; it’s just very selective and deliberate in  its consideration of struggling competitors’ locations.

“As much as we are in these portfolios, the opportunities are thin because we don’t want to get a 3,000- to 4,000-square-foot store paying $80, $90 a square foot,” Grover said. “It defeats the purpose of just making an announcement that we took over 10 Tokyo Smoke stores. I’m not taking over that pain and bringing it over to High Tide.”

He added: “A lot of these leases were signed when legalization took place in 2018 or even prior in some cases, and those groups are licking their wounds. It’s not a good place to be in.”

Still, execs cited a resurgence of illicit cannabis stores that are adding pressure on legal sales in some markets. Grover said there are an estimated 200 illegal shops that have opened across Canada since the start of 2024.

“We have to hold the line on the illicit market,” he said, noting High Tide had to cut margins by 5-7% in Regina, Saskatchewan, after several unlicensed stores opened nearby. The company is pushing governments to step up enforcement efforts.

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