Good morning. My name is Kevin and I will be your conference operator today. At this time, I would like to welcome everyone to High Tide Inc. First Quarter Fiscal Year 2021 Financial and Operational Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I will now turn the call over to your host, Krystal Dafoe.

Thank you, Kevin. Good morning, everyone, and welcome to High Tide Inc.’s quarterly earnings call. Joining me on the call today are Mr. Raj Grover, President and CEO; and Rahim Kanji, CFO. Yesterday evening, the company released its financial and operational results for the fiscal quarter ended January 31st, 2021. These results are available on the company's website and on SEDAR. Before we begin, I'd like to remind everyone that certain statements made on today's call may contain forward-looking information within the meaning of applicable securities laws. Such statements may include estimates, projections, goals, forecasts, or assumptions, which are based on current expectations and are not representative of historical facts or information. We want to be clear that such forward-looking statements represent the company's beliefs about future events, plans, or objectives, and are inherently uncertain and are subject to numerous risks and uncertainties that may cause the actual results or performance to differ materially from such statements. Additional information about both the material factors and assumptions forming the basis of our forward-looking statements and risks, which could cause actual results or performance to differ materially, and the material factors or assumptions that were applied to make certain conclusions, forecasts, or projections in forward-looking statements on this call is contained both in readily available document available upon requests and in our regulatory filings available on SEDAR under the company's profile. High Tide does not undertake any duty to publicly announce the results of any revisions to any forward-looking statements in this call or to update or supplement any information provided in today's call. In addition, on this call, we will refer to supplemental non-GAAP accounting measures including adjusted EBITDA, which do not have any standardized meeting as prescribed by IFRS. We believe this non-IFRS financial measure assists management and investors in understanding and analyzing our business trends and performance. Please refer to our earnings press release for a calculation of these measures and reconciliation to the most directly comparable measures calculated and presented in accordance with IFRS. These non-IFRS measures should not be considered superior to, as a substitute for, or as an alternate to, and should be considered in conjunction with the IFRS financial measures presented on the financial statements listed on SEDAR. It is now my pleasure to introduce Mr. Raj Grover, President and CEO of High Tide. Thank you. Mr. Grover, you may now begin.

Thank you, Krystal, and good morning, everyone. Welcome to High Tide Inc.’s financial results conference call for the first quarter ended January 31, 2021. I’ll start this call by providing an overview of our results and other key developments in the first quarter. Rahim will discuss the financials in depth and after that, we’d be pleased to answer any questions you may have. Today's call marks the start of a new era. High Tide's first reported results with the inclusion of META, and it was record setting across all key metrics. Our Q1 results reaffirmed our acquisition strategy and expertise. I'd like to say, a big thank you to the team, the team we already had and the new additions to the High Tide family, which work together to put up these incredible results. I'm really excited about these numbers, so let's get into them. We had already provided some disclosure regarding our top line to the market, declaring our expectations that it would be between $37 million and $38 million in revenue. Today, we're reporting that we were just ahead of the high-end of our own estimate at $38.3 million, once again the highest level of revenue ever recorded by a Canadian cannabis retailer and up 179% over last year. Adding META and other stores was a huge part of this growth, but even the business that existed a year ago, still saw double-digit growth year-over-year. Gross profit increased to $14.8 million, up 208% over the same quarter last year. For context, we earned more in gross profit in the January 2021 quarter than we generated in revenue during the January 2020 quarter. As a percentage of revenue, gross profit margin was 39% during this year's quarter, up from 35% in the prior year's quarter. Adjusted EBITDA for Q1…

Thank you, Raj, and good morning and welcome, everyone. This was a breakthrough quarter for High Tide, and I'm incredibly pleased with these results. In the first quarter ended January 31, 2021, the company recorded consolidated revenue of $38.3 million, representing an increase of 179% year-over-year and 54% sequentially. Revenue from our Retail segment includes our brick and mortar cannabis stores in Canada, primarily under our Canna Cabana banner, as well as Grasscity, the online retailer of consumption accessories, which has been operating for over 20 years, and CBDcity, the online retailer of CBD in the U.S. which we launched less than a year ago. Retail revenue was $36.8 million in the first fiscal quarter of 2021, having more than tripled, year-over-year. The primary driver of this increase was the META acquisition, as well as other stores we built organically. Revenue from our Wholesale segment was $1.6 million in the first fiscal quarter of 2021. Even though we currently face production logistical challenges, particularly regarding product coming from overseas, I know that Wholesale revenue was still up 13% year-over-year. Our consolidated gross profit was $14.8 million in the fiscal quarter of 2021, or 39% of revenue, versus 35% generated in the fiscal first quarter of 2020. So, revenues were up and gross margin percentage was up. But what I'm arguably most proud of is our cost control, while we have been growing with a keen focus on profitability. While revenue was up 179% year-over-year, our OpEx, excluding depreciation was only up 90%. For another way, our operating expenses excluding depreciation represented 28% of revenue this quarter, down significantly from 41% of revenue in the prior year's quarter. These savings for shareholders are the tangible benefits we read when we increase our scale as a company. Going down to the bottom…

[Operator Instructions] Our first question comes from David Kideckel with ATB Capital Markets.

Hi, good morning, guys. This is actually Frederico chiming in for Dave. Congrats on the quarter and thanks for taking my questions. I just wanted to touch first on same store-sales. So, you guys, obviously, had a good quarter and 14% same-store sales growth compared to last year, really strong. So, I'm just wondering, if you continue to see this kind of double-digit organic growth in some of your other stores? And what are your expectations for that going forward into 2021?

Yes. Good morning, Frederico. So, it's too early to tell for this quarter, but COVID lockdowns, competition and we even had tough weather in January, which did impact us a little bit, but our team continues to execute, despite the macro picture and we believe will continue to outperform the market throughout 2021. We're on the ball regarding the changing market conditions and are taking aggressive steps right now to ensure that despite the lockdowns and despite excessive competition, we can maintain our leadership position. And one of these steps Frederico, it includes leveraging our accessories portfolio more in our retail stores. But the one thing I want to point out here, Frederico, that remember, we still have 50% of our daily transactions being conducted by Cabana Club members. So, as a retailer, you got to love that kind of loyalty and we see this continuing throughout 2021.

Thanks, Raj. So, that's really helpful. And then just touching on Grasscity, so you had some strong growth there in terms of visitors, according to your MD&A and increasing your customer base by 15% year-over-year. So just wondering also about that growth maybe -- did it have some positive impacts from COVID, people shopping more online? And what kind of growth do you see happening going forward? And then maybe just if you could tie that up with your expectations regarding Smoke Cartel? Thanks.

Yes, absolutely. So, Grasscity and Smoke Cartel are such beautiful businesses to have in our portfolio. They're exciting businesses, they generate revenue, and it helps us with our strategy when federal legalization takes place. We already have two of the most popular e-commerce platforms in the world. And yes, you're accurate, Frederico, when you say has it had a positive impact because of COVID? The answer is yes, but we also -- when we purchased Grasscity, they were selling around 3% of accessories made by famous brands. Today, they sell around 70% of everything they sell on Grasscity is manufactured by us. So, we've maneuvered a lot to take this business forward from what it was over the last 18, 19 years. Before we acquired in 2018 December, it was -- we were doing fulfillment out of Amsterdam. Today, we do fulfillment out of Las Vegas because 80% of our customers live in the United States. So, we’ve totally changed the business model by changing the fulfillment, by adding our own products 70% of our skews, like I mentioned, are coming from us, which has helped increase margins and which has helped attract even more customers. And I could say, for Smoke Cartel, it goes one step further. We're doing all of this, actually without the use of any inventory. Sean has done a tremendous job building this proprietary drop shipping technology, which honestly I cannot wait to implement it across all of High Tide ecosystem, which will include grasscity.com, cbdcity.com, and also on our Canna Cabana website. So, the Grasscity and Smoke Cartel businesses are looking very good. Even right now, I'm looking at Smoke Cartel's number, numbers we've only acquired it for what a week now. And even on a standalone basis, it's doing very, very well. So, very happy with the way the business is progressing. And yes, COVID has helped us with e-commerce, but most importantly, we vertically integrated this side of the business and we've set ourselves up really nicely for federal legalization when that occurs.

Thanks guys. That was really helpful. Congrats on the quarter again. I hop back in a queue.

Our next question comes from Andrew Semple with Echelon Capital.

Morning, and congrats on a strong financial results.

Thank you, Andrew.

No problem. First question here, as you just said, you recently closed the acquisition of Smoke Cartel. Could you maybe elaborate on some of the integration milestones that may do that business, kind of, what are the operational goals to more broadly implement their proprietary drop-shipping technology, more broadly across your e-commerce platform?

Yeah, Andrew, absolutely. Like I was just talking to Federico about it, Smoke Cartel is truly a great business that we acquired. So -- but it's only been a week since the acquisition -- that we closed the acquisition. Smoke Cartel numbers continue to rise. We just looking at it yesterday and every day is a better day than the day before. And it's driven by their proprietary drop-shipping technology, like you pointed out, and -- we're going to -- the integration side of the Smoke Cartel business with High Tide is primarily around this drop-shipping technology that we've acquired, we want to implement it on Grasscity, we want to implement it on CBDcity. Just to give you an example, Grasscity has 6,000, 7,000 SKUs online on its platform, which is massive to begin with, but with this drop-shipping technology, we can go from 7,000 SKUs to potentially 15,000 to 20,000 SKUs. And that in turns out to be making it a much larger platform, reaching a much larger base of our customers. And we could do the same thing, basically rinse and repeat it on CBDcity and on Grasscity. So, integration-wise, we're on it. It's going to take us a couple of months to get it on Grasscity and CBDcity, but it's moving at a nice pace. Me and Sean, this is the most exciting side of the business for us. So we are in discussions everyday and we are working on it. So you should see this implementation happen throughout this quarter, and then also the next quarter going forward.

Great. That's very helpful. And then my next question here, just on the recent pace of retail store openings in Canada, that's clearly accelerated over the past month. I just want to get your thoughts on, what we could expect in terms of the pace of retail store openings going forward? I guess, barring any kind of lockdowns that may slow things up?

Yeah. So, March was a record quarter for us, as we organically opened eight stores. So we're going to definitely see more stores open up in April, but I don't -- and both in Alberta and Ontario, but I don't really think we're going to match eight stores again this month. But we'll definitely have more stores coming up in April, so stay tuned for that. And then, the accelerated pace planned by AGCO should also help, they've gone from the 20 stores to 30 stores. So that's also speeding things up. And that should help us to put another 15 locations that are in queue right now, built and operating before the end of September to reach our maximum of 30. So I'm feeling pretty confident about that. And then, we feel good about getting into triple digits by the end of this calendar year. Again, Alberta, Saskatchewan, Manitoba, Ontario included. And that said, that's based on where things stand today, but yesterday, again, we heard just from media reports that there maybe more lockdown and shutdown measures coming in Ontario as a result of the spike in the cases and ICU admission. So we'll have to see how that goes.

That's very helpful. Congrats again on the results. I'll hop back in queue.

Thanks.

Our next question comes from John Chu with Desjardins Capital Markets.

Hi, good morning. Maybe just a little bit more color on -- in terms of how much the pandemic and really more the store lockdown and curbside pickup as hamper sales? I know, you had a really nice quarter there, really impressive, especially considering that you've got a seasonally weak January included in that. But any sense of how much sales --- how much more sales could have been without a lockdown or at least the store lockdown? And then kind of related to that, I'm kind of curious whether or not you found that the lockdown has impacted the sale of some of the higher margin products. We've been of the view that some of the upper premium ended products may not sell very well online or through a curbside pickup and that – the consumer to try one to have discussions with a budtender and maybe trying to get a visual effect of what that product looks like? So I'm just trying to curious, if you've seen that have an impact on the margins as well? Thanks.

Sure. Good morning, John. So, let's just face it like, this last quarter was full of lockdown challenges, primarily driven by Ontario, which is the market we're really trying to grow as quickly as possible. And then, we were limited to click and collect and delivery for a while. It's opened up since then, but we're still only at 25% retail capacity. So, we've surely almost immediately noticed a drop. As soon as we went into those conditions, and we know that illicit market starts to ramp-up when that happens. So the last quarter which passed, despite the pandemic -- despite the store, the lockdowns and having to maneuver to click and collect and delivery, we've still delivered an absolutely stunning quarter. So it did not affect us in Q1 as much as it could potentially have, but could we have done better without the lockdowns? Absolutely, we could have done better. So I feel pretty bullish, once the pandemic subsides, we should start seeing real numbers that we can – we can see that these are the numbers that the stores generate versus the depleted numbers that we're looking at today, although last quarter they were not as bad. Although, the challenges were severe. And then you know to answer your question whether customers are buying premium products at click and collect locations. So its definitely affected us when a budtender cannot recommend, what type of product the customer can purchase, that excitement is missing and you cannot increase your basket size, it's very limited to what the customer decides to purchase and generally how that goes. So, is there opportunity to enhance basket size and margin there? Absolutely yes. And I'm hoping, this – the pandemic is now short lived, maybe another quarter maximum two, and then we should see the potential benefit of everything coming back online, as usual.

Okay. That's very helpful. Thank you.

Our next question comes from Shaan Mir with Canaccord Genuity.

Good morning everyone, and congratulations on the quarter. My first – my first question here is just to touch on your outlook a bit, specifically as it relates to the store openings in the Ontario market. So it's been mentioned a few times that, you're going to reach the 30 store limit by September 30. But I just wanted to get an understanding for the concentration of those new store openings, particularly what are your views of opening new locations in Toronto. Anecdotally, it seems as that there's a lot of -- there's a store at pretty much every corner now. And we've heard from other operators that it's becoming increasingly difficult to locate attractive locations in the city. So just wanted to get an understanding of where those new store openings will be from a geographical concentration perspective and maybe you could use signed leases as a proxy for where those focus regions are?

Sure. Hi, Shaan. So, you're on point when you're saying that Toronto is becoming very crowded. We are looking at -- it doesn't matter what area of Toronto, you look at, there's an excessive amount of stores opening. So our strategy definitely revolves around -- and I don't want to give it up on this conference call, but we do have a very unique strategy for Ontario locations, and we continue to build upon that momentum, but I can confirm that we're also very motivated to look GTA and outside of the GTA than opening stores in Toronto, and basically getting into price wars that just doesn't make sense. So, like I said, our strategy is differentiated. If we were sitting one on one, I might have shared that with you, but I don't feel like doing that on this conference call. But we're definitely looking at sites outside of Toronto.

For sure, maybe we can hop on a call later then. On my next question, I just wanted to touch on, or get a sense for your Canadian stores performance, particularly as it relates to the 2.0 product breadth. I guess, based on feedback that you're getting, what product categories are High Tide looking to ramp most aggressively and where's kind of the consumer interest today? And then on the flip end, is there any product within the 2.0 set that isn't performing on pace with the rest?

Yes, Shaan. So, 2.0 category is an interesting one, because it gives us a slightly higher margin opportunity, because they’re value-added product. So vapes are sitting at -- the overall categories around 30% or so and in that category, vapes are now sitting at around 17%. Just about, I would say, five, six months ago we were at 11%, 12%. So vape segment continues to increase, which we expected, looking at the American markets and what's happening in Colorado and Washington, because they are mature markets. So we know we're trending even higher. There's a lot of consumer interest in vapes. And then edibles are around 5% of our business, Shaan, but I honestly think that that could be a little bit better, but it's early days and we deal with this 10 milligram THC limit on edibles, which is also a bit of a deterrent for majority of the customers to get into edibles. So it's a particular class of customers that go for it and today they're sitting at around 5%. And then concentrates are around 2%, which is another category that I think will increase to around 5%. Drinks are still only 1% and this is not shocking, considering that drinks are still only about 1.5% or about 2% in the mature American markets. And then, topicals are less than point 5%. So, to answer your question based on where the consumer interest lies, I would say, vape is the top category with about 17% of the total share.

Thanks for the color, Raj, That's very helpful. I'll pass it along now.

Our next question comes from Roger Grover [ph] with Small Capital Investment Fund.

Good morning, Raj. Congratulations to you and the team on very, very good quarter here. A couple of questions for you. You've managed to retire, you actually managed to renegotiate a number of favorable terms on lowering your debt payments, you renegotiate specialty [ph] terms on the maturity dates, you've retired some debt regulations on that. Tying that in a little bit here going forward, your increase in EBITDA, while you've been aggressively growing, can you maybe add a little bit of color on that going forward on what we can expect? We can continue to see that?

Rahim, do you want to take this?

Yeah, sure. Thanks. Thanks, Robert. I'm very – as I mentioned, very happy with our current state of our balance sheet, which is very, very strong in terms of us generating operating cash flows and having great partners, debt partners that have allowed us to extend maturities and reduce interest rates. Our operations as for – as an operations, we've been very vertically integrated and have had a diversified ecosystem for over a decade and efficient management of our businesses has been our biggest strength. We have proven the time and time again constantly improving our EBITDA numbers, as we have our eyes fixed on operational efficiencies. We are in the top tier of Canadian cannabis chains by store count, but we also have built an impressive ecosystem of US e-commerce and accessories manufacturing. We are also at a point now where we can truly realize the benefits of scale. Recall how our operating expenses as a percentage of revenue really declined this quarter, once META's numbers were added, added to ours.

Okay. And just one follow-up question if I may. Your Canna Cabana membership program, have you disclosed or can you give us a number of that membership program?

Yes. Yes, sure. Yes, we did disclose that number in MD&A and actually I'm very proud to say that we're pretty much almost close to 100,000 marks as of today right now. And what's really interesting in that number is the actual 50 – over 50% of our daily transactions are done by club members which is a very proud metric to have. And majority of our signups are in-store signup, so when the members come to make a purchase, if they're not a member, immediately for the benefits they receive, they join as a member. So we're very proud of that milestone that we've achieved as of today.

Great. Thank you, gentlemen. Nice quarter, great quarter.

Thank you.

Our next question comes from Aaron Grey with Alliance Global.

Hi. Good morning, and thanks for the question. First one for me is just on the M&A targets that you touched on specifically in the US, and you've got some of the e-commerce platform, but would love to hear your thoughts in terms of how you think about incremental M&A in the US, in terms of what types of platforms, and how best you're looking to utilize those potential M&A targets for the company, as you think about US federal regulations evolving and potential becoming permissible or illegal? Thanks.

Good morning. So, we continue to be very active and are currently evaluating many opportunities. And given how diverse we already are, there are a lot of different verticals that make sense to us, like e-commerce, wholesale, accessories brands, we can look at so many things, US CBD. But M&A takes time before you reach a stage where it's announcable to the market. But rest assured, we're out there combing to opportunities right now and moving them through the funnel, if that makes sense. But we have a clear line of sight on potential deals, which could fit our ecosystem perfectly and be immediately accretive, but I want to make sure we're taking the time and we're not getting overly excited because so many groups have reached out to us and making sure we get the bang for our buck when we're doing M&A, and the fit is a perfect fit for our ecosystem. So, yes, we're active and looking at US companies right now.

Okay, great. Thanks. Appreciate that. And then, kind of, going back to your own potential branding strategy within Canada, you talked about formats a little bit before, but would love to get your opinion in terms of like were you looking to price relative to the other brands in the marketplace as you continue to evolve and roll out your own brands. Obviously, there's been a lot of pricing pressure within the market within flower as well as vape. So, would love to get your opinion on that and how you think about your own pricing strategy for brands? Thanks.

Yes. So, we are extremely proud of our one-stop cannabis shop ecosystem, which is truly a unique concept in Canada, and I haven't seen anything like this even in the United States. Anyone can fight a price war or just drop the price, and then what, the whole market just simply adjust to that. And then, it's survival of the fittest from that point. But what we're doing is we're creating a very unique ecosystem and giving our members, the Cabana Club members, an opportunity to not just get the -- see the biggest selection in cannabis and 2.0 products, but also accessories. You need a type of accessory to consume cannabis whether it's rolling papers, water pipes, vaporizers, and -- because accessories are a huge part of our DNA, we've made our stores with this unique experience where you got a lot to see. So, if my next door neighbor or if the three blocks away a cannabis store has two TV screens and you go in there and you make an order, while there is a lot more to see and do at Canna Cabana. And we simply think if we keep on this and build a store that we're building today, we're going to continue to see customer loyalty. But are we looking at the price compression in the market? Is that happening? That is a fact. It is happening. And in certain markets, we're fighting fire with fire. If we see that competitors are aggressively dropping price, we're not waiting on it and we're taking steps right now to fight that, and it helps us because we already have an accessory strategy. So, coupled with the price compression -- the price compression that we're dealing with, because we have this unique accessories play, we feel that our ecosystem is a lot more balanced than most of our competitors. So, we feel good about it going forward, but yes, we are seeing price compression in the market for sure.

Okay, great. Thanks for that color.

[Operator Instructions] Our next question is a follow-up from Andrew Semple with Echelon Capital.

Hi there. Thanks for taking my question again. Rahim, I just wanted to go back to something you mentioned in prepared remarks. Now, there might be some factors holding back the EBITDA margin term returning the prior levels. I just want to dig into that dynamic there. I was wondering if that pressure that you're seeing might be on the gross margin side, or whether is more on the operating cost side, as you continue to scale the business and invest in growth?

Yes. Thanks, really good question. So, just how Raj mentioned about the price compression that we're seeing in the market and as we mentioned that we have our own strategy with the one-stop shop experience and accessories. But in those areas where we are facing extreme price pressures, of course, we're going to fight fire with fire. And that is going to result in a short-term impact to our gross margins. So, as those markets become more competitive, we have to match where the markets are, and that will have an impact to our margins. But I'm hoping that's the short-term margin hit versus the long-term impact. And at the same time on our OpEx expenses as we mentioned, our OpEx percentage as a revenue has significantly declined from quarter over last year quarter, and we will continue that trend. However, with our growth and M&A strategy that we have in place, we might see some increase to our OpEx in the short-term as we acquire future acquisitions and integrate them into our ecosystem.

That's good color. Thanks for taking my questions today.

Welcome.

Our next question is a follow-up question from John Chu with Desjardins Capital Markets.

Hi. Just one quick follow-up here on -- just on the inventory levels. We've heard anecdotally that some of the provincial wholesalers and more specifically Ontario. They've been destocking for quite a while, and they haven't really been making any repurchase programs. So I'm been wondering whether or not that's affecting your retail stores in terms of the inventory levels getting low or at least getting low in some of the more popular brands, and if that's becoming a concern going forward? Thanks.

Yeah. Thanks for a good question, and I actually like to give hats off to our operations team, our buying team that does inventory buying on a weekly basis for us. They've been very disciplined and very strategic in purchasing inventory that our consumers are wanting and are high in demand, and also ensuring that our inventory levels are reasonable and we're not buying excessive inventory that we don't need to. We monitor that on a regular basis and as of right now our team's done a fantastic job in maintaining our inventory levels and turning inventories -- turning over inventory at a higher level, so we're not stuck with inventory that either LPs drop the pricing on it or have an excessive supply on it. And so in essence, it hasn't affected us as of yet right now, and again, thanks to our buying team.

Okay. Thank you.

And I'm not showing any further questions at this time. I’d like to turn the call back over to High Tide’s CEO, Raj Grover for any closing remarks.

Thank you, operator. In conclusion, I'd like to thank all those on the line for their time and their interest in High Tide and our growing an increasingly profitable family. With that, I will ask operator to close the line. Have a great day everyone.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.