Good evening. Thank you for attending today's High Tide, Inc. Q1, 2022, earnings call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions]. I would now like to pass the conference over to our host, Krystal Dafoe with High Tide, Inc. Please go ahead.

Thank you, Operator. Good evening, everyone. And welcome to High Tide, Inc. quarterly earnings call. Please note that all earnings discussed on this call are presented on an unaudited basis. Joining me today on the call are Mr. Raj Grover, President and Chief Executive Officer, and Mr. Rahim Kanji Chief Financial Officer. Earlier today, the company released unaudited highlights from its financial and operational results for the first quarter ended January 31, 2022. Before we begin, I'd like to remind everyone that certain statements made on today's call and contained in the company's press release dated March 17, 2022, released earlier today, may contain forward-looking information within the meanings 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. The use of any of the words could intend, expect, believe, well projected, estimate, estimated, and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information, and are based on the company's current beliefs or assumptions as to the outcome and timing of such future events. We want to be clear that such forward-looking statements represent the company's beliefs about future events, plans, or objectives, which 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. Please refer to the company's press release dated today, March 17, 2022, released earlier today, for a comprehensive list of statements. The assumptions and expected future events relied upon it in making such statements and certain known risks which may cause actual results, performance, or achievements to differ materially from those expressed or implied in such statements. Readers are cautioned that the list…

Thank you, Krystal, and good evening, everyone. Welcome to High Tide Inc's financial results conference call for the first quarter ended January 31, 2022. 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'll be pleased to answer any questions you may have. You'll recall that during our last conference call on January 27th, we disclosed our expectation that revenue for the first quarter would exceed $70 million. Today, we reported that revenue was $72.2 million. This was up 88% year-over-year and was up 34% sequentially in what is a very competitive market for cannabis to a new record. $72.2 million represents the second highest quarterly revenue figure ever reported by a cannabis company, which reports in Canadian dollars and puts us on an annual run rate just shy of $290 million. So we are up there with the larger players in terms of the scale of our operation, if not our market cap. The growth in revenue is a clear testament to our accretive M&A strategy, our diversified cannabis ecosystem, and the innovative discount club model we launched on October 20th, 2021. Gross profit for the quarter was $23 million. Despite the margin hit, which was a result of the launch of the discount club model due to the strength of our ecosystem and the addition of NuLeaf, we were able to have our gross margin percentage remain strong at 32% in Q1 which was only down a touch from Q4's level of 33%. Adjusted EBITDA for Q1 2021 was $3 million. This was 80% higher than the $1.6 million reported in Q4 and frankly much stronger than we had predicted. Rahim will get into some of the moving…

Thank you, Raj. And good evening, everyone. Let's dig into these results. In the first fiscal quarter ended January 31, 2022, the company recorded consolidated revenue of $72.2 million, representing an increase of 88% year-over-year and 34% sequentially. Revenue earned in the U.S. was $17 million, up 74% versus Q4 2021, boosted by the acquisition of NuLeaf as well as organic growth. Including the portion of the quarter prior to when the NuLeaf transaction closed, our annual revenue run rate in the U.S. was $75 million. Retail revenue was $71 million in the first fiscal quarter of 2022, up 93% year-over-year and 35% sequentially due to contributions from acquisitions, stores rebuilt organically as well as same-store sales growth. Revenue from our consumption accessories wholesale segment was $1.2 million in the first fiscal quarter of 2022, representing a $200,000 decline versus Q4. This segment continued to suffer from major supply chain and logistical challenges, while at the same time, we shifted our focus to retail to make sure that our customers benefit from our proprietary accessories. Our consolidated gross profit was $23 million in the first fiscal quarter of 2022 versus $17.5 million in Q4 and $14.8 million in Q1, 2022. At 32% of revenue, consolidated gross margins remained healthy and were just below Q4, as NuLeaf helped offset the impact of the discount club model in our bricks-and-mortar stores. We expect that the next few quarters will continue to show consolidated gross margins north of 30%. However, the precise level will depend on the varying growth rates of the different parts of our business. The single most profitable significant revenue source we have is our data sales at over 90% gross margins. Data sales were $4.7 million in Q1 up from $4 million in Q4 and should continue to post…

[Operator Instructions]. The first question is from the line of Aaron Grey with Alliance Global. You may proceed.

Hi. Good evening. Congrats on the quarter and thanks for the question. First question for me on the retail side. Great, it sounds like the discount model is going well you guys still have that target there. But just specifically on that retail margin came down a bit not as much as we saw the prior quarter. As we look going forward with further roll out of the discount model you guys provided some color last earnings call, could you just maybe give an update in terms of where you feel that retail gross margin line will go going forward? Thank you.

Hey, Aaron, thanks for the question. Our retail margin, brick-and-mortar margin, in particular, definitely came down. In fact, it came down an aggressive seven points. But then, again, thanks to our diversified strategy and ecosystem, we were able to get our consolidated margins up to 32%, which I was personally very impressed with. So even though we have some of the most competitive retail margins at our brick-and-mortar stores in Canada, consolidated, we are looking great and I don't think that is going to change. I think we will maintain margins between 30% and 33% going forward. Again, thanks to NuLeaf, thanks to Blessed, FAB, some of these acquisitions that we did in 2021, they were very thoughtful and precisely for this reason.

Okay, great. Yeah. Thanks. And yeah, sequentially. Sorry, is what I was trying to versus the year-over-year, but yeah, good to see that kind of stabilized on how you looked to see that going forward. Second question for me before I pass it on. Right, so you guys talked about the Crossroads acquisition, three times EBITDA multiple. Just given what you've seen in terms of dynamics in the public markets, as well as the private, you think you guys are changing in terms of M&A landscape. I know you guys ' stock is down, but it seems like it might be tougher out there for those moms and pops. So how you guys see that M&A landscape, whether it be on the brick-and-mortar side in Canada, or something else within the U.S. and internationally. Thank you.

Sure. So Aaron, if you look at our history on how we've been purchasing companies, we are always looking forward to doing accretive deals and Crossroads was no different. We acquired it at a 3.5 times multiple of EBITDA, which in my mind is extremely attractive. And those multiples on the brick-and-mortar side in Canada, vary province to province, between 3.5 to six times, depending on what province we are looking for. And we're also very mindful of the fact that where our stock price is trading. Although these deals are extremely accretive and that's the number one point for me, we're still being very careful and we've actually slowed down our M&A a little bit to cherry pick absolutely the best deals at the right multiples. So we do have e-commerce opportunities in the pipeline. We have more opportunities on the brick-and-mortar front, especially at these attractive multiples, which we will be announcing shortly. But we are being very careful about really marching ahead on M&A when the stock is sitting at these levels, unless the deal is highly accretive, we are not going to do it. So again, our pipeline is robust, but we are cherry picking the deals that we really want to do at this time.

Raj, thanks so much for the for the comment. Congrats on the quarter and I'll go and join back in the queue.

Thank you, Mr. Grey. The next question is from the line of Andrew Semple with Echelon Capital Markets, you may proceed.

Good afternoon, and congrats on the quarter, very impressive traction on the retail segments there. So it's great to see the improvement on the revenue side, but in my view I guess perhaps the bigger positive surprise was actually on the gross margins, so I'd like to return to that. It'd be helpful I think if you could unpack some of the drivers within the consolidated gross margins, including whether the retail discount club model had a better gross margin than anticipated. How significant of a tailwind did NuLeaf provide, and whether there have been any improvements in the supply chain constraints on the accessories side that may have helped within the quarter.

Hi, Andrew, and thank you for your questions. Getting started on the retail gross margins, so we were anticipating to land somewhere between 12% and 15% on the brick-and-mortar front with the aggressive unbeatable price strategy that we have in our stores and we've done exactly that because we are the leaders in Canada. Most of the competitors that we have in the Canadian landscape are looking at us and pretty much setting their margins looking at what High Tide is doing. We have settled at a nice, healthy 16% on the higher end of the spectrum on the brick and mortar side. That's definitely helped out a little bit because initially I was assuming that we will remain close to 12%, 13% for at least a couple of quarters after the launch. But that to my surprise, has stabilized at 16%. So I'm very happy with that. And then on the particular point of NuLeaf, NuLeaf has been an absolute price jewel of an acquisition that we did. And we've maintained our gross margins in Blessed, we've maintained our gross margins on FAB and NuLeaf, which are an average of close to 70%, 75%. And we had good two months of NuLeaf sales incorporated into this quarter and almost a full quarter of Blessed and a full quarter of FAB. So from that perspective, our consolidated margins kept on gaining traction and we ended up at 32%. My projection prior to this, including speaking with yourself and other analysts, we were projecting close to 27%, 28%, but I think we benefited on both sides. The brick-and-mortar remains strong in terms of margin, as well as all of the acquired businesses performed very, very well and maintained their gross margin, and hence we are sitting here today. In terms of going forward, I do feel that our brick-and-mortar margins will remain stable between 15% and 16%, and we are constantly looking at accretive acquisitions which are going to contribute favorably towards gross margins for our entire ecosystem. So I think going forward, our gross margin situation is going to remain healthy.

Great, that's very helpful. Thank you, Raj. And I just want to ask on the M&A. On the yields of the Crosswinds (sic) [Crossroads] acquisition, I would appreciate an update on the integration plans for newly acquired retail stores ahead of what I presume to be an opportunistic year for tuck-in store acquisitions. Is the plan to convert these stores to the discount club model on day one after taking ownership, or is there a transition period, and could you also touch on your plans for branding, whether you have a plan to convert most acquired stores to the Canna Cabana brand immediately or will you be more selective in certain regional markets?

Sure. When we just recently did the acquisition of Bud Room, we actually closed that acquisition about a month ago. But -- and we need to do things right when it comes to positioning it as a Canna Cabana brand. So we need to replace our external signage at the very least and also do some improvements internally in each one of these brick-and-mortar locations that we acquired. So for example, when we acquired Bud Room, it did need a little bit more of cabinetry to accommodate our accessory strategy. We are very aggressive with our accessories, we have such a vast variety, so we want to make sure that we have wall-to-wall coverage of accessories in every store that we acquire or we organically build. So that is usually the only hold up before we turn the switch over to Canna Cabana. It's the external signage which in some cases, building permits -- sorry, signage permits can take a month or two to acquire. So as soon as we get the external signage change and we get the cabinetry change, we make that switch. Until then we keep on riding on the old previous gross margins. For example, Bud Room is still at its older gross margin profile. But I believe in the next two weeks when we get our signage installed and cabinetry all in, we will be able to go back to the Canna Cabana brand and the Canna Cabana pricing. And this will remain consistent with Crossroads and any other future acquisitions that we do.

Understood. Thanks for the additional color there. I'll get back in queue. Thank you.

Thank you, Mr. Semple. The next question is from the line of Scott Fortune with ROTH Capital. You may proceed.

Good afternoon, and congratulations on the quarter. Just looking at the discount model roll out here, the success you've had, it seemed to be replicating the pilot program. How and then what's happening with the lock down or consumers moving back into the stores, any updates on that and how we can expect a similar pace to the pilot program over the next two quarters for sales from that side of things?

Hi, Scott, and thank you for your question. I don't think there has been a significant impact of COVID improving and customers flocking back to our stores. But in general, due to the introduction of the discount club concept, which is a very unique concept as you know, Scott, it's the first of its kind in North America. We have our Baltimore coverage of consumption accessories, there's a lot more to see in our stores and purchase at some very attractive prices. So the word of mouth is definitely getting out and we are definitely marching ahead. As for expectations, we're actually slightly ahead in terms of our growth in our stores. And I feel that going forward, we will be able to come through on exactly what we messaged to the market in the next couple of quarters between the next six to nine months, we should hit maturity to the numbers that we had originally messaged to the market. But you can see our results today, our EBITDA has jumped 80% sequentially, despite the drop in brick-and-mortar retail margins, and we are gaining market share. So from any perspective, you look at the business today, it's way healthier, this is a way better strategy to go forward for a company like High Tide because there's not many other companies that have a unique ecosystem like ourselves. So to go back on the question, we are seeing strong results from the discount club concept, we are seeing membership grow at an exponential rate. I believe we've grown over 84% in our club members, which further provides us a monetization opportunity for our club members. So things are looking great in terms of our discount club, and I feel by the end of the year we should be very close to the originally message numbers on the discount club that we project will happen this year.

I appreciate the color. And then to one the under-appreciate digit segments is that data technology, that generated about $4.7 million this quarter on 17% quarter-over-quarter growth. Is that a function of more stores or you looking to expand the data offering? How should we look at the kind of data technology as we move forward here?

So I've been very impressed with the demand for our data across our ecosystem. So Scott as you know, High Tide has one of the most unique ecosystems in cannabis. We are involved in TXI, CBD and accessory sales, and all of these units are very attractive. The data that comes out of it is very attractive to multiple industry stakeholders, not just the licensed producers, but even other investment bankers that are interested in this data to get ahead and start calculating on how Canadian, American, and European companies are doing because we have business operations across the continents now. So from that perspective, because we have CBD companies now, we do a good $48 million - $50 million annualized CBD business. We do a good $40 million of annualized accessories business, and the remaining comes from THC. So our data sales are in very high demand and we feel that it'll be stable, maybe it won't grow as exponentially as we have been, but we definitely feel that our data sales will continue to grow. And as all of us know, data is -- the output is only the report that we present to our customers. Whether that's a licensed producer or investment banks or any other clients that we have, it's simply just a report, so it's a very, very high margin business in anywhere between 96% and 99%. So from that perspective, I couldn't be happier with the data sales that we are generating. And I believe the data sales will continue to grow, not so sharply, but definitely more steadily.

I appreciate the color. I'll jump back in the queue. Thanks.

Thank you, Mr. Fortune. The next question is from the line of Frederico Gomes with ATB Capital, you may proceed.

Hi. Good evening. Congratulations on the quarter. Thanks for taking my questions. First, I want to talk about the delivery. Can you talk about the economics on deliveries because you mentioned that your fee should be accredited to margins? Can you talk about that a little more? And what's the percentage of your sales that's coming from delivery right now just considering the provinces that allow for that? Thank you.

Good evening, Frederico, and thank you for your question. In our delivery model, the margins are very consistent to what we have or what we generate in our stores. As we recover the delivery feedback by the customer when they paid that $9.99 charge. Deliveries are not generating a great ROI for any of the Canadian retailers, due to the current regulations of our own delivery. So we see our delivery on-demand services more of a convenience and service to our loyal club members, so we can continue to provide them with the best cannabis retail experience. And we have not seen any major increase or decrease since the launch of delivery on demand. But again, our boarder was literally launched a couple of weeks ago or week and a half ago. And prior to that, I believe sometime in February we launched this in Ontario, so our delivery numbers should continue to rise throughout this year as our service becomes more well-known.

Thank you. And then on your expansion in Ontario, so right now Ontario has had that mark cap of 75 stores, when do you think that you guys will reach that cap, and are you looking at alternatives to continue expanding in the province for different arrangements once you reach those 75 stores if nothing changes in terms of regulations? Thank you.

Yes. So we are very focused to get to that 75 store number Frederico and if our track record -- you can look at our track record. We always come through when we say that we're going to open an x number of stores. So I'm quite confident that we look continued to build in Ontario throughout this year and we will get pretty close to that goal. Our goal is to reach a 150 locations by the end of calendar 2022 and I believe most of that store growth is going to come out of Ontario. If I was to just throw a number out there randomly and don't hold me to it, we are going to try our best. But I think we could probably add another 25 locations in Ontario alone by the end of this year, so we'll be close to 55, 60 locations. l also intend to have our age stores fully built already in British Columbia this year. BC has been a little bit of a challenging market in terms of acquiring building permits. We have three organic leases that are still sitting there and all three of them actually waiting for building permits and as much as we are out there doing very accretive M&A, we're also very disciplined and BC commands some of the highest multiples in the country when it comes to bricks-and-mortar retail. So it's not like we've not looked at opportunities and we can grow our stores there today, but I'm waiting for the right moment. Thanks to our diversified ecosystem, we can continue to grow in other markets and segments and come back to BC when the time is right. But I'm feeling very hopeful that this year we'll have all of our eight locations. And between Ontario and BC, we will add another 30-35 locations this year.

Thank you, Raj. Congrats on the quarter again. Go back to the queue. Thank you.

Thank you, Mr. Gomez. [Operator Instructions] There are no additional questions waiting at this time, so I will turn the call over to the management team for any closing remarks.

Thank you, Operator. And thank you to everyone for your interest and continued support for High Tide. With that, I will ask the Operator to close the line, have a great evening.

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.