Good evening. My name is Dante, and I will be your conference operator today. At this time, I would like to welcome everyone to High Tide Inc.’s Third Quarter of 2022 Unaudited 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 the question-and-answer session. I will now turn the call over to your host.

Thank you, operator. Good evening, everyone, and welcome to High Tide Inc.’s quarterly earnings call. Please note that all earnings discussed on this call are presented on an unaudited basis. Joining me on the call today 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 third quarter, that ended July 31, 2022. Before we begin, let me remind you that during the course of this conference call, High Tide’s management may make statements including management's expectations, or estimates of future performance. All such statements, other than statements of historical facts, constitute forward-looking information or forward-looking statements within the meaning of the applicable securities laws and are based on assumptions, expectations, estimates and projections as of the date hereof. Specific forward-looking statements include, without limitation, all disclosures regarding future results of operations, economic conditions and anticipated courses of action. For more information on the company's risks and uncertainties related to forward-looking statements, please refer to the company's press release dated September 14, 2022 released earlier today. Our latest annual information form and our latest management discussion and analysis, each filed with Securities Regulatory Authorities at sedar.com or on EDGAR at www.sec.gov. or on the company's website at www.hightideinc.com. And which are hereby incorporated by reference herein. Although these forward-looking statements may reflects management's current beliefs and reasonable assumptions based on the current available information to management as of the date hereof, we cannot be certain that the actual results will be consistent with the forward-looking statements in the future. There can be no assurance that actual outcomes will not differ materially from these results. Accordingly, we caution you not to place undue reliance upon such forward-looking results. For any reconciliation of non-GAAP measures measured and discussed, please consult our latest management discussion and analysis filed on SEDAR and EDGAR. It is now my pleasure to introduce Mr. Raj Grover, President and Chief Executive Officer of High Tide. Thank you, Mr. Grover. You may now begin.

Thank you, Krystal, and good evening, everyone. Welcome to High Tide Inc.’s financial results conference call for the third quarter ended July 31 2022. I'll start this call by providing an overview of our results and other key developments in the third quarter. Rahim will discuss the financials in depth and after that we would be pleased to answer any questions you may have. Regarding the results, total revenue for the third quarter was $95.4 million. This was up 98% year-over-year and was up 18% sequentially. While it continues to be a very competitive market for cannabis, High Tide continues its strong momentum forward. Our sequential revenue gains were primarily in Canada, driven by significantly higher same-store sales, as well as adding more stores to our corporate network. While we are very excited at the Q3 revenue figure, we know that revenue grew throughout the quarter and beyond. In fact, we calculate that we are on an annual revenue run rate exceeding $400 million today. This puts us within striking distance of becoming number one among all Canadian cannabis companies that report in Canadian dollars. Second only to Canopy Growth, which refer its last reported quarter was on a $440 million annual run rate. While our revenue levels are only about 10% apart, we can't help but highlight the discrepancy between their market cap of $2.2 billion and ours at $135 million. Gross profit for the quarter was $25.8 million. As a percentage of revenue gross profit remained relatively flat from 28% in Q2 2022 to 27% this quarter. The change was due to a shift in mix with more revenue coming from our Canadian cannabis business, which now stands at 85% of total revenue. While our Canadian business carries a lower margin, it is important to note that the…

Thank you, Raj. And good evening everyone. Let's dig into these results which were stronger than ever our even our best case internal forecasts. In the third fiscal quarter ended July 31 2022, the company recorded consolidated revenue of $95.4 million, representing an increase of 98% year-over-year and 18% sequentially. Our gross profit was $25.8 million in the third fiscal quarter of 2022, representing 27% of revenue versus 28% in Q2. The model sequential decline was explained by the increasing mix of revenue of our Canadian bricks and mortar, which carries a lower gross margin profile. While the ultimate consolidated gross margin in subsequent quarters will depend on the mix of revenue, which will be influenced by organic growth rates and future acquisitions, I can say that our gross margin percentage in Canada has been holding steady. Our adjusted EBITDA was $4.2 million in Q3 up 176% versus Q3 2021 and up 77% sequentially. I know that our business is already becoming more efficient. This was due to a combination of revenue growth and strong cost controls to improve our cash flow. Speaking of, while our revenue rose $14.3 million sequentially, our two primary expense items salaries and wages and benefits, and general and administrative only rose by a combined $1.5 million. This allowed 13% of the revenue increase, or $1.8 million to flow to adjusted EBITDA. Our adjusted EBITDA margin increased from 3% in Q2 to 4.5% in Q3, due to our ongoing emphasis on cost control. While our sales are going great, we are now looking at how we can tighten our ship even further and enact operational efficiencies to get more down to the bottom line. We continued shoring up our balance sheet through the quarter and beyond. In Q3, we raised $5 million in non-convertible subordinated…

[Operator Instructions] Our first question comes from a line of one Frederico Gomez with ATB Capital Markets. Your line is now open

Hi. Congratulation for the quarter guys and thanks for taking my questions. My first question is on the Cabana Elite membership that you are planning on launching, could you provide more color on the economics of this program, in terms of pricing, what sort of advantages an Elite member would have over a regular member and you have any target in terms of how many members you think you can convert to this premium tier? Thank you.

Hi Federico, and thank you for your question. So look, Federico, we are very excited about launching Cabana Elite, which we have messaged the market that we will be launching it at some time, towards the end of this year. We actually have all of the perks lined up and measured and we are just getting embedded with all the different regulators in the country, as you can understand, we are dealing multi provincially in Canada. And those conversations are happening right now. So we remain very confident that we will be able to launch this towards the end of the year. But you know, I would be a bit immature to speak about what exactly those terms would be, one, I would like to keep this in my back pocket still until we actually launch it. And second, we want to make sure that they're fully compliant in all ways. So we are currently working on it, I can’t give you some color on pricing, it's going to be around the $50 to $60 annual mark or $5 a month. There's a ton of advantages in becoming a member. But like I said, I'd be able to share that more towards the end of the year when we launched that program. And I think on your last point there you asked about what is -- what do we anticipate in terms of signups? So, I think the program is so compelling that we will have a nice inflow of customers are trying to sign up for Kabana elite. But it may be a little slow to start with. But I think we're going keep our keep our foot on the gas pedal in terms of keeping it compelling and making it even more compelling as the time passes. That will get more and more signups. So with every passing order, we should be able to announce more and more paid memberships, which will again boost our bottom line every passing quarter.

Thanks, Raj. That's really helpful. And then my second question is on your just your margins in Canada, so relatively stable quarter-over-quarter, we know that the markets still very fragmented, but are you seeing any sort of easing of the competitive environment, in any specific provinces? Are there any meaningful opportunities to increase those gross margins over the next two quarters? Thank you.

Yeah, so Frederico, we always have our pulse on the margin conversation. It's always a big conversation at High Tide. And, you know, we are very attuned with what's actually happening in the market. And I'm very happy to report that margins have stabilized. And being the biggest retailer in the country, with a corporate portfolio comes with its benefits. So it's practically other chains and independents that are looking up to us on where we set these margins. And I am not seeing any type of intense pressure, in fact, I'm seeing some stability and margin slightly increasing. So we're very happy where the margins are right now and let's say the margins didn't go backwards, the High Tide advantages our ecosystem is so diversified and unique that we can always go and get some more margin to add to our portfolio. So we don't see any trouble going forward in terms of margin, at the moment margins remain very stable for ourselves in Canada across all provinces.

Thanks, thanks for that. Congrats on the quarter again. I’ll back into queue. Thank you.

Thank you for your question. Our next question comes in from the line of Andrew Semple with Echelon Capital Markets. Your line is now open.

Hi there. Good evening and congrats on the very good results, Raj and team.

Thank you, Andrew.

No problem, Raj. I've been very active with retail M&A year-to-date. I would appreciate an update on your M&A plans, particularly in Ontario province where you are capped on the number of stores. Are you continuing to see attractive opportunities to acquire brick and mortar retail stores to hybrid your portfolio? Or have you already kind of picked away that some of the best assets are available for sale? And if you are seeing those opportunities, and I think you did mention this in your prepared remarks, would those be similar kind of valuation levels to trailing EBITDA, that we've seen in the past. Has there been any shift in the valuations being asked for by potential targets?

Andrew, thank you very much for your question. So, there's tons of M&A opportunities that remain for us, on purpose, and we've slowed down in terms of our international acquisition and more ecommerce related acquisitions, one, we wanted to see how things unfold with ecommerce with discretionary spending down. But on the brick and mortar front, we have been very active, in terms of M&A, with our last acquisition being adding nine stores from Choom. So, we're very active on that site. But like I mentioned in my prepared remarks, it pains us to issue stock at these levels. But at the same time, I'm very aware of if the acquisition is accretive, we want to do it, we're adding more and more value for High Tide shareholders in the long term. So we are very active in the market. In fact, over the next few weeks, you should hear some more M&A transactions from us, especially related on the brick and mortar front. On the on the valuations, we are already known in the market with every single transaction that we've done has been highly accretive to High Tide results. And we're picking up these businesses at 3.5 times four times EBITDA, which is very, very accretive to us. So I don't think we can go much lower from here. However, we are being very selective because we have a lot of inbound requests for us to take a look at these small operators, independent and some also even some regional chains. So we can really be strategic and pick and choose on what do we want to add to the High Tide family. But nonetheless, there must be a strategic or geographically welcome location that we would like to see in our portfolio. And at the same time, they have to be highly accretive to our results. So if they match that, then we will be pressing the trigger on that.

Understood, that's such great color. Thank you. Just a follow up. Again, going back to the prepared remarks, Rahim I heard you talking about there's still been some opportunities to tighten up the ship. Just maybe want to clarify that comments there, which was in regards to operating expenditures? Where do you continue to see the best opportunities for operating leverage within the business going forward? I presume that comment relates would relate to operating expenses growing less quickly than revenue. And that's what's really going to drive that operating leverage that you're speaking to?

Yes, sure. Thanks, Andrew. And as I commented, our revenues are in a very good trajectory, it's going as expected or far beyond our expectations, we're now looking at sort of our cost basis. With the scale and size that we have now we have the ability to look at some of the costs that are fixed in nature, and try to bring those costs down so we can get the benefit, right, going right to the bottom line. There's core services that, that go up with the expansion of every store, you hire, like store level staffing and some other expenses. And those are that you can't manage. But there's also some fixed costs. And as you grow, and as you get that scale, you're able to negotiate those costs with vendor now because your volumes have gone up. So we're always looking at those opportunities, where we can make our operations more efficient, and have that cost savings go right to our bottom line.

That's great. Thank you. I'll get back into queue.

Thank you for your question. Our next question comes in from the line of one Doug Cooper with Beacon Securities, your line is now open.

Hi, good evening, everybody, and congratulations on the nice quarter. So Raj, just curious, if I take a look at the macro environment, the Canadian market has essentially flat lined and Alberta your largest market is essentially flat for the past six or seven months. The results coming from kind of major participants, whether it be Aurora’s loosing tons of share, and Canopy loosing tons of share, Tilray is losing share, Fire and Flower clearly loosing share, the members were not very good. So I mean, certainly one of these things is not like the other. I mean, your numbers stand out like a sore thumb in this environment. So, like what do you attribute this to, let's start out there?

Hi, Doug, and thank you very much for your questions. So, Doug, I can't speak for others. But we have always been a company that has always executed on our business plan. This is a business plan that we communicated and we acted on it. Our innovative discount club model has proven to take market share outside of Quebec, and we are now 7% of the market share this quarter, which was only 6% last quarter and 5% quarter previous to that. And Doug, this is because we are leveraging our points of differentiation. Again, as I highlighted in my prepared remarks, our loyalty plan, which is very differentiated in the country, our vertical integration on the consumption accessories front, there's no other player that has this experience. We've been doing this for over a decade. And also, launching innovative ideas like our Cabana Cannabis Co. white label program that is now live in Saskatchewan, but also going in Ontario. But most importantly, Doug, we know the reality of the situation in Canada, Canada is not an easy landscape to win. So this quarter also we added $14 million plus to our revenue on the brick and mortar front, our costs to offset that was only $1.5 million. So our SG&A actually went down from 8%, to 7%. And all of this is adding up to run our business more efficiently, we're all we've also created a very attractive concept. So you can see that with the speed of membership that we are getting, where it's 750,000 members. And when we launched the discount club model, we were sitting at 245,000 members. So this is exponential growth, no matter how you look at it. And it's also put us in a really good position to now monetizing this membership base, which takes it to another level. So, again, I can't speak for other competitors. But we keep our head down, we and we execute on our business plan. And this is the result for everybody to see today.

And just follow up on the M&A side, there has been some talk that, in Toronto, particular, maybe a third of the stores are about to go under. And I'm assuming this is sort of happening in other jurisdictions across the country. How many stores across the country do you think need to go to business before the market can stabilize in general? I mean, obviously, you guys are doing well right now. But in general, to be able to how many, just like Ontario, how many stores do you think that this market can actually support? And when you're looking at M&A, how do you differentiate between ones that are going out of business? And which ones to buy? Like, Cigarettes assets are clearly up for bid now. And that's a relatively well-known brand. So how do you differentiate, the crap from the good ones, at the end of the day?

Unfortunately, Doug, we're seeing more than just anecdotal signs of store closures, and also regularly, we get these inbound requests of unprofitable stores considering to sell. So, I think you're totally correct. I think at least one-third of the stores in Canada will not exist within the next 12 to 24 months. And we will pick up a lot of this business one organically with what we already have in the market with our 140 stores, and others constantly we are doing good accretive M&A deals, but we're being very, very selective on what we purchase, we can buy everybody and we don't want to. I feel bad for the independent operators out there. But this happens to every industry when it's right sizing and the right sizing is now going on but we're already very healthy, Doug. So we're going to continue doing good deals. And I think there will be a lot of -- lot more bloodshed in the market where we'll be able to pick up even better deals and bring in even more stores to our portfolio. Our long term goal initially was 200, and I always like to under promise and over deliver, but I think we can now get to 250 stores looking at what's happening in the market, especially in provinces like Manitoba and Saskatchewan and Alberta where there's no cap. So, things are looking really good on that front in terms of the market right sizing and you will see us announcing more of these M&A transactions related to brick and mortar in the coming weeks ahead.

Thanks so much. I’ll get back in the queue.

Our next question comes in from the line of one Scott Fortune with ROTH Capital Partners. Your line is now open.

Hey, this is Nick on for Scott. Congrats again on a good quarter. First question for me on the supply chain, you mentioned last quarter prioritizing sourcing your Canna Cabana locations over your legacy wholesale business. Could you just run an update on the current status of your supply chain? And just your thoughts around sourcing moving forward here? Thank you.

Sure. Hi, Nick. And thank you for your question. So our supply chain remains stable. It can always get better. My goal was to be over 50-60 locations installed with our Fastendr kiosk and that has not happened we’re sitting at 28. However, I'm very hopeful that we'll have over 100 locations fully installed by the end of this year. When it comes down to prioritizing between the wholesale business and the retail business, we made that very clear to the market that, retail is less than 1% of our overall business, our wholesale is less than 1% of our overall business and we have always been a retail focus company. So the priority will always be given to Canna Cabana and our ecommerce platforms. And we're doing exactly that on that front because we prioritize Canna Cabana and because we prioritize accessories on our ecommerce platforms, we're doing quite well with the supply chain, we are not seeing any issue whatsoever. Now, if I our wholesale business was a lot bigger than we would have to ration a little bit into wholesale, but we're not having to do that.

Okay, I appreciate that color. And then second one for me just on the U.S. CBD side, I appreciate the update there. Just looking for color on new potential SKUs you could roll out there, there's obviously an opportunity within some of these alternatives, cannabinoid segments that offer maybe some better pricing dynamics than just regular CBD. So just wondering how you're looking at those categories moving forward here? Thank you.

So Nick, we always want to introduce new products into the market, because it's that small incremental revenue to what we already have. And over the last quarter, we press release that we were starting, we were launching the sales of D8/D9, that launch has gone relatively slow for us, just considering dynamics of supply chain for the vendors because we don't make these products ourselves, particularly depending on state by state regulations. But we are active on D8 D9, we've launched D8 for new leads [ph] some oils in certain states. And we're working on D9 products to be launched in certain states as well. And then we're always looking at the brand new cannabinoids that are coming out, cannabis is an amazing plant. And it has 100 plus cannabinoids and same with hemp. And we are actively looking to bring in more products on that particular basis and also expand other lines such as our pet lines and get into cosmetics, high end cosmetics on the CBD side. Because we already have the customer base that want these products. So we are working on these new products. And we anticipate launching these products during this year and also all throughout next year.

Great. That's it for me. Thank you, Raj.

Thank you for your question. Our next question is a follow up from Doug Cooper with Beacon Securities. After this we will have exhausted our questions. [Operator Instructions]. Mr. Cooper, your line is now open.

Rahim. So just on the average revenue per store and 131 store, nearly about 640,000 or 650,000. Something like that in the quarter in Canada, so 2.5 million run rate per average stores? Is that right?

Yes, I mean, its spread around four or five geographies provinces now. So each province has its own average. When we look at -- compare against the market, and we're right at the average or above the average in most of our stores. So, we have very high volume stores, and yet some average stores and some a little bit lower. But on average, we seem to be doing better than the market average per store.

And I guess my question is around the M&A. And I'm assuming the stores you're looking at buying aren't doing that type of business. So when you look at a store to bring in your portfolio, what would you want it to be able to generate on a per store basis at a minimum to be considered to be part of the portfolio? And at what level does the economics really start to get the operating leverage, at what level of revenue per store?

Sure, and before I get our master acquire, Raj Grover to answer that question here. Look, we're always looking for as Raj mentioned, looking for that accretive acquisition. We’re very strategic into what we purchased, the location has to be perfect, the volumes have to be attractive and accretive to our current operation. So we're always looking for those qualities in a location before we make a decision, but I’ll give Raj to maybe add more color to that.

Sure, thanks Rahim. That's a great question. So we definitely have a minimum threshold. And this is why I was saying that we have a lot of operators independent and smaller chains reaching out. And when we look at their revenue levels, and where the locations are, there's nothing to see there. There's nothing to act upon. And unfortunately these businesses will cease operations sometime, so depending on their holding capacity. So our threshold is $1.8 million a year and that is a minimum threshold. Now, if I'm buying three stores and one store is doing 1.4 and the other store is doing 2.2, and the other store is doing over $1.8 million, yes, we will take it as a combined package. We have done that in the past because we know even when we buy these stores at these levels, we are going to make them better by launching our own model which is a discount club model to the Canna Cabana stores. So, we -- if it's below $1.8 million, we don't entertain it, if it's a group of that averages to $1.8 million, game on.

So how many stores out there, would meet that threshold?

Not many Doug. There may be some that are still living the cannabis dream and they want to run the stores themselves. And that is totally okay too. But as we continue to execute Doug, it becomes more and more clear to the market, which is our investors, and also our competitors, that where this business is going and who are the real players in the market. So, join the High Tide family and let's ride this wave together. It's my play always. That is how I approach all the deals. And so far, so good. We have a lot of inbound action. Forget about us approaching other stores. We have a lot of stores coming to us. And if our stock price was not depressed to these levels, you would have heard a lot more. However, like I said, as long as they're accretive as long as they meet those minimum thresholds, we're going to go for it.

Okay, that's helpful. Thank you.

Thank you for your question. Now, I'd like to turn the session back over to High Tide’s Chief Executive Officer, Raj Grover, for final comments.

Thank you, operator and thank you to everyone for your interest and continued support for High Tide. And we are very proud of what we achieved this quarter and remain excited about our growth trajectory. With that, I will ask the operator to close the line. Have a good evening everyone.

That will mark the conclusion of today's High Tide Inc. conference call. Thank you for your participation. You may now disconnect your line.