Good morning. My name is Leo, and I'll be your conference operator today. At this time, I would like to welcome everyone to High Tide Inc.'s First Quarter of 2023 Unaudited Financial and Operational Results Conference Call. [Operator Instructions] I will now turn the call over to your host.

Thank you, operator. Good morning, everyone, and welcome to High Tide, Inc. quarterly earnings call. Please note that all earnings discussed on this call are presented on an audited basis. Joining me on the call today are Mr. Raj Grover, President and Chief Executive Officer; and Mr. Sergio Patino, Interim Chief Financial Officer. On March 17, 2023, the company released unaudited highlights from its financial and operational results for the first quarter ended January 31, 2023. Before we begin, please let me remind you that during the course of this conference call, High Tide's management may make statements, including with respect to management's expectations or estimates of future performance. All such statements, other than statements of a historical fact 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. The specific forward-looking statements include, without limitation, all disclosures regarding future results of operation, 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 March 17, 2023, our latest annual information form, and our latest management discussion and analysis each filed with the 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 reflect management's current beliefs and reasonable assumptions based on the currently 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 mentioned 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 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, 2023. As disclosed in Friday's press release, we generated record revenue and adjusted EBITDA for the second consecutive quarter as well as a 64% improvement in free cash flow from our operations. Following this momentum on Friday, we made it clear that it is our objective to become free cash flow positive by the end of this calendar year. I'll start this call by providing an overview of our results and other key developments in the first quarter. Sergio will discuss the financials in-depth and after that we'd be pleased to answer any questions you may have. Let's go over the highlights from our Q1 results. Total revenue for the quarter was $118.1 million. This was up 64% year-over-year and up 9% sequentially. Our consolidated gross margin was 27.3% in Q1, which is consistent with the prior three quarters. I note that gross margins earned from selling cannabis in our core bricks-and-mortar stores pick sequentially higher this quarter. Our Canadian revenue represented 84% of total revenue and continued to post gains. Same-store sales in our stores were up a massive 52% year-over-year and 4% sequentially, making it the sixth consecutive quarter or sequential same-store sales increases. While the quarter-over-quarter same-store sales growth number has normalized over time from the supercharge pace we saw initially, we continue to outpace national same-store sales changes within the Canadian cannabis sector. If we can keep it up, 4.25% translates to a pace of 17% annualized, a rate I suspect most of our competitors would love to reach. Our national market share outside Québec rose another percentage point during Q1 to 9%, which was the fifth consecutive quarter where we made a…

Thank you, Raj, and hello everyone. I'm very excited to be part of the High Tide team and share these great results and the road ahead. In the first quarter ended January 31, 2023, the company recorded consolidated revenue of $118.1 million, representing an increase of 64% year-over-year and 9% sequentially. As a percentage of revenue, gross profit remained consistent versus the prior three quarters at 27.3%, but down from 32% in Q1 2022. This reduction was intentional, given the new discount club model, we launched almost a year and a half ago. The primary importance however is that our retail stores gross margins earned from selling cannabis in Canada, which drive the vast majority of our revenue was up sequentially in Q1. Our consolidated gross profit was a record $32.2 million in the first quarter of 2023, up 40% year-over-year and matching the 9% revenue growth sequentially. Gross margins in our cannabis stores have not only stayed stable, rather they have moved higher over the past 12 months. And as ELITE membership and our white-label initiatives start to become more meaningful over time, as well as a Fastendr which is the retail kiosks technology continues to rollout, which will each have a positive impact on our consolidated gross margins in the future. We hit a new high in our adjusted EBITDA at $5.5 million in Q1, up 86% versus Q1 '22 and up 10% sequentially. On the cost side, we have our salaries, wages and benefits at 12% of revenue, consistent with the last three quarters, but much lower than 14% in Q1 2002. Similarly, our G&A was only 6% of revenue, representing an improvement from 8% in Q1 '22 and 7% in Q4 2002. This is a testament to our strong cost-control, which we are looking to further…

Thank you, Sergio. [Operator Instructions] Our first question is from Scott Fortune from ROTH MKM. Scott, please go ahead.

Yes, good morning and congratulations on the quarter. Just wanted to provide a little color if you could on the current retail market in Canada and the strategy deposit step back and target, you were targeting 200 stores in the timeline. Are you seeing consolidation occur, there's been some over saturation. How do you look at that kind of store opportunity for you from a maturing marketplace from that standpoint? And then can you provide color where the different provinces, where you still have some focus or opportunities to grow that as you look at kind of the opportunity overall for 2023 for your store opportunity from that standpoint? Just kind of step in the strategy, as you look going forward and what will need to change to kind of start to really accelerate from that store growth?

Sure. Good morning, Scott. Thank you so much for your question. So just first of all, just answering your overall question about the situation of retail market in Canada, So obviously, we are still experiencing and I think we will continue to experience hyper competition overall in the Canadian cannabis landscape, retail landscape. But for the last five months, if you look at Alberta, which is our largest store footprint, it has actually shown negative store growth which is healthy for this environment that not more stores are not opening up and operators that are currently existing can improve their economics in these markets. And if you look at Ontario, which is the largest market in Canada, Ontario new store growth has also drastically slowed down. Now overall on our goal, Scott, 200 stores was our goal almost to reach in 2023 or early to mid-2024. But we are now focusing on free cash flow generation ahead of broadening our store network. Scott, if you look at our track record, we have clearly delivered growth market ask for growth, cannabis was in early innings. And if you look just four years ago, our total revenue was $8 million. Now we're exceeding the run rate -- current run rate is $472 million. So you can see the exponential growth there. We have clearly proven that we can grow. So I'm not concerned about how quickly we reach to 200 stores anymore. The good news is being the market leader already in Canada, it's up to us we can practically dictate terms on slowing down and picking up stores when we need or ramping up organic growth like I said in my prepared remarks, we're getting a lot of high-quality real estate sites offered to us by some major landlords in the country. And I'm a sucker for good locations, so it's really hard to deny those excellent locations, but we are still going to be very picky and we're going to pace out the build out of these stores. So the focus remains on free cash flow generation. But any given time, the market improves, the macro improves. Right now, we have a lot of challenges in the cannabis capital markets. Of course, the macro is very challenging. As these dynamics improve, we can always shift back to store growth again and meet our long-term goals of 200 stores in the next year and a half. And in the next two to three years, our overall long-term goal of hitting 250 stores in Canada. That's totally possible. But I think the most responsible thing to do right now while the market right sizes itself, it's just to focus on our operations. As you can clearly see, we've done a great job on our SG&A. We are going to continue to do that, Scott and eventually reach our long-term goal of 200 stores.

I appreciate that color. And then one follow-up for me is kind of the cadence of the Cabana club members is now flowing obviously, you've done great job to meet your original expectations with 975,000 there. But what do you see you have to - are you targeting members? Are you having to add more incentives, more marketing for them, the continued spend? What do you think on the current spend, average spend for those members in the stores? And just a little bit color on the cadence of the lead number growth. You kind of say it's more of a gradual growth throughout the year, but kind of little more color on the ELITE member side of things, that'd be great.

Sure. So, Scott, I'm extremely happy. And I'm actually very pleasantly surprised how rapidly we've grown our Cabana club. As you remember about 15, 16 months ago, Scott, when we launched the discount club model, we were sitting at 245,000 members to be precise. And we've exceeded 975,000 members in just 15 months. I mean, if we were close to 800,000 members right now, I would have been very happy. But we've clearly surpassed that growth and it's been at a extremely rapid pace over the last year and a half since the launch of our discount club model. We cannot be expected to continue growing at such explosive growth. It's basically not possible because a lot of our locations are starting to now hit maturity. But I'm very, very pleased that where we sit today, like I said, we have currently about 14% of Canadian cannabis marijuana smoking population in our ecosystem outside the province of Quebec. I think that's a pretty large number. So very happy with Cabana clubs sign-ups where they're currently sitting. Like I said, we still have the opportunity long-term to add 80 to 100 stores to get to our 250 store number. That would also be in new markets, as well as existing markets. So we think that that growth will start to ramp up again. But I think we are going to go through a more reserved time in the Cabana club sign-up growth because we are not focused on opening new stores and our existing stores are getting close to maturity now. On your question on ELITE, so we grew 58% in the last 45 days, which was adding another 3,500 members in ELITE, which I'm very, very happy with because you think about it, Scott, we are the first paid concept in cannabis and we've started this from scratch. And our current store inventory only represents 2% in ELITE items. When the customers come in, they need to see more inventory that represents ELITE for them to be sold in this market that, yes, this is the direction we want to go. So having signed up another 58% of our members in just 45 days, a growth by 58% I'm very, very happy with it. I want to see a steady increase every quarter and we are confident that we can make it happen as long-term we think we can add 25% to 30% of all of our in-store offerings represent ELITE inventory. So I think, as the SKU offerings go up, our ELITE number will continue to climb sustainably.

I appreciate that. Thanks for the color, and I'll jump back in the queue.

We have a question now from Yewon Kang from Canaccord Genuity. Yewon, please go ahead.

Hi, good morning. This is Yewon on for Matt Bottomley from Canaccord Genuity. Just one from me here regarding the bolt to generate positive free cash flows from ops this year. Understanding that you guys are trying to shift gears away from looking at further M&A opportunities and focusing more on generating positive cash flows from all through the rest of the year, is there any other initiatives apart from the elimination of additional store openings to kind of further safeguard your position?

Good morning, Yewon, and thank you for your question. Yes, there's absolutely more initiatives that play. Slowing down store growth is only one of the factors that is going to help us get to free cash flow positive. But one other very important internal factor as you can see we made significant strides in improving our SG&A, which was 8% in Q1 2022, 7% in Q4 2022 and now 6% in Q1 2023. So we're very, very focused [Yvonne] on cost controls and we recently initiated a companywide project that looks at all of our systems and processes, especially in our acquired entities, We acquired six e-commerce platforms in 2021, five in the U.S., one in the U.K., three in the accessory space, three in the CBD space. And all of these companies use different systems, different processes, and what we are doing now is by initiating this internal review project which we will act upon in the coming months, I think it will help us considerably to tighten our operations further and yield a lot more efficiencies than we are currently realizing, which will be end result of that would be again free cash flow improvements in our overall cash flow. So we're looking really good from that perspective. This is a multi-pronged approach. It's not just slowing down growth. It's a total focus now on strengthening and tightening our operations.

All right. I appreciate the color. Thank you so much.

We have a question now from Andrew Partheniou from Stifel. Andrew, please go ahead.

Hi, good morning. Thanks for taking my questions and congrats on the good cash generation this quarter. Just a housekeeping item. I'm not sure, maybe I missed this in the prepared remarks, but could you quantify your sales from Cabanalytics this quarter? And how should we think about that going forward?

Sure. Good morning, Andrew. Thank you for your question. This quarter, we generated $6.6 million from our Cabanalytics data sales. It was an increase of about 3% I think over the last quarter. It's a really good question and very timely question, Andrew, because we are seeing a lot destruction in the landscape where a lot of licensed producers are unable to stay in business. The CCAA proceedings are rampant all around us. And data is a critical point for all of these growers to act upon, you know, it guides their manufacturing priorities. It tells them real time information on what's selling in our stores, which is the largest network in the country. So it's very difficult for them to ignore our data program. However, I understand the pain is real in the market. And when they can't pay their -- when they can't take care of their payroll that they're not going to have funds to subscribe to our program. So we're already seeing big slowdown in our data program. We don't think that we will be growing at this pace. In fact, we may experience some negative growth in data sales, which is totally okay. On our side, we have now the opportunity to raise margins. I think we played the perfect game starting exactly how we started as a discount club model, and considering where we are and dictating terms in the country in terms of sales volumes, we have 151 stores open right now, but the amount of volume of cannabis sales that we generate in our stores is equivalent to around 350 to 375 stores. So we now have the opportunity to start raising our margins and the country is looking upon us to do so as a major retail player. So we're focused on that approach more. I really hope it's my biggest hope that the industry improves fast especially on the growing side. The growers are feeling a lot of pain. And they are our biggest customers. So we are starting to see a bit of a slowdown in our data sales. And I can't predict exactly where this is going to go, but you'll definitely see a further slowdown, but which will be offset it by the margins increase we'll be able to do in our retail store settings.

Thanks for that. And maybe going off which you just talked about, potentially improving the margin on the Canadian retail store side. I mean, we've seen at least in the Canadian geography here that your gross margin has been roughly stable over the past three quarters. Could you remind us what your growth levers are. I think earlier you talked about Fastendr, you talked about ELITE, you talked about your white-label strategy, Could you go into a little bit more detail on how that could impact gross profit and help us understand a little bit better, please?

Sure. So Andrew, our gross margins have remained not only stable, but on the brick-and-mortar level, which is 84% -- our core business is bricks-and-mortar at that level, gross margins have actually ticked higher when we launched our discount club model, overall on the brick-and-mortar side, we were doing about 16%. Now we're hitting over 20% gross margins on the brick-and-mortar level. Where we lost some margin is actually our CBD businesses, where we've had to drop some margin to get competitive back in the market and be able to continue to generate revenue out of those business units which we know will improve over time. But our brick-and-mortar business, which is a core part of our business, margins have actually been ticking steadily higher every single quarter and we anticipate that to continue happening. Like I said, we are the clear market leaders in Canada and we have the ability to now drive margins higher. We are not going to do that overnight. We are very careful in how we increase our margin and want to make sure our customer remains interested and happy about what they are paying for in our stores as we are the lowest price guaranteed concept in the country. So keeping to that approach, we've added other initiatives like you just mentioned white-label programs and ELITE membership fees and Fastendr should help with SG&A and salaries and wages. So on the white-label program, we generate on a white-label SKUs, which includes Cabana Cannabis Co, which includes our NuLeaf Naturals SKUs that we introduced in Manitoba, Saskatchewan and Ontario, we generate about 5% to 7% percent additional gross margin on these SKUs. Currently, we have about, I believe, 10 SKUs in the market where we include vapes, include gummies, includes pre rolls, we are introducing…

Thanks for that. And I'll get back in the queue.

We have a question from Andrew Semple from Echelon Capital Markets. Please go ahead.

Thank you, and congrats to the High Tide team on the strong first quarter results. Also want to welcome Sergio to the call. Apologies if any of these have been asked. I had some technical difficulty just a moment ago. But just want to ask first on the e-commerce segments, which appeared to show some really nice momentum in the quarter. Based on my math, I think that was up maybe 25% to 30 quarter-over-quarter. Just want to get some color whether that was mostly due to the December holiday seasonality or were there some other factors at play? I know you also launched cannabis seed sales within the quarter and wonder how meaningful that was within the initial launch?

Good morning, Andrew. Thank you so much for your question. So great question on e-commerce and I'm glad you asked because it can be looked at in a way where it won't match the rest of the year. So the holiday season, as I mentioned in my prepared remarks, Andrew, is always hard to comp with our bricks-and-mortar business and also our e-commerce business. It's definitely the biggest quarter for our e-commerce business more so than even the brick-and-mortar business. So you're not going to see the same type growth and momentum in e-commerce that you did in Q4 or in Q1 definitely. So that you will see us slowing down. And again, people are prioritizing more on the TSC sales and more recession proof and more stable than when it comes to consumption accessories and especially CBD businesses where it's hyper, hyper competitive in the CBD landscape today. So our CBD businesses are not performing as well as I would like them to perform. And it's also a result of where the current market conditions are in terms of the overall macro conditions. So, you'll definitely see e-commerce sales slowing down in Q2, but we are hoping they'll pick up back again in Q3. There's always a bit of a lag after the holiday season where folks end up spending a lot and then they mine their wallet over the next quarter, which is our current quarter that we are in. So you're not going to see that kind of momentum. Your second part of the question, I think you asked me about cannabis seeds. So we had a great cannabis seeds launch. We were very excited about it. We actually extended that launch to Dankstop and Dailyhighclub as well. We extended it from Smokecartel and Grasscity and we just hit a peak revenue on our seeds, weekly peak revenue, which I was very, very happy to see just about a week and a half ago. And then we got a call from our payment processor that their credit card partners are reevaluating their strategy whether they want to allow seed sales or not. So we have halted our seed sales over the last week or so, I would like to say or maybe 5, 7 days or so. And we are waiting direction from our payment processor on which way they are going to proceed with? Or are we going to have to look for a different payment processor? We are just not sure. But currently, seed sales are on hold after a really nice start.

Great. Good to know and appreciate the additional color there. Turning again to the free cash flow outlook and the comments on positive free cash flow expectations. Once you hit that milestone, do you think there will be opportunities to reaccelerate growth. Just trying to get a sense of what you might envision doing with positive free cash flow once that's achieved. And particularly on the M&A side, I know much of the M&A in the past has been driven by share consideration. I'm wondering once the business sits positive free cash flow, whether cash consideration becomes increasingly important to prevent dilution going forward?

Yes, Andrew. So currently, like I said, currently the focus is entirely on free cash flow than broadening our store network. But we live for growth. We've proven to the market what we can do. We are the clear leader in Canada for a reason. We added 45 stores last year alone and we added 45 or 50 stores a year before that. So anytime we want, Andrew, we can add another 40 to 50 stores in a year. It's not easy to do, but we've proven our execution that we are able to do so. So I'm totally not worried that we are taking a bit of a pause from growth and focusing on free cash flow. We've been a Canadian leader in terms of doing many first in cannabis, whether it was top revenue generation, bricks-and-mortar store count, building a diversified cannabis ecosystem, launching ELITE, which is a first of its kind paid membership program in cannabis, we are not worried whatsoever that we'd be able to get to that 200 store number once macro improves. We definitely want to take our time and Andrew things just continue to get cheaper and cheaper. As we wait, stores are going down even more in value. And when we were paying 3.5x EBITDA, we were still trading 8x, 9x, 10x, 12x. Now we are trading 6x EBITDA on a current annual run rate. Right? So it just doesn't make sense to push hard at the moment on M&A. So we are going to take a good pause on M&A unless the opportunity is absolutely compelling. And going forward, your question was, would we be using cash for M&A versus stock for M&A? The intention is going to be built out our stores organically with the cash that we are generating. That is the number one priority. Again, we are in -- we will be again eventually in the future in hyper growth mode again when Germany opens up, when United States open up and we still have about 80 to 100 store opportunity in Canada. And the first focus is going to be to build that bricks-and-mortar network, continually build that bricks-and-mortar network from the cash flow that we generate. And then if we have additional cash flow, yes, that can also start going towards M&A. But I think it's a little bit of ways out and I'll be able to talk to you about that progress within the next two to three quarters out, but you're going to see that we've calmed down on M&A and we are absolutely delivering on our goal to become free cash flow positive.

Understood, and that's sensible. Congrats again on the first quarter results and I'll get back in the queue. Thank you.

We now have a question from Frederico Gomes from ATB Capital Markets. Please go ahead.

Hi, good morning Raj and Sergio. Congrats on a great quarter. Thanks for taking my questions. Just you mentioned that you have a company-wide initiative with some consultants to improve your integration. Could you maybe provide some specific areas where you think you could become more efficient and how much in terms of cost you think you can save on the OpEx side with those initiatives? Thank you.

Sure. So good morning, Fred, and thank you for your question. So the company-wide initiative that we launched about six weeks ago is really evaluating all of the systems that we have company-wide and we have many. We acquired six companies in 2021 alone. On top of that, we've acquired a lot of bricks-and-mortar stores which is more of a plug-and-play situation for us, but anything at an entity level that we've been doing in the U.S. and the U. K., the three CBD units and the three consumption accessory units, they all use different systems. They all use different processes. Now, Dankstop came with a New Jersey office and warehouse, which we've shut down now. FABCBD came with the Wisconsin office and that's in the process of shutting down and moving everything to our Denver, Colorado office. But there is a lot to evaluate when it comes to our systems, our processes and our global warehousing and office consolidation. At the moment, we are too spread out. We are generating some fantastic results. But imagine what we can achieve when we can further tighten up our ecosystem with some of this low hanging fruit that we have. So this company wide initiative that we launched, we are very, very hopeful that we'd be able to find some really nice savings and really good efficiencies for our people to work smarter, not harder because at the moment using spreadsheets on top of four or five different systems are just not ideal. It's just a product of necessity that we are dealing with because of these acquisitions. But now that we have some downtime from growth, we are not looking to buy entity level businesses. We are not looking to do unlimited M&A in Canada on the brick-and-mortar level. I call this, you know, calm before the storm again. We get to review each and every part of our organization, systems, processes, workflow, and get some really good efficiencies out of it. So I remain very excited about it. And, you know, things are looking good on that front Fred.

Thank you. Thanks for that. And then maybe you have pulled back your guidance off new stores, but I understand that you will continue to expand your footprint at a slower pace. So can you talk about maybe what sort of base of expansion should we expect this year, absent any M&A that's compelling enough that may come along the way. You mentioned you have some leases in place already and will that expansion come from Ontario mostly or any other provinces you want to highlight? Thank you.

Sure. So Fred, we may still add a couple of stores this quarter towards the end of this quarter or at least one store. And then you'll see a bit more growth towards the latter half of the year, the second half of the year. And this is simply again because we want to keep an eye on our cash flow number, free cash flow number and see where it's headed at the end of this quarter, the current quarter that we are in. I think we would still be able to add 10 to 20 stores by the end of this calendar year. Again, I don't want to put any fixed number in place because we want to remain fluid with this strategy, but we have a lot of beautiful organic research that we currently have in our hand that we've slowed down on the build, but we will build them throughout the course of this year and bring them to the market and start realizing great revenue out of these sites because they're located in some amazing power centers. So that will happen. On the M&A question, the M&A opportunities have to be absolutely compelling. When I say absolutely compelling, it needs to be a lot lesser than what we were even paying in the past. And if that's not going to happen, I don't have interest at the moment to issue more shares or to part away with cash, cash which is basically the need of the hour for every company. So we will let them come to us. We're not going to chase any deals. We've always been very disciplined when it came to our M&A. But I think through organic store openings minus M&A, we can add about 10 to 20 locations by the end of this calendar year.

Thank you for that. I'll hop back in queue. Thanks.

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. We are very proud of what we've achieved this quarter and remain excited about the road ahead. With that, I will ask you, operator, to close the line. Have a great day everyone.