High Tide Inc.

Good evening, thank you for attending today's High Tide Inc. QS1 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. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Crystal Defoe with High Tide Inc. Please go ahead.

Thank you, Operator. Good evening, everyone, and welcome to Hightide, Inc.' 's 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 for the first quarter ended January 31st, 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 17th, 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, will, projected, 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 belief 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 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 is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance of the plans, intentions, or expectations upon which they were placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in the press release and on this call are expressly qualified by the cautionary statement in the press release and reflect the company's expectations as of the date hereof and are subject to change thereafter. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, estimates or opinions, future events or results or otherwise, or to explain any material difference between subsequent actual events and such forward-looking information. except as required by applicable law. Additional information about both the material factors and assumptions forming the basis of our forward-looking statements and risks and which could cause actual results or performance to differ materially and the material factors or assumptions that were applied to make such conclusions, forecasts or projections in forward-looking statements on this call are contained both in a readily available document available upon request and in our regulatory filing available on CDAR and EDGAR under the company's profile. In addition, today's call may contain future-orientated financial information, known as FOFI, within the meaning of Canadian securities legislation about prospective results of operations, financial position, or cash flows based on assumptions about future economic conditions and courses of action. which FOFI is not presented in the format of a historical balance sheet, income statement, or cash flow statement. The FOFI has been prepared by management to provide an outlook of the company's activities and results and has been prepared based on a number of assumptions, including the assumptions contained under the heading entitled Cautionary Note regarding forward-looking statements in the company's press release dated March 17, 2022, released earlier today, and the assumptions with respect to the costs and expenditures to be incurred by the company, capital expenditures and operating costs, taxation rates for the company, and general and administrative expenses. Management does not have or may not have had at the relevant date firm commitments for all costs, expenditures, prices or other financial assumptions which may have been used to prepare the FOFI or assurances that such operating results will be achieved and accordingly the complete financial effects of all those costs, expenditures, prices and operating results are not or may not have been available at the relevant date of the FOFI objectively determinable. Importantly, The FOFI contained in this call or maybe based upon certain additional assumptions that management believes to be reasonable based on the information currently available to management, including but not limited to assumptions about one, the future pricing of the company's products. Two, the future market demand and trends within the jurisdiction in which the company may from time to time conduct the company's business. Three, the company's ongoing inventory levels and operating cost estimates. Four, the company's net proceeds from the company's at-the-market offering. And five, the company's unaudited financial results for the three months ended January 31st, 2022. The FOFI or financial outlook contained in this call do not purport to present the company's financial to present the company's financial condition in accordance with IFRS as issued by the International Accounting Standards Board. And there can be no assurance that the assumptions made in preparing the FOFI will prove accurate. The actual results of operations of the company and resulting financial results will likely vary from the amount set forth in the analysis presented in any such document, and such variations may be material including due to the occurrence of unforeseen events occurring subsequent to the preparation of FOFI. The company and management believe that the FOFI has been prepared on a reasonable basis, reflecting management's best estimates and judgments as at the applicable date. However, because this information is highly subjective and subject to numerous risks, including the risks discussed under the headed heading entitled Cautionary Note Regarding Forward-Looking Statements in the company's press release dated March 17, 2022, released earlier today, and under the heading Risk Factors and Risk Assessment in the company's public disclosure. FOFI, or financial outlook, within this call should not be relied on as necessarily indicative of future results. Readers are cautioned not to place undue reliance on the FOFI or financial outlook contained on this call, except it's required by Canadian securities law. The company does not intend and does not assume any obligation to update such FOFI. Hightide does not undertake any duty to publicly announce the results of any revisions to any forward-looking statements and or FOFI 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 meaning 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 the company's press release, dated March 17, 2022, released earlier today, for a calculation of these measures and reconciliations 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 alternative to and should be considered in conjunction with the IFRS financial measures presented in the financial statements of the company available now on CDAR and EDGAR under the company's profile. It is now my pleasure to introduce Mr. Raj Grover, President and Chief Executive Officer of Hightide. Thank you, Mr. Grover. You may begin.

Thank you, Crystal, and good evening, everyone. Welcome to High Tide Inc's financial results conference call for the first quarter ended January 31st, 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'd 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. 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 New Leaf, 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 pieces shortly, but big picture, I see no reason why EBITDA won't keep growing from here. It has been four months since we launched our innovative discount club and it has surpassed our expectations. On a same store sales basis, our stores generated 22% more revenue during the month of January as compared to October when we launched the discount club model. A tremendous speed, especially when considering that the Canadian market overall was down 3% comparing January to October. In Ontario, where the market size and land grab is most crucial, our stores are growing even faster, with same-store sales 32% higher in January versus October. In addition to reinvigorating existing stores, newly operating stores are ramping up much faster and to higher levels of daily sales. As a reminder, while unbeatable prices are a key feature of our unique discount club, the model is built on more than just that. Besides simply offering lower prices, we design, manufacture, and import thousands of SKUs of consumption accessories. This business took over a decade and more than 60 trips to Southeast Asia to establish. It's not something a competitor can easily replicate. Our discount club is connected with our loyalty plan, Cabana Club. Membership in the Cabana Club has skyrocketed from 245,000 on October 20th to over 450,000 today. Our members are responsible for over 94% of the day-to-day transactions in our stores, up from 50% before launching the Discount Club concept. We reach out to our members regularly via emails and text messages to showcase our brands and products at everyday low prices, which is a hard thing to do in a compliant manner in cannabis, leading to repeat business. When we surpassed our 420,000 members, we launched a promotion to give back to our loyal customers by announcing that on April 20th, or 4-20, we will be giving away a car valued at $42,000 to a randomly selected member of our Cabana Club. To our knowledge, nothing like this has ever been offered in cannabis, and we have seen club membership grow as customers see one more reason to join. Having such a large block of committed members who are brand loyal to Canna Cabana is what every retailer strives for. And again, this loyalty plan is not something that a competitor can just replicate overnight. We continue to expect to eventually reach 750,000 members, and we look to monetize this block down the road. Remember that we aren't even open in British Columbia yet, which has a population of over 5 million people and presents a tremendous opportunity for signing up new Cabana Club members. Finally, offering white label products and bringing fab, blessed, and new leaf to Canada represent another unique offering. Our first white label products are expected to drop in Saskatchewan and Manitoba next month. Meanwhile, we are working with regulators in Ontario and Alberta regarding white label possibilities. Our ever-increasing scale makes us a unique customer for DLPs we are partnering up with for white label products, and frankly, it allows us to strike the best of agreements. We are gaining market share with our discount club model every month. There's still a ways to go to feel the full benefits of the model, but as of today's results highlight, there is no doubt that we are off to a great start, posting exceptional growth while remaining EBITDA positive for the eighth straight quarter. Q1 was also the first quarter following the acquisition of New Leafs, our largest acquisition ever, and its results were included in just over two months of this quarter. We are very pleased with New Leafs' performance and welcome the team into the Hightight family. New Leaf is already collaborating with FAB and unlocking near-term synergies relating to co-packing and shipping. Meanwhile, Blessed has launched its brand in Germany and is looking to enter more countries in Europe, as well as the United States later this year. So with a current annual run rate of approximately $85 million of revenue outside of Canada, all of which is very additive to EBITDA, the delay in U.S. federal legalization of THC is not slowing Hightight down at all. We have 3 million customers in our database, the vast majority of which are in the U.S. All these customers have purchased either consumption accessories or CBD from us, and we are in touch with them regularly. As soon as we can legally sell them THC, we aim to do so. We plan to leverage our existing customer base, our cannabis know-how and expertise, our sophisticated e-commerce assets, and our market share to be a leader in the U.S. THC market. just like we have done in Canada, going from ancillary sales to THC as soon as we were allowed. This is the primary part of our US strategy, although we may look to supplement this with an options type of agreement or two. As a company, Hightech has always been focused on pushing the envelope. Working hard and accomplishing things we didn't think we could achieve is part of our culture from top to bottom. That and being blessed with such an amazing team is how we always stay leaps ahead of the competition. I'd like to take a minute to address three innovations we launched since our last conference call less than two months ago. First, we closed the acquisition of Fastender, and in just five weeks, we have already installed this exciting technology in all five of our Ottawa store locations. Reception to the new tech from staff and uptake from customers has been very encouraging. We plan to outfit 15 more stores with the kiosk by the end of April and hope to add all existing stores by the end of the calendar year. All newly built locations will be equipped with the FastTender technology from the start. Second, we launched a new delivery on demand service across much of the country where we operate. With our new offering, customers are guaranteed delivery within two hours of ordering, or within an hourly spot chosen by the customer. Similar to FastTender, this service makes customers' purchasing experience much easier, and in this case, we are charging $9.99 per delivery, which should enhance our delivery margins. Then on March 8th, the first day private sector cannabis deliveries were allowed in the province, we launched delivery on demand in Alberta. We counted that only 10 retailers were licensed by the AGLC and ready to go on day one of delivery. And we were the only public company on that list. Third, FAB launched its CBD subscribe and save program in the US. Under this program, customers can set up the delivery frequency for their favorite products and have them automatically shipped to their door while saving 20%. Hightight is all about synergies and taking the best aspects of each part to benefit the whole. Just like we have been implementing the dropshipping technology acquired from SmokeHotel to our other accessories entities, we have leveraged Daily High Club subscription box expertise and are now offering it with FAB. This should result in a tighter bond with our customers and higher lifetime customer values. We are currently working on implementing this subscription service for Blessed as well. Finally, let's quickly address our M&A pipeline. We announced the acquisition of Crossroads Cannabis, which we hope to close in the coming weeks. Crossroads will add four strong performing stores to our network, and we believe the EBITDA multiple paid of three and a half times is quite attractive. Our M&A team is very busy assessing multiple opportunities of companies of various types in different geographies, and we hope to announce more accretive deals shortly. So in conclusion, Q1 was another great quarter for Hightight. We continue to grow the business, enter into accretive acquisitions, add more stores, see the initial benefits of the discount club model, while having our EBITDA return to higher levels, just like we said it would. A run rate of approximately $290 million of annual revenue firmly cements us as one of the largest players in Canadian cannabis. While posting tremendous levels of growth, we have made sure the growth drops down to EBITDA, despite the challenges in the market. We have solidified ourselves as a clear leader in bricks and mortar cannabis with 113 stores across the country, the global leader in accessories e-commerce, and a major player in the CBD market. Looking ahead, while we can't control what the capital markets do or what happens in Washington, based on the initiatives we are pursuing, we expect that our track record of impressive growth will continue going forward. Thank you to our team for their tireless efforts and work to make it all happen. With that, I will now turn the call over to Rahim Kanji, our Chief Financial Officer, to discuss the financial results.