High Tide Inc.

Please hold. The conference call will begin shortly. Again, all participants, please hold. The conference call will begin momentarily. Thank you. Thank you. Thank you. Thank you. Thank you. We'll be right back. Good evening, my name is Dante and I will be your conference operator today. At this time, I would like to welcome everyone to Hightide Inc's third quarter of 2022 on audited financial and operational results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 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 Raj Grover, President and Chief Executive Officer, and 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 Tides 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 forms and our latest management discussion and analysis, each filed with security regulatory authorities at CDAR.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 reflect 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 CDAR and EDGAR. 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 third quarter ended July 31st, 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 for 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 gross margin percentage we earned by selling cannabis in our stores was stable sequentially in Q3 versus Q2. Adjusted EBITDA for Q3 2022 was $4.2 million, representing our 10th straight quarter of positive adjusted EBITDA, up 176% versus Q3 2021 and up 77% versus Q2 2022. You'll recall that in the second half of last year, we cautioned the market regarding two items, a new layer of costs related to NASDAQ listing and the initial impact of our discount club models. We indicated that these two items would depress EBITDA in the short term. However, we expressed confidence that we would grow through them and would pay off in a few quarters. And that's exactly what happened as we executed our communicated business plan. Q3 represented the third full quarter since we launched our innovative discount club concept across the country in October. And I'm very pleased to say that we keep performing on our upward trajectories. Same-store sales in Q3 were up 18% versus Q2 and 46% versus Q3 of last year. Driven by both these very impressive same-store sales figures, as well as opening new stores, we estimate our national market share, excluding Quebec, to have been over 7% in Q3, up from 6% in Q2 and 5% in Q1. Our store count is at 140 today and we continue to feel good about hitting our target of 150 by the end of the calendar year through a combination of organic openings and accretive M&A. This growth will be supported by the $19 million facility with Connect First Credit Union at its floor interest rate. Last month, we signed the commitment letter for this facility and we anticipated to close imminently. On the M&A front, note that this quarter's results do not include the addition of nine stores from CHUM, representing our largest bricks and mortar transactions since we acquired Meta. Eight of these stores were added to the Hightight family in August and the last one in September. This is the third public company's assets we've acquired in the last two years, the other two being Meta and Smoke Cartel. Adding CHUM also allowed us to magnify our presence in BC, adding two more stores in Vancouver. We continue to see lots of inbounds from operators making inquiries and looking to us as the acquirer of choice. This puts us in a position to be extremely strategic and selective to make sure that whatever opportunities we choose to pull the trigger on are compelling in terms of our approach of being both highly creative and a strategic fit within our diversified ecosystem, thus creating long-term value for our shareholders. While we do not typically press release deals that are in the LOI stage, rest assured that there are a number of prospects in the funnel that we are working through and hope to announce in the near term. As the largest shareholder of Hightide, it does pain me to use our shares to acquire companies at today's depressed multiple, but we remain true to our strategy. I always prefer to take a broader view that these M&A deals are nonetheless very accretive for Hightide and add long-term value. Because of how selective we are and the terms we can get, they continue to add more and more to our revenue and EBITDA. No one can predict exactly how long capital markets may continue to be depressed. However, the way we have positioned ourselves over the last many quarters through organic growth and accretive M&A should result in higher EBITDA and market share for us to be properly valued on as the broader cannabis capital markets recover. We would also note that despite evaluating several opportunities over the last 12 months, we did not pull the trigger on any options types agreements with cannabis operators in the U.S. Such agreements would have us issue more stock without clarity on when we can recognize the related financial benefits. Given our network, relationships, and execution, we are confident that we will still be ready to go with operating bricks and mortise locations in the U.S. when federal legalization occurs. Our entry into the U.S. will be additionally supported by the 3 million existing e-commerce customers we have outside of Canada 80% of which reside in the United States. We have been focusing on our current business, the results of which are plain for all to see in our release today. As everyone is painfully aware, valuations across the cannabis landscape have come down significantly across the board, often driven by weakening fundamentals, unlike high tide, where our fundamentals are improving with every passing quarter. Our innovative discount club model continues to catch fire across Canada. and our entry into British Columbia in mid-July provides more of a national platform to keep growing. Our Cabana Club membership has now surpassed 750,000 members, which you will recall seemed like an incredibly ambitious target when we originally set it less than a year ago. Our membership now represents more than 12% of cannabis users across the country outside Quebec per Statistics Canada data. Our Cabana Club members are the lifeblood of our company. and as they represent over 90% of our daily transactions. We are working on ways to start monetizing this base by introducing Cabana Elite, our premium offering, which should over time only further reinforce loyalty and profitability. Recall that our Discount Club offering is anchored by our points of differentiation, not simply offering a lower price, such as our unique loyalty plan, our years of experience in the consumption accessories manufacturing business, our top-tier international CBD brands, as well as our white label offerings under the name Cabana Cannabis Co. So our competitors can match our holistic and unique offering just by lowering their price. Our Cabana Cannabis Co. products that launched in Saskatchewan in June have been well received, and we have another 10 product SKUs under development. We expect our first SKU in Ontario, which are New Leaf multi-cannabinoid capsules, to launch next week, with more coming in October and November. We aim for Cabana Cannabis co-products to represent 25% or so of our sales in the longer term, which again should help significantly boost our bottom line. While our Canadian business continues to outperform, we have seen some continued softness in our consumption accessories and CBD e-commerce businesses. Frankly, we aren't that surprised by this. The COVID-19 pandemic supercharged e-commerce sales across the board in 2020 and 2021. Now that restrictions have largely eased, people are readjusting and are able to go back to brick and mortar stores, which we are definitely seeing in our stores. We remain very bullish in the long-term trajectory of e-commerce once it has completed the process of normalizing. While early and some macro factors such as heightened inflation levels in North America and Europe aren't helping with consumers' discretionary spending relating to CBD and consumption accessories, we are encouraged by initial signs of stabilization in our e-commerce businesses looking at the start of Q4 versus the end of Q3. Ultimately, our core bricks and mortar business in Canada represents 85% of our consolidated revenue, and it is firing on all cylinders as demand for THC products tends to be more recession-resistant. Our CBD and accessory e-commerce businesses performed very well in previous quarters, where our bricks and mortar business was temporarily depressed due to the initial impact of the discount club model and NASDAQ listing costs. Now, while e-commerce softened somewhat, At the same time, the investments we made in the bricks and mortar side are bearing fruit. That is the beauty of our ecosystem, which is diversified by vertical, geography, and product type. Speaking of which, we are close to entering a new, very complimentary, and profitable vertical. So stay tuned for that as well. While impacted by delays in international logistics, our fast tender rollout is going well. We currently have 28 locations equipped with the kiosk and still expect to have the vast majority of locations live by the end of the calendar year. While we continue to dominate the Canadian retail landscape, let's also quickly discuss an up-and-coming opportunity for Hightight, Germany. Omar Khan, our Senior Vice President of Corporate and Public Affairs, and I have been following the developments very closely in Germany and have recently participated in the ICBC Conference in Berlin. While we expect to get further clarity soon, our expectation is that a bill will be introduced in Parliament by the end of Q123, which should allow foreign operators such as Hightide to apply for and receive retail licenses. Once we see the entire legal and regulatory framework, and if we find it attractive, we plan to be quite active in that market. That said, to set expectations, we do not expect retail sales to start before 2024. So in conclusion, we are extremely happy with our performance in Q3 as it represented a breakout quarter in terms of our revenue and EBITDA trajectory. We are unmatched in terms of retail leadership with 140 locations, generating strong organic growth, which is complemented by highly accretive M&A, putting us in a position to now be running neck and neck for the most cannabis revenue in Canada. Our concept and market share keep getting stronger, which should help us with markets that are more down the road like Germany and the US as they open up. Despite a very difficult macro environment, our team has its head down and is moving our business forward every day, working on driving sales, identifying new complementary business lines, streamlining operations, focusing on cost control to improve cash flows even further, as well as working with regulators and evaluating strategic and accretive M&A opportunities. Four years into legalization in Canada and with footholds in other markets, it's clear that we have the best team in the business. And for this, I'm eternally grateful. With that, I will now turn the call over to Rahim Kanji, our Chief Financial Officer, to discuss our financial results.

Thank you, Raj, and good evening, everyone. Let's dig into these results, which were stronger than ever, even our best case internal forecast. In the third fiscal quarter ended July 31st, 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 modest 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 note 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 flows. 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 debt, followed by $11.5 million in an oversubscribed equity offering, and paid out our secured debt holders. We ended the quarter with $18 million of cash on hand. Total principal value of our debt is approximately $29 million today. Our cash flows continue to be strong in Q3. Our cash flow from operations before changes in non-cash working capital was $2.3 million in the quarter, showing significant gains versus the $1.6 million generated in Q2 this year and negative $0.2 million in Q3 last year. We are almost at the finish line with Connect First, and we expect to close our $19 million non-dilutive credit facility imminently, which should provide more than sufficient resources to keep growing and executing on our objectives. Investors can see what kind of business we have built without ever having a massive war chest. This should help provide comfort for what we expect ahead once Connect First closes. We ended the quarter with 131 retail locations and currently have 140 with the nine added from Tune. Due to a default by Halo, Hightech was able to seize the shares of Halo Cushbar Retail Inc., taking control of three operating cannabis retail stores in Alberta. One thing to note is that we have been cleaning up and tying some loose ends in our portfolio over the past few months. Specifically, we acquired three existing Kanakabana branded stores in Ontario, which were previously owned by a lottery winner, and we absorbed the only Kanakabana franchise we ever had in Calgary. Accordingly, we now fully own all of our 140 locations, with the exceptions of one store in Sudbury, Ontario, where we own a 50% partnership, and two stores in Manitoba, where we have a 49% interest in two stores which are inherited from the Meta acquisitions. In closing, Q3 was a record-breaking quarter for Hightide, and we continue to see strong customer loyalty for our brand and products heading into Q4 and beyond. I would like to thank our dedicated Hightide team, which consistently generates industry-leading results. With that, I will now turn the call over to the operator to open the lines for the question-and-answer session.

Thank you. We would like to ask that the participants limit themselves to one question and one follow-up question. If you would like to ask a question, please press star followed by one . If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, it is star one. And as a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from the line of one Frederico Gomez with ATB Capital Markets. Your line is now open.

Hi, congrats 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 do you have any targets in terms of how many members you think you can convert to this premium tier. Thank you.

Hi, Frederico, and thank you for your question. So look, Frederico, 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 it vetted 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 would be able to launch this towards the end of the year. But 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. We are currently working on it. I can give you some color on pricing. It's going to be around a $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 launch that program. And I think on your last point there, you asked about what do we anticipate in terms of signups. So I think the program is so compelling that we will have a we will have a nice inflow of customers trying to sign up for Cabana Elite. But it may be a little slow to start with, but I think we're going to keep our foot on the gas pedal in terms of keeping it compelling and making it even more compelling as the time passes that we'll get more and more signups. So with every passing quarter, 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 margins in Canada. So relatively stable quarter over quarter. We know that the market is 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 few quarters? Thank you.

Yeah, so Frederico, we always have our pulse on the margin conversation. It's always a big conversation at Hightide. 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, you know, 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 margins slightly increasing. So we're very happy where the margins are right now. And let's say the margins did go backwards. You know, the high tide advantage is 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 for that. Congrats on the quarter again. I'll hop back to the queue. Thank you.

Thank you, Brett.

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

Hi there. Good evening and congrats on the results, Raj and team. No problem, Raj. Hitech has been very active with retail M&A year to date. I would appreciate an update on your M&A plans, particularly in Ontario, a 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 high grade your portfolio? Or have you already kind of picked away some of the best assets that 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 at 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, Andrew, we've slowed down in terms of our international acquisition and more e-commerce related acquisitions. You know, one, we wanted to see how things unfold with e-commerce with discretionary spending down. But on the brick and mortar front, we have been very active, you know, in terms of M&A with our last acquisition being adding nine stores from Chum. So we're very active on that side. But, you know, 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 Hightide 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 valuations, we are already known in the market with every single transaction that we've done has been highly accretive to Hightide's results. And we're picking up these businesses at three and a half 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 also even some regional chains. So we can really be strategic and pick and choose on what do we want to add to the Hightech family. But nonetheless, there must be a strategic or geographically a 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 great, Tyler. Thank you. Just a follow-up, you know, again, going back to the prepared remarks, Rahim, I heard you talking about, you know, there still being some opportunities to tighten up the ship. I just maybe want to clarify that comment 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 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.

Sure, thanks, Andrew. Yeah, and as I commented, our revenues are on 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 going right to the bottom line. There's core services 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 to you.

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.

Good evening, everybody, and congratulations on a nice quarter. So, Raj, just curious, you know, if I take a look at the macro environment, the Canadian market has essentially flatlined. In Alberta, your largest market is essentially flat for the past, you know, six or seven months. The results coming from Peter Bates- kind of major participants, whether it be Aurora's losing tons of share, Canopy's losing tons of share, Tilleray's losing share, Fire and Flower clearly losing share, their numbers were not very good. Peter Bates- 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 in this environment, so like what do you attribute this to? Peter Bates- Let's start there.

Hi, Doug, and thank you very much for your question. So, Doug, you know, I can't speak for others, but we have always been a company that, you know, 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% a quarter previous to that. And, you know, 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, you know, 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. You know, Canada is not an easy landscape to win. So this quarter, although we added 14 million plus to our revenue on the brick and mortar front, our cost 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've also created a very attractive concept. So you can see that with the speed of memberships that we are getting. We're at 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 monetize this membership base, which takes it to another level. So, you know, again, I can't speak for other competitors, but, you know, we keep our heads down and we execute on our business plan. And this is the result for everybody to see today.

And just on a follow up on the M&A side, there has been some talk that, you know, in Toronto in 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, you know, super assets are clearly up for bid now. And, you know, that's a relatively well-known brand. So how do you differentiate, you know, the, you know, the crap from the good ones at the end of the day?

You know, unfortunately, Doug, we're seeing more than just anecdotal signs of store closures, you know, 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, you know, we are doing good accretive M&A deals, but we're being very, very selective on what we purchase. We can't buy everybody and we don't want to. You know, 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, you know, we're going to continue doing good deals. And I think there will be a lot more bloodshed in the market where we'll be able to pick up even better deals. and bringing 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.

Great. Thanks, Raj. I'll get back to you.

Thank you for your questions. 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 location over your legacy wholesale business. Could you just provide 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. You know, my goal was to be over 50, 60, locations installed with our fast tender 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've made that very clear to the market that, you know, retail is less than 1% of our overall, wholesale is less than 1% of our overall business. And we have always been a retail focused company. So the priority will always be given to Kanakabana and our e-commerce platforms. And we're doing exactly that on that front because we prioritize Kanakabana and because we prioritize accessories on our e-commerce platforms, we're doing quite well with the supply chain. We are not seeing any issue whatsoever. Now, if our wholesale business was a lot bigger, then 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 alternative 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 that's all incremental revenue to what we already have. And over the last quarter, we press release that 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 Leaf, 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. You know, 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, you know, 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 Bacon Securities. After this, we will be exhausted all questions. So as a reminder, it is star 1 on your telephone keypad. Mr. Cooper, your line is now open.

Hi, Rahim. So just on the average revenue per store on 131 stores, they get about $640,000 or $650,000, something like that, in the quarter in Canada. So $2.5 billion run rate per average store. Is that right?

Yeah, I mean, you know, it's spread around four or five geographies of provinces now. So each province sort of has its own average when we look at compare against the market. And we're right, you know, at the average or above the average in most of our stores. So we have, you know, very high volume stores and we have 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. 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 acquirer, 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 purchase. The location has to be perfect. The volumes have to be attractive and accretive to our current operations. So we're always looking for those qualities in a location before we make a decision. But I'll get Raj to maybe add more color to that.

Sure, thanks, Raym. Doug, that's a great question. So we definitely have a minimum threshold. And this is why I was saying that, you know, we have a lot of operators, independents and smaller chains reaching out. And when we look at their revenue levels and, you know, where the locations are, there's nothing to see there. There's nothing to act upon. And unfortunately, these businesses will seize operations, you know, 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 Kanaka Manor stores. So if it's below $1.8 million, we don't entertain it. If it's a group that averages to $1.8 million, game on.

And so how many stores out there would meet that threshold?

Not many, Doug. And 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, you know, where this business is going and who are the real players in the market. So, you know, join the Hightight 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 Hightide's Chief Executive Officer, Raj Grover, for final comments.

Thank you, Operator, and thank you to everyone for your interest and continued support for Hightide. 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 Hightide Inc. conference call. Thank you for your participation. You may now disconnect your lines.