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.