High Tide Inc.
Q3 2021 Earnings Call Transcript

Published: 15 Sep 2021

[Operator:]

Good afternoon. My name is Josh and I will be your Conference Operator today. We want to start the call by apologizing for any confusion with the dial-in numbers and ID for the conference call. At this time now we'd like to welcome everyone to the High Tide Inc. Third Quarter Fiscal Year 2021 Financial and Operational Results Conference Call. All lines have been placed on mute to prevent any background noise . I will now turn the call over to your host.

[Krystal Dafoe:]

Thank you, Josh. I appreciate that. May I reiterate our apologies for any confusions with the login situation and we’d love to say good afternoon everyone and welcome to High Tide Inc.’s quarterly earnings call. Joining me on the call today are Mr. Raj Grover, President and CEO; and Rahim Kanji, CFO. Earlier today, the company released its financial and operational results for the fiscal third quarter ended July 31 2021. These results are available on the company's website on SEDAR and on EDGAR. Before we begin, I'd like to remind everyone that certain statements made on today's call 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. We want to be clear that such forward-looking statements represents 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. Additional information about both the material factors and assumptions forming the basis of our forward-looking statements and risks, which could cause actual results or performance to differ materially, and the material factors or assumptions that were applied to make certain conclusions, forecasts or projections in forward-looking statements on this call is contained both in a readily available document available upon request, and in our regulatory filings available on SEDAR and EDGAR, under the company's profile. High Tide does not undertake any duty to publicly announce the results of any revisions to any forward-looking statements 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 does not have any standardized meaning as prescribed by IFRS. We believe this non -IFRS financial measures assist management and investors in understanding and analyzing our business trends and performance. Please refer to our earnings press release 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 only be considered in conjunction with the IFRS financial measures presented on the financial statements listed on SEDAR. It is now my pleasure to introduce Mr. Raj Grover, President, and CEO of High Tide. Thank you, Mr. Grover, you may begin.

[Raj Grover:]

Thank you, Krystal, and good evening, everyone. Welcome to High Tide Inc.’s financial results conference call for the third quarter ended July 31 2021. 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 will be pleased to answer any questions you may have. Let's look at the headline numbers. Revenue for the quarter was up $48.1 million for the second straight quarter, this represented 99% growth year-over-year and was up 18% sequentially to a new record. Gross margin of 35% ticked below the 37% generated in Q2 and the 40% generated in Q3 2020. However, in dollar terms it increased to $16.7 million, up 11% sequentially and up 75% over the same quarter last year. Adjusted EBITDA for Q3 2021 was $1.5 million. This was below the $4.7 million generated in Q2 and $3.4 million earned in Q3 2020. As everyone is aware, it's not cheap to list a cannabis company on the NASDAQ. In terms of one-time costs to get listed as well as ongoing costs, such as listing fees, insurance premiums, and compliance costs which are significant. That said, we believe the benefits of the listing for shareholders will outweigh the cost in the long-term. The third quarter was faced with a number of macro challenges, for approximately the first half of the quarter, due to pandemic related restrictions our stores in Ontario were limited to offering click and collect and delivery services only within store shopping not allowed. Simultaneously, the number of stores open in the province rose to over 1,000 roughly 10 times the number open about a year ago. This increased competition has resulted in it taking longer for new stores to ramp up to the point where they are contributing to consolidated EBITDA. The number of retail licenses in Alberta also increased 60% versus a year ago. And during this time, a few value players have arisen which have driven the retail gross margin for cannabis lower. In the context of this backdrop, I'm extremely proud of the contributions across the Board from our team. In summary, we remain nimble and true to our mission to grow the company while still generating positive EBITDA and positioning it for further growth ahead. Let me describe what we have done regarding different aspects of our business. On the merchandising side, we used accessories to lead the way. You'll recall that we have been in the consumption accessories business for over a decade, it is a core part of our DNA. We have a unique one stop cannabis shop concept where we highlight our accessories throughout the store, as opposed to just an afterthought. And this concept is taking off. Unlike our peers we design, manufacture and retail or accessories and we are now using this competitive advantage as a means of customer attraction and retention. Those of you who have recently been in our stores will see our newer approach to accessories. For example, you'll see two prices and accessory may be listed at a regular price of $45 but $17 at a member's only price. We can be undersold for consumption accessories and we still generate a healthy gross margin selling them at the member's only prices as we also design and manufacture them. But to get them at the members only price a customer has to be a Cabana Club member. This strategy has paid off more than the expected. Total accessories sold up150%, since we implemented this plan back in May, and the number of Cabana Club members has increased to over 221,000 today, up by 130,000 since the end of March. Being part of the Cabana Club loyalty plan has resulted in customers coming back for cannabis purchases as well and has resulted in increases to the top line. And while we have been growing the top line, the proportion of daily sales that come from club members had stayed over 50% proving that the newer club members we have attracted are just as loyal as our longtime members. The bottom line is that this has led to increases in sales. Sales across our national network during July were 8.5% higher than in June and 12% higher than April where we ended Q2. This was even more pronounced in Ontario, where sales in July were up 16% versus June and up 27% versus April. Another margin enhancing initiative we have undertaken is the launch of our white label strategy. Yesterday we announced two private white label partnerships, with Heritage Cannabis and Loosh Inc. to manufacture our upcoming house-branded shatter and gummies. We anticipate our private label products to first hit the shelves in 90 to 120 days. We will be cautiously entering the white label market and will expand it to other categories over time for margin enhancing opportunities. For example, Josh Delaney, founder of FABCBD and our team are also evaluating several Canadian licensed producers currently to bring the hugely successful FABCBD brands into Canada and then to Europe. On the real estate front, we open seven stores during the third quarter and open for an acquired one so far in the fourth quarter. We are now at 93 locations today across the country, including 23 in Ontario. We have the largest store count in Alberta at 57 and the second largest in Manitoba. With another seven plan for Ontario in the near term to get to 30 the vast majority of which are in Ontario plazas with a key anchor tenant and another four we are developing in Saskatchewan alone, we have a very clear path to end calendar 2021 at approximately 110 stores. On the tech side, we recently partnered with JN Technologies to invest in our own site. There are benefits of owning the customer journey ourselves, such as the ability to develop more marketing channels and customer list, providing an enhanced and more tailored customer experience and collecting data which will be strategic in our growth strategy. Regarding other tech initiatives, we are working on deploying our proprietary drop shipping technology and cross catalog products such as daily high club subscription boxes, and we are continuing to work on integration work between all the newly acquired sites so that we can start realizing economies of scale and efficiencies within the e-commerce businesses. We've made huge strides strengthening our balance sheet. During Q3, we announced the elimination of our senior secured debt and last month we announced that we extinguished the convertible debentures that were inherited from the acquisition of META. Our debt stood at approximately $71 million when the META acquisition closed in November, while meaningfully growing the top line by adding stores and entering into M&A transactions, we've reduced our total debt to just $28 million as of today. Although we don't get credit for it in our EBITDA, this reduction of $43 million of debt is saving the company $4 million a year in interest cost. At the same time, we earned investors' confidence and closed and oversubscribed bought deal financing during Q3 and ended the quarter with $27 million of cash on hand. On the capital market side, we successfully listed our shares on the NASDAQ in June and we are still the only major cannabis retailer in the world to have our securities listed there. This achievement has meaningfully raised our profile. Since trading on the NASDAQ three more ETF have added our shares to their funds and two more equity research analysts have picked up four more research coverage on our shares, bringing the total to four, one of which is located in the U.S. Looking ahead, we believe we can command tech and cannabis multiples when the market fully appreciates our differentiated bricks and mortar and ecommerce strategy. On the M&A front, we kept buying great companies at fair multiples, exploited opportunities for synergies and kept the focus on the U.S. We are building a robust e commerce network of ancillary cannabis businesses that have the potential to commence online cannabis sales upon Federal U.S. legalization or upon permission for major exchanges. Each one of the platforms and brands we've acquired has the potential for exponential growth upon Federal legalization and with more emerging legal markets opening up to cannabis. These platforms generate high gross margins, which help our consolidated gross margins. Our U.S. revenues continue to remain on an annual run rate exceeding $50 million and there's much more to come. Our M&A pipeline remains strong, and we look forward to announcing more accretive deals in the very near future, again focused on more ecommerce. Our NASDAQ listing is also helping High Tide become the acquirer of choice in the market. Investors can also look back at past acquisitions to get a sense of our ability to successfully integrated acquired companies. On that front, I would point you to META. META was our largest acquisition ever, and we just reported today less than a year in that we have already exceeded our targeted synergies from the acquisition. This morning we announced the launch of Cannabis Chop Club, our new retail value brand. As mentioned, we are seeing very aggressive pricing from select value players. They're not profitable today and intend to clean up the market before raising prices to a level where they can be profitable. Unfortunately, this will be at the demise of many independents and small chains. We are growing our market share and securing quality real estate so we can retail profitably for years to come, once the market settles from the margin compression we are experiencing presently, we will be positioning our own value brand in more value sensitive markets and neighborhoods under the Cannabis Chop Club name. This will be done on a micro market basis depending on the competitive dynamics in each area. We have identified markets where launching our own value brand makes sense. So we can keep our retail concepts differentiated and increase our market share in price sensitive markets. To be clear, we will not be the one starting a price war but we just won't sit on our hands and lose market share. We will fight fire with fire when necessary. Given our unique positioning in accessories, our lean operations and national scale of growing loyalty plan and our strong capital markets profile and balance sheet strength, we are well positioned to continue to lead the market regardless of competitive dynamics. And our new Cannabis Chop Club concept will be another tool we have to keep driving value for shareholders. Key differentiating factors between Cannabis Chop Club Canna Cabana are a smaller footprint of 1,000 to 1,200 square feet, lower built costs which are anticipated to be $125,000 to $150,000 and a differentiated assortment of cannabis and consumption accessories targeting and tailor to the value sensitive demographic and cross member loyalty across both our platforms. Cannabis margins were under significant pressure this quarter, however consolidated we are still at 35%. This proves our diversified ecosystem is paying off, we can continue increasing market share and opening new prime locations as we are one of the few groups that will remain and thrive than the dust settles. We are strengthening and extending our value chain from end-to-end. These are early days in cannabis, so we intend to create long lasting value to vertical integration and cross selling opportunities. We want to have both an Amazon and Walmart style approach as we build a solid foundation around our business. We are very excited about the future and what we have in the pipeline. With that I will now turn the call over to Rahim Kanji, our CFO to discuss our financial results.

[Rahim Kanji:]

Thank you, Raj, and good evening everyone. Let's dig into these results. In the third fiscal quarter ended July 31 2021, the company recorded consolidated revenue of $48.1 million, representing an increase of 99% year-over-year and 18% sequentially. Revenue earned in the U.S. was $9.6 million, up 72% from last year and up 69% versus Q2 2021. Revenue from our retail segment includes our bricks and mortar cannabis stores in Canada, primarily under our Canna Cabana banner, as well as Grasscity, CBDcity, Smoke Cartel and for FABCBD and daily high club only from the point each acquisition closed on May 10 and July 6 respectively. Retail revenue was $46.3 million in the third fiscal quarter of 2021, up 116% year-over-year and 21% sequentially. The primary driver of the year-over-year increase was the META acquisitions as well as other acquisitions and stores we built organically. Revenue from our wholesale segment was $1.8 million in the third fiscal quarter of 2021, down 32% year-over-year and 28% sequentially. This segment continued to suffer from production and logistical challenges, while at the same time we shifted focus of our wholesale segment to primarily support our product and customer acquisition strategy in our retail segment, which as Raj mentioned saw significant increases in revenue and Cabana Club membership. That said we think these challenges in securing sufficient product will remain for some time. Our focus is and has always been retail. Wholesale has always been a very small part of our portfolio. Our consolidated gross profit was $16.7 million in the third fiscal quarter of 2021 or 35% of revenue, down from 40% generated in the fiscal third quarter of 2020 and 37% generated in fiscal Q2 of this year. Our focus continues to be maintain and grow our top line while retail cannabis margins are expected to be softer for the next few quarters. As mentioned by Raj, while we are a leader in Canadian bricks and mortar cannabis, we are not immune to pricing pressures. However, our diversified ecosystem is yielding benefits for shareholders as we continue to outperform the market. Looking at our expenses, salaries and benefits held a 15% of revenue the same proportion it has been for several quarters. However, general and administration expenses increased to 11% of revenue from 7%, to 8% previously. There are a few factors for this. First, our NASDAQ listing added a new permanent layer of expenses such as directors and officers insurance premiums, listing fees, and professional fees which impacted our EBITDA, but we believe it was well worth it. Second, we added significant overhead from acquired companies in recent months. Some resources were added and expenses incurred initially to integrate and ensure a smooth transition of these companies into our ecosystem. We are now looking at ways to rationalize some overhead expenses. Third, as mentioned, our new stores are taking longer to ramp up than previously when there was less competition. So while we are pleased with how sales are increasing, they do act as a drag on the bottom line in the short term. Going down to the bottom line, the company generated $1.5 million in adjusted EBITDA. We have cautioned investors on our last call that our EBITDA margin percentage would decrease from 11.5% generated in Q2, particularly given the increasing competitive dynamics. While we believe we are the best position to weather this storm, it will continue for some time. Overall, we expect to remain EBITDA positive and grow it in dollar terms starting in Q4, and continue to gain meaningful market share over the coming quarters. Our balance sheet remains in fantastic shape. Total principal value of our debt is $28 million, with only $1.6 million due in the upcoming 12 months. Our ability to raise capital has been proven with another $23 million equity offering during the third fiscal quarter. We believe our ability to raise funds as since strengthened with our NASDAQ listing. But that said, with $26.6 million of cash at the end of the quarter, we have what we need to implement our current plan. We continue to progress towards securing a non-dilutive credit line with a major Canadian bank. However, given our recently acquired U.S. businesses, including our entry into the U.S. CBD sector, the process is taking much longer than we had originally anticipated. In closing, I want to take this opportunity to thank our amazing team who helped us grow the business and put it on an even stronger foundation over the past few months. With that, I will now turn the call over to the operator to open the line for Q&A.

[Operator:]

Our first question comes from Scott Fortune with Roth Capital Partners, you may proceed with your question.

[Scott Fortune:]

Good afternoon, and thanks for taking the question. Congrats on the quarter. Long-term, how do you view Ontario kind of share of licenses being issued, there the saturation we know we've seen in Toronto for example?? Is this going to be similar to what we saw in Alberta, it takes about four to six quarters to normalize from that standpoint? And then as far as color, providing the outlook for store growth in Ontario, as we look at the next couple of years you had 23, looking to get at 30. How can we look at kind of that progression as we look out the next couple of years in Ontario?

[Raj Grover:]

So good evening, Scott. So Ontario is the brightest spot in Canada at the moment. We currently have 23 stores in Ontario that are operating and we actually expect to be at 30 stores by the end of September alone when the cap increases to 75 stores. So we are absolutely dealing with saturation issues in Alberta, which will eventually trickled to Ontario as well. But I feel that we have good at least one, one and a half year of room in Ontario. Because you know, when you compare the populations between Alberta and Ontario, you've got 4.3 million people in Alberta versus 15.5 in Ontario, and Alberta already has 700 stores approximately 700 versus Ontario still has about a 1,000 but triple the amount of people. So we still feel that there's good growth ahead in Ontario. I do agree with you that there are certain markets in Ontario, especially in Toronto, where there's an extreme saturation of stores. And like I said, unfortunately, some of the independents in some of the smaller chains are not going to be able to bear the brunt of competition, and the aggressive pricing strategy that has been adopted by some value players. So, but I don't think that affects us, our real estate strategy is very unique and differentiated. We are signing up with plazas, and getting real estate that have a strong anchor such as LCBO, which is a liquor store chain, government run liquor store chain in Canada or the big wholesalers like Costco or Walmart or Canadian Tire anchor plaza. So we're going after the big anchors, and we're seeing success by using this methodology. And because we have a strong covenant as a public company, we also have access to better locations than most of the independents or smaller chains. So I don't think it affects us in the short term, I think we got a good one year of growth ahead in Ontario. And we continue to grow our market share in the U.S. anyway in the meanwhile.

[Scott Fortune:]

Great, I appreciate the color. And then with a little color on the COVID impact, obviously, you mentioned competition pricing impact on the quarter, what are we seeing on this quarter going forward, are stores fully reopen, you expect that to really help on the top line from a revenue standpoint. And then it sounds like with the pricing and the competition aspects going forward, we can see muted retail margin growth going forward in the next couple quarters. Can you break out of the margin for the retail side versus the other segments of your business?

[Raj Grover:]

Yes, sure. So actually, things are not as bearish as they sound. COVID has definitely had an impact, even this last quarter, 41 days or for Q3, our Ontario stores were limited to click and collect and delivery only, which is practically half the quarter. And despite that, we've had two successive quarters of 99% growth year-over-year, and 18%, sequentially. So, we are very confident that our retail revenues, including bricks and mortar revenues will continue to grow. And this is despite the fact that there's margin compression happening. So we as a company decided that we're not going to just sit on our hands, and let the margin compression dictate our business, what we did was we brought our focus back to the top line, we’ve retained our market share, in fact, we increased our market share, since we launched our accessories program, our one-stop shop promotion in May, we've seen a very meaningful increase in top line in all of our stores across our 93 stores. So COVID has had an impact. And the Delta variant, as we know, is very contagious and is continuing to spread very fast. I was making prophecies earlier in the last couple of quarters where I thought the pandemic would be subsiding by now, but it doesn't seem to be the case. But looking at our numbers, it didn't seem to affect us that much in comparison to others. And we've been made able to not only maintain our market share, we actually increased our market share. So I remain confident going forward, you'll see an increase in our top line from our bricks and mortar portfolio. And of course, ecommerce is practically shielded from COVID it actually works even better in this environment. So from that perspective, we are doing just fine.

[Scott Fortune:]

Thanks, Raj, congrats. And I'll jump back in the queue.

[Operator:]

Our next question comes from Andrew Semple, with Echelon Capital Markets. You may proceed with your question.

[Andrew Semple:]

Hi, there. Good evening, everyone. First question for me is on the value banner, the Cannabis Chop Club. I saw in the MD&A and in the press release, your plans are to open at least five existing store locations by year end and additional locations as well. I appreciate that and appreciate the color on kind of how you're looking at this banner. I did want to just flush out the strategy on how you plan to approach rolling out the Cannabis Club banner across the country. Are these really earmarked for local regions that are more competitive? Or would you also bring the store format to relatively underserved markets, where you think that value segment will resonate?

[Raj Grover:]

Good evening, Andrew. And great question. So let me just start by saying that, despite the fact that we're launching this new value brand, our Canna Cabana stores our one-stop cannabis shop concept is doing extremely well. If you see our announcement and our earnings release in detail, you'll notice that our loyalty is up almost 45% 50% just quarter-over-quarter. And that is because of the success that we're having in our Canna Cabana store. So primarily what we want to do, Andrew is we want to differentiate our brands. We don't want to start discounting particular locations because we have data and we can now actually specifically pinpoint, which markets are extremely value sensitive, and which markets are not that value sensitive and to bring back bring down margins in Canna Cabana locations in those value sensitive markets and you go to an affluent neighborhood in the same city where the margins are higher, it doesn't make sense. And we've learned over the last six months, this is not today's doing. We've been planning this over the last six months and keeping an eye on the market while we grow our business grow our profits, but now the time the timing was right, where we see the value segment really increasing. And we don't want to stand there just lose market share in certain areas in the country, we want to double down on our strategy of gaining market share and hence that is the reason why we are introducing Cannabis Chop Club as a concept. And we will start with roughly five locations by the end of this year, but this will accelerate in the beginning of next year. And also new construction will start on these stores, we have good 10 to 15 locations identified where we can move right away. But we're starting with five because, you know, again, its holidays coming up and I think five is a realistic number. But we are very hopeful that that number will continue to go up. And then again, we have the data to pinpoint the exact locations, where most value sensitive customers live. And again, the recently announced private label partnership that we just announced yesterday, that will also play a very big role when we launched this new value concept to start increasing the margins. So quite excited about this new concept and the main reason is differentiation. We don't Canna Cabana to have depressed margins in one location or decreased margins in one location and in the same city have a totally different margin profile. So we're just -- we're taking care of that issue. And because of our data, we are maximizing our potential now that we know which markets are extremely value sensitive, I think this is going to be very good for our business going forward.

[Andrew Semple:]

Great really appreciate your insight there on how this new banner can help protect your existing core, Canna Cabana banner as well, that's helpful. When we answer the second question, I did want to ask them the white label products. Know it’s great to see that announcement on the edibles and concentrates side. Now I'm wondering if you could speak to how those conversations may or may not be progressing on the dried flower side as well. If I read between the lines correctly, on your last press release, it seemed like you made a conscious decision to hold off on the dried flower private label products, presumably because terms continue to get more attractive. Could you maybe comment on how those conversations are evolving? And what the timing might be like to secure a private label dried flower brand?

[Raj Grover:]

Sure. So Andrew, this is also not a new conversation for us. As we were increasing our scale and size, the white label, initiatives have always been on our mind. But we are looking at the reality in the Canadian Cannabis business. You look at any licensed producers and everyone is having challenges with oversupply in excess product is 65% of the categories still dry flower, which includes dry flower and pre rolls. And for us to go and compete with this excess branded mass biomass that's already available in Canada, it does not make sense. So we're starting small, we're starting nimble and we're starting with just the 2.0 products, where we know that there's opportunity and it's much less crowded, we're going to test the waters with what we're about to do. We're going to introduce gummies, THC gummies, and shatter and then eventually start rolling out other categories, which will include dry flower, but I cannot give you a timeline on the rollout of dry flower or pre rolls, simply because we want to continue to see where the market goes, how the market dynamics evolve. But eventually you can count on it that we will be increasing our white label initiatives.

[Andrew Semple:]

Great. Thank you very much, Raj. Appreciate that.

[Operator:]

Our next question comes from Aaron Grey, with Alliance Global. You may proceed with your question.

[Aaron Grey:]

Hi, good evening. Congrats on the quarter and thank you for the question. So what does kind of double back on that last question in terms of the white label, kind of opportunity. So just thinking about it, in terms of how the different product formats, it seems to be in terms of the new skew offerings that you're having, especially limitations within Ontario and the delays? Does that kind of change anything on your guys end in terms of the timing of when you might have new products potentially come to market, or does not going to kind of have an impact for you guys? Thank you

[Raj Grover:]

Hi, Aaron. So, the timing that I'm getting at the moment is 90 to 120 days for provincial listing approvals of our house-branded skews, and then maybe another month or so to bring it to our store shelves, because we are going to be simultaneously manufacturing the skews which are going to include four dummy skews or four different flavors of gummies and one shatter skew. So we will be simultaneously getting these manufactured and we believe in about four months or so these will be hitting store shelves.

[Aaron Grey:]

Okay, thanks for that color. And then question for me is just around. You guys have made some acquisitions, especially on the ecommerce side and also on the accessory. So just wondering there in terms of the M&A pipeline, how you're thinking about maybe the next six to 12 months, how you're seeing the current environment, especially valuations. You're hearing certainly in terms of the plant touching and otherwise sometimes some thought in valuations, maybe the private markets have not adjusted as much as the public markets. So wondering if you've seen that if that's had any impact in terms of potential income and M&A and how you’re thinking about that? Thank you.

[Raj Grover:]

Yes, absolutely. So our ecommerce businesses are doing very well. I'm very excited about in terms of where we're headed with ecommerce. And we continue to look at more companies in the online space that fit well into our chain, so we can continue driving synergies and create cross selling opportunities. Right now, between all our platforms, we saw approximately 100 million site visits in 2020 alone, and growth by acquisition is a major part of our overall growth strategy. Now, as you know, we're a very active company and we've been making significant strides to advance our retail portfolio, especially with a focus on U.S. ecommerce. So far, if you look at any of our M&A deals, they've all been highly accretive to our results and this will continue. Since we are the only major cannabis retailer until today to trade on the NASDAQ, we continue to attract even more companies to join the High Tide family, as we now are seen as a consolidator of choice. So I'm very excited about our M&A path and actually, I'm looking forward to sharing some even more good news, especially on the ecommerce side, in the very near future.

[Aaron Grey:]

Okay, thanks for the color and congrats on the quarter. I'll jump back in the queue.

[Raj Grover:]

Thanks.

[Operator:]

Thank you. Our next question comes from Frederico Gomes with ATB Markets, you may proceed with your question.

[Frederico Gomes:]

Hi, good evening, guys. Congrats on the quarter. Thanks for taking my question. Just the environment here in Canada right now considering the number of stores opening and store saturation. Can you comment on -- are you seeing any contraction in multiples here for buying stores? And are you guys actively looking for targets? Or are more focused on growing organically?

[Raj Grover:]

Hi Frederico. So yes, we are absolutely seeing contraction of multiples come down. In fact I get weekly calls, I don't want to say fortunately or unfortunately, because I feel for the independence. But I'm pretty much getting weekly calls where people want to get out of the bricks and mortar business, especially in Ontario in some places where they're stuck and there's clustering issues. So originally, you may recall when we purchased the young Street store, then we bought Hamilton in Sudbury and those we purchased from the original lottery winners. We ended up paying much higher multiples, that was about two years ago and the landscape has completely shifted. And now we're looking at four to five times EBITDA as a standard multiple where a good operating stores available for sale. And I can tell you I'm getting calls nationally, not just Ontario. We're getting inbounds from Saskatchewan, from Manitoba from Ontario. So you can expect some good M&A activity from us on the bricks and mortar front, not just in Ontario, but nationally in Canada.

[Frederico Gomes:]

Okay, thanks, Raj, that's really helpful. And just in your accessory sales, I am just curious, how long of a runway for growth do you see there? It's obviously already a high proportion of your retail sales, I believe it's more than 20%. But did you expect that next increase even further, just given your strategy, or do you see that mix kind of decreasing over time? Thank you.

[Raj Grover:]

Oh, absolutely. I'm so excited about what we just did with accessory starting in May, our accessory sales are up 150% since May. And I see this number if not going extremely high from this point, it's going to continue to trend higher, or at least maintain at this point. But what this is giving us is an extreme amount of loyalty. We are the manufacturers, distributors and retailers of consumption accessories, and we're using it to our advantage, we're able to pass discounts to our customers that no other entity is able to do and we are reaping the benefits of that. Our loyalty is up almost 60% just quarter over quarter. If you took a look about where our Cabana club number stood just two quarters ago, we had 91,000 members, two quarters after we are 221,000 members. If I had seen this movie before I knew this was going to be successful, I would have implemented this even ahead of time. But I'm extremely excited about our accessory strategy, it's working really well and I think it goes higher from here.

[Frederico Gomes:]

Thanks for that Raj, really helpful. Congrats on the quarter again. I hop back in the queue. Thank you.

[Raj Grover:]

Thank you.

[Operator:]

Thank you. Now I'd like to turn the session back over to High Tide CEO Raj Grover for final comments.

[Raj Grover:]

Thank you, operator and thank you everyone for your interest and continued support for High Tide. With that I will ask operator to close the line. Have a great evening.

[Operator:]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.