High Tide Inc. Q2 FY2024 earnings call

• Q2 was a stellar quarter with $9.4 million free cash flow, marking a huge milestone with positive net income even after non-cash depreciation. Revenue of $124.3 million was up 5% YOY, led by bricks-and-mortar up 11%.
• Achieved 12 months trailing revenue exceeding $500 million, maintaining Canada's most cannabis revenue status. Adjusted EBITDA was $10 million, up 52% YOY, with a margin of 8.1%.
• Market share in Canna Cabana provinces rose to 10.9% in Q2. ELITE membership surpassed 44,000, up 226% YOY. Added 10 new stores in 2024, on track for 20-30 stores in 2024.
• Entered $15 million subordinate debt financing. Government relations successes: Alberta allowed pop-up stores and private labels; Manitoba moratorium on new cannabis licenses.

Revenue for Q2 was $124.3 million, up 5% year-over-year. The core bricks-and-mortar segment led the way, rising 11% year-over-year and contributing 93% of revenue. The e-commerce segment had revenue down 37% year-over-year but reduced operating expenses by 34%, still generating positive adjusted EBITDA of $1.2 million. Consolidated gross margins were 28.4% in Q2 2024, the highest in the last nine quarters.

• Target of 20-30 stores in 2024, with potential M&A to exceed this target. $15 million debt financing provides optionality, including paying off remaining convertible debentures and funding store growth. The financing also has an accordion feature for potential further $10 million.

• Cannabis sector insolvencies, including many cannabis retailers. Macro economic factors affecting the market. Potential challenges with timing private label product launches and managing store ramp-up pace, including building permit issues and competitive closures affecting ramp-up.

Q: Scott Fortune from Roth Capital Partners asked about ELITE member growth and private label inventory.

A: Raj Grover responded that ELITE membership grew by 12,000 members, up 226% YOY, driven by unbeatable pricing and selection, with plans to increase private label inventory to 20-30% long-term.

Q: Ty Collin from Eight Capital asked about data analytics sales and debt financing deployment.

A: Raj Grover stated data analytics revenue remains stable with high-quality data, and the $15 million debt financing will be used to pay off remaining convertible debentures and fund store growth, with strategic placement to address debt maturities.

Q: Frederico Gomes from ATB asked about industry sales slowdown and growth drivers.

A: Raj Grover discussed industry slowdown due to market changes, with growth driven by same-store sales and store expansion, including potential M&A and continued organic growth in Ontario and other provinces.

Q: Matt Bottomley from Canaccord asked about store openings and M&A considerations.

A: Raj Grover mentioned disciplined store expansion, avoiding overpaying in M&A, and focusing on strategic, complementary locations with favorable lease terms.

Q: Andrew Semple from Echelon Capital Markets asked about store openings and Ontario focus.

A: Raj Grover stated Ontario remains a focus, with plans to open 20-30 stores in 2024, but noting challenges with building permits and ramp-up pace, while expecting competitive closures to benefit market share.

Q: Mike Regan from Excelsior asked about gross margins and LP supply.

A: Raj Grover attributed higher gross margins to mature stores, competitive closures, and improvements in e-commerce and data analytics, noting no supply issues in the cannabis market but challenges with LP pricing.