High Tide Inc. Q2 FY2025 earnings call

• Store Expansion: Opened the 200th Canna Cabana in Sherwood Park, Alberta. Aim to add 20-30 locations in 2025, with 9 opened year-to-date and over a dozen under construction.
• Same-Store Sales: Q2 daily same-store sales up 6.2% YOY; from Oct 2021 to March 2025, same-store sales up 132% vs industry average -10%.
• Market Share: Climbed to 12% in Feb-March 2025, up from 11%; average store revenue run rate in March 2025 was $2.6 million, 2.3x peer average.
• Cabana Club: Membership base reached 1.9 million, ELITE members 97,000, largest loyalty program in cannabis.
• White Label: Queen of Bud brand cumulative cannabis and accessory sales reached $1.4 million; more SKUs live, with plans for expansion.
• Germany Strategy: Secured relationships with licensed producers, identified preferred partner, submitted model project proposal to German authorities.

The company has two main segments. The bricks-and-mortar segment is the primary driver, representing 97% of consolidated revenue. It saw a 16% year-over-year revenue increase. Daily same-store sales in Q2 were up 6.2% year-over-year, and from October 2021 to March 2025, same-store sales increased by 132% while the average operator saw a 10% drop. The average store achieved an annual revenue run rate of $2.6 million in March 2025, which is 2.3x the average annualized peer revenue. In Ontario, excluding newer stores, the average Canna Cabana store had a $3.2 million annual revenue run rate, triple the peer average. The e-commerce segment represented 3% of consolidated revenue in Q2, with adjusted EBITDA declining, but it has strategic value for building a customer database in Europe and the US.

• Goal to add 20-30 locations in 2025, tracking well with 9 opened year-to-date and over a dozen under construction.
• Expect Q3 to be seasonally stronger, anticipate margin improvement in bricks-and-mortar segment in Q3.
• Aim to surpass 300 stores across Canada.

• Illicit market remaining strong in some markets (e.g., Ottawa, Toronto) could impact margins.
• Regulatory changes in Germany, such as potential tightening of e-prescribing rules, could affect market entry plans.
• E-commerce segment's performance is uncertain as it's a small part of revenue but strategic, and its profitability is at risk.

Q: How has the success of your White Label SKUs impacted the dynamic with third-party LPs in your stores?

A: Bill, total sales of Queen of Bud amounted to $1.355 million, with close to $0.5 million in accessories. It's practically peanuts compared to total sales, and we have a fantastic relationship with producers as it's a small part of our business.

Q: What changes for the cannabis industry could be included in the fall budget and what would you want included?

A: We're working closely with regulators. Manitoba limited cannabis licenses for gas stations/convenience stores in smaller communities; Ontario removed outdated restrictions. We want support for legal retailers to compete with the illicit market.

Q: Could you talk about the drivers behind the sequential gross margin improvement in bricks-and-mortar and what's driving improvement in the next quarters?

A: Competitor store closures in some pockets of the country are driving margin improvement. We expect another uptick in Q3 as competitor closures continue in smaller markets.

Q: What's the point where you think it might not be worth pursuing the e-commerce strategy anymore?

A: E-commerce is a negligible division with 3% of revenue but strategic value for customer database. We'll be flexible to maximize shareholder value, including leaner structure, holding, or selling if needed.

Q: Could you provide color on relationships with LPs in Germany and political updates there?

A: Reached out to 40+ LPs, many want exclusivity. New German government has a joint review of adult use cannabis law, with initial findings expected fall and full report spring; e-prescribing rules may be tightened but reclassification as narcotic unlikely.

Q: Anticipation on ramping up in-house brands and roadblocks?

A: We might go to 20-25% in long term; no issues with partners as it's a small part of offerings, and Queen of Bud is unique with additional margins.

Q: What's supporting increased confidence in exceeding 300 stores and organic vs acquired growth?

A: Heightened competitor store closures, premier brand status getting red carpet treatment from landlords, organic growth easier with good locations and manageable CapEx; M&A would be supplemental.