High Tide Inc. (HITI) Earnings Call Transcript & Summary

Hello, everybody. When this is premiering, it will be Saturday, 8 p.m. Eastern and at Saturday, 8 p.m. Easter, you could be buying other low-quality cannabis retailers, you'd be doing a lot of bad things. And today, we are blessed with the presence of the High Tide's CEO, the largest cannabis retailer in Canada and hopefully, Germany, 1 day. And we all have sunglasses, but Raj, where are yours?

Well, since you gave me such a beautiful pleasant intro. Tada! I told to next, I was going to do that. I said I don't know if I should do the interview immediately, but when I do it, you'll find me in sun glasses. I never get a chance to put sun glasses on and do an interview. So here I am, guys.

Raj, thank you very much for coming out of the show. Welcome. First question, obviously, the elephant in the room Germany. Recently, Remexian was announced yesterday. Do you want to talk about kind of what the vibe is right now with the High Tide team and what the last few months have kind of looked like for you? There was a lot of questions regarding Purecan, a few months ago that was kind of put on a hold. What's like the last few months looks like for you personally?

Long, exciting because I know I was going to get there. This is my third interview today, and I'm excited to talk about Remexian, but it's been almost last 8, 9 months, Ryan. There's been a lot of ups and downs. We started with Purecan in October, November, we announced that deal, I believe, in January, and then we called it off due to due diligence. And here we are with 5x the company or even more. We're buying a leader in Germany, it was well worth the wait. But I cannot tell you how complex this transaction was to close because Remexian is a private company and they have other pharmaceutical companies, sister companies in that group, and they were doing business together. This is very normal in the private world. You know I've been a private entrepreneur. And when you have 5, 6 companies, these intercompany stuff that happens that you then need to untangle prior to becoming a majority stakeholder into that company. So for us, it was just detangling all of that, taking the time to go through the transaction. They've risen very, very fast, doing detailed due diligence, that's what took us 5 months. So it was not easy to get there. But nevertheless, we got there and look at my timing, we're talking about rescheduling. So I think we've well timed it. There's a lot of eyeballs, right? Actual eyeballs through our sun glasses.

Yes, we can take them off now. It's [indiscernible] a lot.

You sure? I like it.

We got the thumbnail. Blake, do you have a question?

We're all shareholders here. Can you explain a little bit more about the business model that we just bought?

I can. But I think you'd be the best amongst us or right after me to explain the business model plate because you've been so kind highlighting our story and really keeping in touch with what High Tide is doing. But for all your listeners on the show, High Tide has -- is a retail-focused company, the largest retail brand in Canada through Canna Cabana, 203 stores in the country and growing, very ambitious company. We want to go to 300 plus. We think we will easily breach 300 stores in Canada and get closer to or breach the $1 billion revenue mark in this country alone, which I know is a little bit ways away, but we've got so many opportunity, and now we're seeing all the angles play out. So that's very, very nice, and we never rest. When we know if we've got a great thing going, we're now stable and we're steadily growing. We're now looking at other international opportunities. I can't wait to play in the U.S. 1 day, which I've said many, many times. Thankfully, rescheduling news has surfaced again. President Trump is interested. But in the meanwhile, we're keeping ourselves busy in the biggest federally legal market of the world, Germany, and I think Remexian is the best start I could hope for. So extremely excited about where we're going there.

So they currently have about 16% of market share there. What are your plans for growing that

So it's not apples-to-apples. We put 16% like to the best match because most companies are private and they don't release their data, right? So 43 tons were imported into Germany in Q2. That was up 15% from Q1. And Germany is mostly an import market, except for DEMECAN, Aurora, Tilray, just a couple of growers there. But other than that, it's just an import market. While they imported 43 tons, Remexian sold 7 tons in that same time period in the 90 days, which tells us it's roughly 16% of the grams sold in that period, which is massive. Blake, we're 12% of the market share in this country at the moment in Canada, we're already the leader, and we're starting in Germany at 16%, at least in terms of tonnage, right? Dollar value because they're a discount play just like us, perfect match to the personality could be 11%, 12%. But that's a banging start, I would say.

And I have a quick question on that. So you've had all the success in Canada. How are you looking to leverage that success in Canada and then get even more success in Germany or bring up this asset even more? So -- or did you see any clear synergies that you can point out to the audience between these 2 businesses?

Yes, absolutely, a fantastic question, CM. So lots of synergies. And the main synergy is that Remexian buys 33%, roughly about 1/3 of their imports come from Canada. While Germany is at 50%. So they're already 17% behind, so we can fill up that gap easy, but then we sit in Canada. And we procure almost $400 million of biomass here from all of the LPs. So we can up that share north of 50%. We want to take this to close to 60%, but Remexian is very, very sophisticated. They import -- they've already imported from 9 countries, including Canada, Portugal, Denmark, South Africa, Lesotho, Colombia, Malta, Czech Republic, I think I've covered them all. And then they have license to import from 19 countries. So we can also be competitive. If Canada starts becoming less competitive. I already have those -- that logistics and the supply chain set up through Remexian. But I think that 1/3 of the imports, we can practically double it in the long term or at least get it upwards of 50%, which is still about good 20% upside from where they are in Canada.

And just a quick follow-up on that. Are you looking to transport the Canadian brands that you've established that everyone knows and loves in Canada over to Germany and starting to build those up there even more as in start building stores eventually under the same brand? Or are you going to have a separate brand there and just apply the same strategies and win market share there?

So that's accurate. A little bit of both but mostly on the brand side. So no 1 is doing what we suggested we were going to do. Usually, what everybody is doing they'll call organogram, they'll call them out, be here, village farms who'll take their strain, and then they'll say, that strain belongs to them. And that -- because it's -- the genetics can be sourced anywhere and they're available everywhere. So they'll call it the strain under their brand. They'll put their brand and then they'll have this strain there. We're not doing that. We're taking our Canadian friends. We're taking our Canadian business partners here and promoting their brands. My goal is to build the biggest menu, the biggest variety of Canadian brands that you can steadily get. And I'm not competing with my business partners here because I'm not growing. I may still have at least 15% to 20% of my own white label brands, such as Queen of Bud, which is doing extremely good. But 80% of that is going to be a brand house or 50% of that is going to be a brand house from Canada, and then 30% of that is going to be more commoditized or other brands from other countries, like I said, Remexian has deep reach in Germany.

Speaking of Queen of Bud, how is Queen of Bud -- how has that growth been lately and the expansion with that? How is that looking?

Good timing on that question. I was just looking at this that just arrived on my desk. So I don't know if you guys can see it clearly, but this is the new vapor launching, it's a disposable all-in-one, Queen of Bud rate. So we're very, very excited about the launches that we're doing right now, Queen of Bud, like if you guys remember, we paid just $1 million for that brand. I think our sales have already exceeded close to $3 million or exceeding $3 million. I think we'll end this year with over $5 million in Queen of Bud sales. I wasn't expecting the ramp up that quick, but it's going better than our expectations, and we're introducing cool things like that. So you know why.

Beautiful. I love that. You just had this like very impactful M&A activity right now. Are you looking at the market? Do you like -- I just want to get sort of a feel check for you. Do you think that that's a strong possibility to continue acquisitions like Queen of Bud going forward?

Like Queen of Bud, yes, there's a possibility that we look at another brand now that we've tested what Queen of Bud could be like and what we could do with it, and we're getting great business out of it and great juice out of it. We think we could do this again. But I want to be very calculated, right? Clean but does not compete with other Canadian LPs. In fact, we give this business to other LPs to do our white label and we give them the designs, we tell them what we want to do and Queen of Bud is California inspired. It's -- we -- Queen of Bud is very differentiated in terms of you get cannabis in rolled up in rose petals and chamomile blunts. It's very, very different than any other -- what any other Canadian LP is doing. So we still don't compete with that. So I want to kind of remain in that direction. I want to make sure we're very strong with our partners. There are some other companies out there where 30%, 40% of their shelf is their own brands. But then you start diluting the variety for customers. They're coming to our club members in our case, are super excited about how independent we are and how much independent variety they can get at a Canna Cabana store. So we want to continue doing that, showcase the best brands that Canada has to offer at the lowest price as possible. As you know, our lowest price guarantee mantra, and then introduce products like Queen of Bud, which are very revolutionary, but highly differentiated and can be contract manufactured here and the LPs are happy because they still make a spread or cut on that and then we get to sell our own brands.

Perfect. So you mentioned competitors there. I would like to ask how your relationship with SNDL has changed over the last few months? Now that they own some High Tide shares, that's very bullish for their belief in your business model and everything. But I'm curious, are they asking for like slightly more shelf space or slightly better pricing or any actual advantages? Or is he just passively buying shares? And has the relationship not actually changed?

He's not asking me anything. Back a couple of months ago, so it's been a couple of months. But no, he's not asking me anything. They've done a 10% investment in village farms, and that didn't go anywhere and then they sold -- that's take off. He likes my business. He gave me a lot of compliments on how we're doing things, and he said he's buying it for cash flow. Look, if they wanted to do something bigger, they would need to be engaging very happily with us in a really good mutual way. And that's just still not possible because of Ontario rules and British Columbia rules, there's ownership rules of vertical integration in Ontario. And I would leave -- I wouldn't want to talk what they did with NOLA, how did it all happen, because I don't believe in that structure personally. But when they vertically integrated with NOLA, they already had 63% of NOLA or something along those lines and the control of NOLA board, which didn't exist once they took over. It's a totally different equation with High Tide, and it's not allowed from a regulatory perspective. So if you want to invest in my company, you're most welcome, Zack, that's what I told him. Others should too. Everybody loves the High Tide stories, so I'm sure he loves it to, and it's a great complement to see your competitors invest in you. But I don't think they're going to go too far in terms of advancing those conversations unless we want to as well.

So to pivot to a slightly different topic, I get 2 more questions repeatedly from other investors. So the first 1 is when the door finally opens up for U.S., for you to start building out brick-and-mortar in the U.S., I don't know when that will happen, but when it does happen, are we going to see a period of hyper growth similar to what High Tide was doing in like 2020 and 2021 where you were basically doubling revenue every year? Are we going to see like full force balls to the wall max go stores everywhere? Or are we going to see a more responsible, cautious, sustainable rollout? Like I'm curious, when the doors open, are you trying to blanket stores, shotgun them everywhere? I know you're going to be super selective with store locations still, like that won't go away. But how aggressive are you planning on being?

Slow and steady wins the race, right? Once I get what the race is, once we're stable and we've learned what we need to do, then we can go much faster. So I'm not in a rush. We patiently waited right now. We could have executed on optionality style agreements for a long, long time. We did not go there because I don't want to give my shares away or cash away and not get any monetary benefit in the meanwhile. I cannot consolidate my financials due to NASDAQ, but we're going to be extraordinarily selective on locations. My mantra here in Canada is not just the best retail model in cannabis, which is a discount club model, first of its kind in the world, it's also the highest quality retail location that I can get. I never sacrifice on locations, because you only get that once, business goes on forever, but the location stays. You get that wrong, well, you are already in the back foot. So that I'm not going to do, Blake. But I'll tell you this, I've been ultra excited about entering in the U.S. market. We had our plans mapped out. I guess have we -- spoken to multiple groups. We are going to enter that market through M&A. We can enter into states that others are probably not excited about. We have our playbook, which I wouldn't want to share too much about, but I'm telling you we are ready. It may not be 100 stores overnight, but it's going to be significant in nature. And we are going to go in terms of quality over quantity. That's always the case with High Tide. You don't see me reporting back quarters. You don't see me closing down stores. It's a really, really nice thing to do. Don't close down the stores. You put a lot of hard work and effort and shareholder money into it. We want to make sure these stores grow AKA our same-store sales growth, and that's what we want to do in the U.S. But given our model, Blake, we will compete. I want to be the top 5 multistate operator in the United States. And if this thing happens quick or something along the lines of descheduling takes place, everything is possible, right? We've been surprised before. You'll see some momentum from High Tide there.

Fiscal, you had a question. Yes. It was partly on the vein of the deschedule 3 potential that they're talking about. Obviously, with the U.S., it's -- no rush is the philosophy. But I am curious like descheduling or rescheduling from my understanding, moving from 1 to 3 potentially opens the door for maybe medical first before retail. Do you have any thoughts on possibly going that route first, if that becomes the path of least resistance before eventual potential recreational?

Look, our core business is the Canna Cabana stores, right? We've got into the medical opportunity in Germany because we sit in the fantastic part of that value chain, where we want to leverage our $400 million in procurement relationships in Canada into the biggest federally deal legal market in the world, Germany, right? That's -- medical market in the United States is not something that we need to do. That's again because we cannot export from Canada into the U.S. even if rescheduling happens. But I can export from Canada into Germany or I can import into Germany from Canada, right? So that's why the medical opportunity made a lot of sense to do in Germany get our feet wet, get native with that market and then go gung ho on Canna Cabana stores in Germany. But in the United States, if the rescheduling opportunity allows us through our safe harbor language inclusion for the exchanges, the exchanges get comfortable, we can open Canna Cabana retail stores. So that's what we want to do. I'm not saying no to the medical market, given our new acquisition on that side. But that's -- it was leveraged to our existing infrastructure in Canada, which you cannot leverage in the United States, but I can open retail stores if that opportunity comes.

And wrapping up here, Blake, did you want to ask about dividends and buybacks potentially?

That's the second question that I get hounded with. Everyone's like win buybacks, when dividends. And so I want to ask you, I know it's no time soon. Under what conditions would you eventually start buybacks? And then the similar question, dividends. Under what conditions would you feel comfortable paying a small dividend?

It's not that we haven't thought about it. I thought about can I issue a 0.5%, 1%, what does that cost? What does that account to? Like let's become a dividend paying stock. But when we look at what we need to do, we need to focus on our business, and we need to grow. We have growth opportunities in front of us. I just raised $30 million in debt with Cronos at 4%, and we have to use this money. I'm still raising money to grow. So to talk about dividends and buybacks, it's a little bit far out. However, that's absolutely on our wish list, and we must -- we are going to do this. hopefully, in the medium term, not even in the long term, when my cash flow start hitting $10 million consistently, quarterly, everything is on the table. Maybe we start small, but we're going to go there, Blake.

How did you get that deal at 4%? With that being at 4%, like they must have been eager to loan you money.

So I have to be transparent and honest, there's an OID factor there as well, which was all in, it was 11% with the warrants and everything, but you can get 10%, 11% money in cannabis. I can pay back this money without any prepayment penalty. They came on board to support us. They saw SNDL picking up shares. They were not happy about it. They're like again, SNDL has their own strategy, so I'll lead them to that. But the way we read it and Cronos read it is vertical integration is not allowed. This shouldn't be happening. We're here to support Raj, and I got an inbound from Cronos and they're like, "Hey, you're growing international. Do you need any help?" I'm like I always need some money. So why don't you ask them. We've got it on very favorable terms. So a 5-year term, I can pay it back any time I want. They're a great group to work with. We're already business partners here. So it's fun times ahead.

And last question before we let you go. If you have 1 piece of advice for young people, what is it?

Take calculated risk, b, take the opportunity. Don't be trigger shy, don't wait and watch forever, right? If you get that feeling, not your mind going all the time, but if you get that feeling, you get that download, take the opportunity. The biggest problem I see with young people is being trigger shy or thinking too much and waiting too much and then the opportunity is gone. What's the worst that can happen? You didn't capitalize fully or went a little sideways but you learn something from it. So to take some risk, calculated risk.

Well said. And lastly, Raj, where can the people find you before we let you go?

So I'm on LinkedIn and X, as you know, just like Blake and High Tide is also so you can find us there.

That's in the NASDAQ. HIT, that's the ticker. Raj, thank you very much for coming on to the show. We know you're a very busy man right now. We appreciate it. Thank you for coming on.

It's been a genuine pleasure.

Thank you so much, boys, I'll leave you guys with this, okay?

Oh, yes. See you, Raj. All right. Thank you to everybody for tuning in. We're going to do a separate recording that's going to premier tomorrow. So make sure you smash the Like button, subscribe, do dividend stocks not drugs. And of course, cash flow is king. Oh, yes.