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

High Tide operates those Canna Cabana stores, more than 200 of them across the country. It's now -- it's the biggest cannabis retailer in Canada. And High Tide is now entering the fast-growing German medical cannabis market share. Let's get more from Founder and CEO, Raj Grover.

Thanks very much indeed, Raj. Always great to see you. What are you buying in Germany? And why are you interested in medical cannabis there?

Yes, absolutely. Look, Andrew, first of all, great to be here and chatting with you. We just made a big move in Germany, the fastest-growing medical cannabis market in the world and also the biggest federally legal market in the world by acquiring a majority stake in Remexian Pharma. And Remexian is not a small player. It's doing about EUR 65 million or CAD 100 million in top line. Significant amount of EBITDA, and they have just sold 7 tons of flower in Q2 alone, which is roughly 16% of everything imported into the German market. And Germany is predominantly an import market. There's only 3 local growers. Two of them are Canadian actually, Aurora, Tilray and there's a local grower by the name of Demecan. Everything else is an import market. So we're buying a super sizable player in Germany. We couldn't be more happy about it. Remexian is also has their DNA [indiscernible], our DNA exactly with their lowest price guarantee. And with our match here in the Canna Cabana stores is exactly what we are doing. So our mission in Germany is now very simple. We want to provide the highest quality Canadian cannabis to up to 1 million German patients which has come up from just 250,000 patients in Germany a year ago to now about 1 million patients. So this is why we're excited and we're buying this company. And the rationale of why we're getting into the medical cannabis business is very straightforward for us, Andrew. We put 2 and 2 together, and we realized we're the largest customer here for licensed producers in Canada as our procurement costs alone add up to $400 million and 50% of all imports that are making its way to Germany are Canadian. So we have great network and relationships to leverage these relationships and supply Germany in this time of big tariff talks, et cetera, bring the Canadian exporters in the forefront in Germany and leverage our relationships and network here.

The -- and can you just remind me, I think I ask you this every time. Do you grow any cannabis yourselves? Do you produce it at all? Or do you buy it from other people?

No, we're strictly a retailer and now going to be a distributor. So very much living within our personality. We don't feel like farmers yet. Growing is not in our DNA yet. So we're very much focused on retail and distribution.

Right. Yes, apparently, it is booming that German medical cannabis business. Talk to us, though, about the stores. You're at more than 200 of them now. And where -- what provinces are you in? Can you remind us, Raj?

Yes. Canna Cabana is the largest cannabis retailer in Canada with 205 locations as of 2 days ago. We're coming up with 2 more stores very shortly here. And we operate in 5 Canadian provinces, Ontario, Manitoba, Alberta, Saskatchewan and British Columbia.

I was looking here at a report from ATB, and it sounds like you're a bit like a dollar store. It's pretty cheap for you to open a store. It's something like $0.25 million. It sounds cheap with construction costs these days. And then you need to come up with about another $140,000 in working capital. But according to ATB, you get a payback period of about 10 months. So are your stores relatively cheap to open the fixtures and all that stuff?

Well, I have to say this, we're just good at what we do. When we started the business, I was spending about $400,000 in the build-out of the stores and then adding another $100 or so $1000 in working capital and inventory. We've dropped that down to CAD 260,000 for an average 1,500 square feet location and $100,000 in inventory and we're free cash flow positive over the last 8, 9 quarters. We've generated over $34 million in cumulative free cash flow. So I have some leftover money after opening 7 to 10 stores a quarter.

Just -- I know you can't go into detail here, but I guess you need pretty big safes and security. I guess the regulators mandate that.

Yes, we do have a proper vault system in all of our stores. Every province varies with the restrictions that you need to open up or set up these vaults. But we can very much handle that all within that $260,000 that I was talking about.

Let's have a look at the stock. Tell me this, when are you going to become maybe the first -- it's been bouncing lately. When are you going to become the first cannabis company to pay a dividend?

I said that on our interview recently, let me generate $10 million in free cash flow consistently every quarter, and you're going to hear about dividends from us and potentially even buybacks.

Right. And where are you at now on the cash flow every quarter?

So last quarter was $4.9 million in free cash flow generation. Over the last 8 quarters or so, we did $34 million cumulative free cash flow. And this quarter is again looking very healthy. We've put some guidance out. We're guiding for record revenues, significant amount of EBITDA increase, and you know what that equates to good free cash flow.

We've less than a minute left. Any interesting consumer trends lately? Are people demanding high potency pre-rolls, for example? Are they demanding discount product? We're tight for time, sorry.

High-THC at the lowest price are what cannabis consumers want, and that's what Canna Cabana offers, and that trend continues in the market today, where we've tapped into the best concept out there for cannabis.

It's the high-THC, that's the hot category.

That is the hottest category always.

Okay. I think some people are -- yes, go bigger, go home. Raj, thanks very much indeed. Always great talking to you. Raj Grover, Founder and CEO.