Q2 2026 High Tide Inc Earnings Call

June 16, 2026

Speaker #2: Shortly. Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to High Tide Inc.'s second fiscal quarter 2026 Audited Financial and Operational Results Conference Call.

Speaker #2: Online participants have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

Operator: Instructions will be provided at that time for you to queue up for questions. I will now turn the call over to your host.

Speaker #2: I will now turn the call over to your host. Thank you, Operator. Good morning, everyone, and welcome to High Tide Inc.'s quarterly earnings call.

Carter Brownlee: Thank you, operator. Good morning, everyone, and welcome to High Tide Inc.'s quarterly earnings call. Joining me on the call today are Mr. Raj Grover, President and Chief Executive Officer, and Mr. Mike Mahajan, Chief Financial Officer. On 15 June 2026, the company released financial and operational results for the fiscal quarter that ended 30 April 2026. Before we begin, please let me remind you that during the course of this conference call, High Tide's management may make statements, including with respect to management's expectations or estimates of future performance. All such statements, other than statements of historical facts, constitute forward-looking information or forward-looking statements within the meaning of the applicable securities laws and are based on assumptions, expectations, estimates, and projections as of the date hereof. Specific forward-looking statements include, without limitation, all disclosures regarding future results of operations, economic conditions, and anticipated courses of action.

Speaker #2: Joining me on the call today are Mr. Raj Grover, President and Chief Executive Officer, and Mr. Mike Mahajan, Chief Financial Officer. On June 15, 2026, the company released financial and operational results for the fiscal quarter that ended April 30, 2026.

Speaker #2: Before we begin, please let me remind you that during the course of this conference call, High Tide's management may make statements, including with respect to management's expectations or estimates of future performance.

Speaker #2: All such statements, other than statements of historical facts, constitute forward-looking information or forward-looking statements within the meaning of the applicable securities laws and are based on assumptions, expectations, estimates, and projections as of the date hereof.

Speaker #2: Specific forward-looking statements include, without limitation, all disclosures regarding future results of operations, economic conditions, and anticipated courses of action. For more information on the company’s risks and uncertainties related to forward-looking statements, please refer to the company’s press release dated June 15, 2026, our latest annual information form, and our latest management’s discussion and analysis, each filed with securities regulatory authorities at SEDARplus.ca or on EDGAR at www.sec.gov/edgar, or on the company’s website at www.hightideinc.com, which are hereby incorporated by reference herein.

Carter Brownlee: For more information on the company's risks and uncertainties related to forward-looking statements, please refer to the company's press release dated 15 June 2026, our latest annual information form, and our latest management discussion and analysis, each filed with securities regulatory authorities at sedarplus.ca or on EDGAR at www.sec.gov/edgar, or on the company's website at www.hightideinc.com and which are hereby incorporated by reference herein. Although these forward-looking statements reflect management's current beliefs and reasonable assumptions based on the currently available information to management as of the date hereof, we cannot be certain that the actual results will be consistent with the forward-looking statements in the future. There can be no assurance that actual outcomes will not differ materially from these results. Accordingly, we caution you not to place undue reliance upon such forward-looking results.

Speaker #2: Although these forelooking statements reflect management's current beliefs and reasonable assumptions based on the currently available information to management as of the date hereof, we cannot be certain that the actual results will be consistent with the forelooking statements in the future.

Speaker #2: There can be no assurance that actual outcomes will not differ materially from these results. Accordingly, we caution you not to place undue reliance upon such forward-looking results. For any reconciliation of non-IFRS measures discussed, please consult our latest Management Discussion and Analysis filed on SEDAR+ and EDGAR.

Carter Brownlee: For any reconciliation of non-IFRS measures measured and discussed, please consult our latest management discussion and analysis filed on SEDAR+ and EDGAR. It is now my pleasure to introduce Mr. Raj Grover, President and Chief Executive Officer of High Tide. Thank you, Mr. Grover. You may begin.

Speaker #2: It is now my pleasure to introduce Mr. Raj Grover, President and Chief Executive Officer of High Tide. Thank you, Mr. Grover. You may begin.

Speaker #3: Thank you, Carter, and good morning, everyone. Welcome to High Tide Inc.'s financial results conference call for the second fiscal quarter that ended April 30, 2026.

Raj Grover: Thank you, Carter, good morning, everyone. Welcome to High Tide Inc.'s Financial Results Conference Call for the second fiscal quarter that ended 30 April 2026. I'll begin with some high-level comments about the quarter and our strategy before Mayank dives deeper into the financials. The High Tide team built on top of the strength we demonstrated in Q1 and took the company to new heights in Q2. It is typically the slowest quarter from a seasonal perspective, and given three fewer days, Q2 is usually our weakest quarter. I'm extremely proud to report that not only was this our best Q2 ever, looking at the financial highlights, it was the best overall quarter we have ever reported to our shareholders. There was strength across the board as we set new all-time records in revenue, gross profit, income from operations, and adjusted EBITDA.

Speaker #3: I'll begin with some high-level comments about the quarter and our strategy before mining dives deeper into the financials. The High Tide team built on top of the strength we demonstrated in Q1 and took the company to new heights in Q2.

Speaker #3: As Q2 is typically the slowest quarter from a seasonal perspective, and given that it has three fewer days, it is usually our weakest quarter. I am extremely proud to report that not only was this our best Q2 ever, but, looking at the financial highlights, it was also the best overall quarter we have ever reported to our shareholders.

Speaker #3: There was strength across the board. As we said, new all-time records in revenue, gross profit, income from operations, and adjusted EBITDA. These all-time highs were supported by both our core bricks-and-mortar Canadian cannabis business as well as Remaxion, which generated record levels of tonnage, revenue, gross margin, and adjusted EBITDA in Q2.

Raj Grover: These all-time highs were supported by both our core bricks and mortar Canadian cannabis business as well as Remexian, which generated record levels of tonnage, revenue, gross margin, and adjusted EBITDA in Q2. Let's drill into the highlights. Our consolidated revenue for the quarter was CAD 179.3 million, putting us on an annualized pace well ahead of CAD 700 million. Revenue was up 30% year over year, growing at its fastest pace in 11 quarters. Our bricks and mortar segment saw cannabis, hemp-derived products, and other revenue post an 8% gain year over year. At CAD 48.4 million, our consolidated gross profit set an all-time record. This grew even faster than revenue, up 36% year over year, representing the fastest pace of growth in 12 quarters. Sequentially, gross profit was up 9%, despite this quarter having three fewer days to make sales.

Speaker #3: Let's drill into the highlights. Our consolidated revenue for the quarter was $179.3 million, putting us on an annualized pace well ahead of $700 million.

Speaker #3: Revenue was up 30% year over year, growing at its fastest pace in 11 quarters. Our bricks-and-mortar segment saw cannabis, hemp-derived products, and other revenue post an 8% gain year over year.

Speaker #3: At $48.4 million, our consolidated gross profit set an all-time record. This grew even faster than revenue, up 36% year over year, representing the fastest pace of growth in 12 quarters.

Speaker #3: Sequentially, gross profit was up 9% despite this quarter having three fewer days to make sales. At $27%, our consolidated gross profit margin set an eight-quarter high and was up over 200 basis points sequentially.

Raj Grover: At 27%, our consolidated gross profit margin set an eight-quarter high and was up over 200 basis points sequentially. Our bricks and mortar segment posted a sequential gain, but the real standout was our medical cannabis distribution segment, which generated gross profit margin of 27%, which was more than double the 12% it generated in Q1. Since we first disclosed our plans to enter the German medical cannabis market, we had identified our unparalleled ability to be able to procure cannabis at best-in-class terms, and now I am thrilled to see this showing up in our financial results. Income from operations was a record CAD 6.1 million in Q2, up a truly impressive 554% year over year and 157% sequentially, highlighting the degree of operating leverage in the business and the extent to which we run a tight ship. Adjusted EBITDA of CAD 13.9 million was an all-time high.

Speaker #3: Our bricks-and-mortar segment posted a sequential gain but the real standout was our medical cannabis distribution segment, which generated gross profit margin of $27%, which was more than double the 12% it generated in Q1.

Speaker #3: Since we first disclosed our plans to enter the German medical cannabis market, we identified our unparalleled ability to procure cannabis at best-in-class terms, and now I am thrilled to see this showing up in our financial results.

Speaker #3: Income from operations was a record $6.1 million in Q2, up a truly impressive 554% year over year and 157% sequentially, highlighting the degree of operating leverage in the business and the extent to which we run a tight ship.

Speaker #3: Adjusted EBITDA of $13.9 million was an all-time high. This was up 73% year over year, marking its fastest pace of growth in nine quarters, and up 21% sequentially.

Raj Grover: This was up 73% year over year, marking its fastest pace of growth in nine quarters and up 21% sequentially. Our adjusted EBITDA margin of 8% set an eight-quarter high. Again, while Q2 is typically the seasonally slowest quarter of the year and with three fewer days, I am proud that we were still able to hit key milestones of positive net income and free cash flow this quarter. Adjusted for non-cash fair value charges of derivative liabilities and excluding non-controlling interest, we generated net income of CAD 0.01 per fully diluted share, which was a huge reversal from a loss of CAD 0.04 in the prior year and a loss of CAD 0.02 sequentially. Excluding the non-cash impact from derivative liabilities, which largely arise from the outperformance of Remaxion's results, we believe we are at the point where we can sustainably generate positive net income going forward.

Speaker #3: Our adjusted EBITDA margin of 8% set an eight-quarter high. Again, while Q2 is typically the seasonally slowest quarter of the year and with three fewer days, I am proud that we were still able to hit key milestones of positive net income and free cash flow this quarter.

Speaker #3: Adjusted for non-cash fair value charges of derivative liabilities and excluding non-controlling interest, we generated net income of $0.01 per fully diluted share, which was a huge reversal from a loss of $0.04 in the prior year and a loss of $0.02 sequentially.

Speaker #3: Excluding the non-cash impact from derivative liabilities, which largely arise from the outperformance of Remaxion's results, we believe we are at the point where we can sustainably generate positive net income going forward.

Speaker #3: Free cash flow was $1.5 million in Q2. While this was lower than what we generated in Q1 this year and Q2 last year, the devil is in the details.

Raj Grover: Free cash flow was CAD 1.5 million in Q2. While this was lower than what we had generated in Q1 this year and Q2 last year, the devil is in the details. Cash flow from operating activities prior to changes in non-cash working capital was CAD 8.8 million, which was a seven-quarter high. However, setting the multiple all-time records I just reviewed required investments in working capital to grow the business. Specifically, we invested CAD 4.3 million in working capital, which was the largest quarterly investment we've made during the past six years. As we always say, we believe it's most appropriate to look at a longer period of free cash flow to smooth out such variability from working capital changes. Over the past 12 months, we have now generated CAD 13.4 million in free cash flow.

Speaker #3: Cash flow from operating activities prior to changes in non-cash working capital was $8.8 million, which was a seven-quarter high. However, setting the multiple all-time records I just reviewed required investments in working capital to grow the business.

Speaker #3: Specifically, we invested $4.3 million in working capital which was the largest quarterly investment we've made during the past six years. As we always say, we believe it's most appropriate to look at a longer period of free cash flow to smooth out such variability from working capital changes.

Speaker #3: Over the past 12 months, we have now generated $13.4 million in free cash flow. All of this execution doesn't just happen by accident, or because a rising tide is lifting all boats across the industry.

Raj Grover: All of this execution doesn't just happen by accident or because a rising tide is lifting all boats across the industry. That's clearly not the case when you compare our performance versus our peers. We work hard and exceed our own expectations ahead of our own internal timelines. Having been legally selling to cannabis consumers for approaching 20 years now, we understand all aspects of our ever-changing business very well. We don't follow the herd. We don't sit on our hands as markets evolve. We've made bold moves, but thoughtful and calculated ones, not rash decisions. These have been paying off. Whether it's our differentiated discount club model or our entry into the German medical cannabis market, our innovative moves have carved out a successful winning strategy, and others are struggling to play catch-up later.

Speaker #3: That's clearly not the case when you compare our performance versus our peers. We work hard and exceed our own expectations ahead of our own internal timelines.

Speaker #3: Having been legally selling to cannabis consumers for nearly 20 years now, we understand all aspects of our ever-changing business very well. We don't follow the herd.

Speaker #3: We don't sit on our hands as markets evolve. We've made bold moves, but thoughtful and calculated ones—not rash decisions. And these have been paying off.

Speaker #3: Whether it's our differentiated discount club model or our entry into the German medical cannabis market, our innovative moves have carved out a successful winning strategy and others are struggling to play catch-up later.

Speaker #3: The Remaxion transaction closed on September 2, 2025, and we have used our unparalleled ability to procure cannabis from Canada to boost the company's results, just like we said we would.

Raj Grover: The Remaxion transaction closed on 02 September 2025. We have used our unparalleled ability to procure cannabis from Canada to boost the company's results, just like we said we would. Revenue for the two months it contributed to Q4 results was just under CAD 10 million, averaging CAD 5 million a month. In Q1, Remaxion's revenue was CAD 25 million, averaging over CAD 8 million a month. This quarter, Remaxion generated CAD 31.6 million, averaging over CAD 10.5 million a month. In terms of volumes, Remaxion sold 7.6 tons of medical cannabis during the three months ended March 2026, which was up 85% from the three months ended September 2025. We have more than doubled our market share in the two quarters since the transaction to 14.1% from 6.5%. We believe we are heading towards 20% market share in Germany in the long term.

Speaker #3: Revenue for the two months it contributed to Q4 results was just under $10 million averaging $5 million a month. In Q1, Remaxion's revenue was $25 million, averaging over $8 million a month.

Speaker #3: This quarter, Remaxion generated $31.6 million, averaging over $10.5 million a month. In terms of volumes, Remaxion sold 7.6 tons of medical cannabis during the three months ended March 2026, which was up 85% from the three months ended September 2025. We have more than doubled our market share in the two quarters since the transaction, to 14.1% from 6.5%.

Speaker #3: We believe we are heading towards a 20% market share in Germany in the long term. Scaling the top line and boosting market share was an important element of our German strategy, and I'm thrilled with how well and how quickly it is playing out.

Raj Grover: Scaling the top line and boosting market share was an important element of our German strategy. I'm thrilled with how well and how quickly it is playing out. The other key component of our strategy was how we could get better terms given our relationships with licensed producers, not just volume for volume's sake. Again, success here was already demonstrated this quarter. Gross margins at Remaxion were 27% in Q2, more than double the 12% generated in Q1. With strong cost controls and relatively fixed overhead, almost two-thirds of the sequential increase in gross margin dollars flowed down to adjusted EBITDA in this segment, which posted a significant reversal from CAD -265,000 in Q1 to CAD +3.2 million in Q2.

Speaker #3: But the other key component of our strategy was how we could get better terms given our relationships with licensed producers, not just volume for volume's sake.

Speaker #3: Again, success here was already demonstrated this quarter: gross margins at Remaxion were 27% in Q2, more than double the 12% generated in Q1. With strong cost controls and relatively fixed overhead, almost two-thirds of the sequential increase in gross margin dollars flowed down to adjusted EBITDA in this segment.

Speaker #3: Which posted a significant reversal from negative $265,000 in Q1 to positive $3.2 million in Q2. Looking ahead, I'd like to point out that given its nature, specifically being somewhat reliant on the specific timing of when bulk shipments may arrive, around quarter ends, the German medical cannabis business may see more volatility than our bricks-and-mortar business, which is supported by $228 stores open to customers every day.

Raj Grover: Looking ahead, I'd like to point out that given its nature, specifically being somewhat reliant on the specific timing of when bulk shipments may arrive around quarter ends, the German medical cannabis business may see more volatility than our bricks and mortar business, which is supported by 228 stores open to customers every day. Additionally, we are monitoring for any potential changes to the German medical cannabis framework. The macro backdrop keeps improving, with Canadian cannabis gaining share now at 53% of all imports into Germany. The last three months average of Canadian medical cannabis exports to Germany reaching over CAD 400 million annually, a record level and up 85% year-over-year.

Speaker #3: Additionally, we are monitoring for any potential changes to the German medical cannabis framework. However, the macro backdrop keeps improving. With Canadian cannabis gaining share—now at 53% of all imports into Germany—and the last three months' average of Canadian medical cannabis exports to Germany reaching over $400 million annually, a record level and up 85% year over year.

Speaker #3: Given these macro dynamics and our belief that we are still just getting going on leveraging our strong relationships, we feel that the Q2 results are much more representative regarding the go-forward picture for Remaxion than the Q1 results.

Raj Grover: Given these macro dynamics and our belief that we are still just getting going on leveraging our strong relationships, we feel that the Q2 results are much more representative regarding the go-forward picture for Remaxion than the Q1 results. Germany has been a smashing success for us in just two quarters. We are seeing other Canadian companies following our footsteps, making transactions in Germany or quoting industry players. While we think we are still ramping up in Germany, we are already plotting our next move in other jurisdictions. All I can say is that discussions are encouraging. We are already number one in Canada and Germany in terms of market share. Given the potential partners we are eyeing, we see a path to becoming number one in other jurisdictions as well.

Speaker #3: So Germany has been a smashing success for us in just two quarters and we are seeing other Canadian companies following our footsteps making transactions in Germany or quoting industry players.

Speaker #3: While we think we are still ramping up in Germany, we are already plotting our next move in other jurisdictions. All I can say is that discussions are encouraging.

Speaker #3: We are already number one in Canada and Germany in terms of market share and given the potential partners we are eyeing, we see a path to becoming number one in other jurisdictions as well.

Speaker #3: We are at the point where industry participants are seeing what we've done in Germany in such a short time frame, and are reaching out to us as their potential partner of choice.

Raj Grover: We are at the point where industry participants are seeing what we've done in Germany in such a short time frame and are reaching out to us as their potential partner of choice. Accordingly, we have had a lot of inbound interest from multiple partners in various jurisdictions, including the UK. The Cabana Club is the most differentiated concept globally. As other markets inevitably go adult use, we believe our model will be dominant in those markets as well. With that, let's discuss the results from our bricks and mortar segment, which now also includes our e-commerce business. The segment posted a 7% increase in revenue year over year, and daily sales were consistent sequentially. Driven by higher margin initiatives such as ELITE memberships and white label sales, gross profit margin of 28% in this segment was the highest level in two years.

Speaker #3: Accordingly, we have had a lot of inbound interest from multiple partners in various jurisdictions including the UK. The Cabana Club is the most differentiated concept globally as other markets inevitably go adult use, we believe our model will be dominant in those markets as well.

Speaker #3: With that, let's discuss the results from our bricks-and-mortar segment, which now also includes our e-commerce business. The segment posted a 7% increase in revenue year over year, and daily sales were consistent sequentially.

Speaker #3: Driven by higher-margin initiatives such as elite memberships and white-label sales, the gross profit margin of 28% in this segment was the highest level in two years.

Speaker #3: Adjusted EBITDA was up 33% year over year. Our innovative discount club model, the Cabana Club, continues to expand. We are now at 2.65 million Cabana Club members across Canada, up 39% year over year, adding 750,000 new members over the past 12 months.

Raj Grover: Adjusted EBITDA was up 33% year over year. Our innovative discount club model, the Cabana Club, continues to expand. We are now at 2.65 million Cabana Club members across Canada, up 39% year over year, adding 750,000 new members over the past 12 months. We continue to move forward towards a long-term goal of three million members in Canada. ELITE is growing even faster, up 84% year over year, and has exceeded 178,000 members. Our retail KPIs remain very impressive. While our same-store sales underwhelmed this quarter, public filings and the intelligence we've gathered cause us to believe that we have nevertheless outperformed our publicly traded and privately held peers. While there are competitive pressures both from illicit operators and legal competitors, as well as our core customers' wallets being impacted by overall macroeconomic conditions, we are nevertheless taking measures to improve this metric in the coming quarters.

Speaker #3: We continue to move forward towards a long-term goal of 3 million members in Canada. Elite is growing even faster—up 84% year-over-year—and has exceeded 178,000 members.

Speaker #3: Our retail KPIs remain very impressive. While our same-store sales underwhelmed this quarter, public filings and the intelligence we've gathered cause us to believe that we have nevertheless outperformed both our publicly traded and privately held peers.

Speaker #3: While there are competitive pressures both from illicit operators and legal competitors, as well as our core customers' wallets being impacted by overall macroeconomic conditions, we are nevertheless taking measures to improve this metric in the coming quarters.

Speaker #3: Our long-term trend of outperformance is clear. Chaining our monthly same-store sales increases since launching our innovative discount club model in October 2021, Canna Cabana was up 161% to March 2026.

Raj Grover: Our long-term trend of outperformance is clear. Chaining our monthly same-store sales increases since launching our innovative discount club model in October 2021, Canna Cabana was up 161% to March 2026. In contrast, as the increase in total sales in the five provinces where we operate has not kept pace with the increase in the number of stores, the average operator has experienced a 7% sales decline during this period. Our market share within the five provinces where we operate was 12% during February and March, which was consistent with a year ago. Excluding British Columbia, where we have been at a regulatory cap of eight stores for two and a half years, I note that our market share was up 14% across the four provinces during February and March, which was up versus 13% a year ago.

Speaker #3: In contrast, as the increase in total sales in the five provinces where we operate has not kept pace with the increase in the number of stores, the average operator has experienced a 7% sales decline during this period.

Speaker #3: Our market share within the five provinces where we operate was 12% during February and March, which was consistent with a year ago. Excluding British Columbia, where we have been at a regulatory cap of eight stores for two and a half years, I note that our market share was up to 14% across the other four provinces during February and March, which was up versus 13% a year ago.

Speaker #3: Excluding stores open less than six months, which are still ramping up, our annualized revenue per square foot in Q2 was $1,620—once again above many leading blue-chip retailers.

Raj Grover: Excluding stores open less than six months, which are still ramping up, our annualized revenue per square foot in Q2 was CAD 1,620, once again above many leading blue-chip retailers. In March, the average Canna Cabana store was on an annual revenue run rate of CAD 2.4 million of product sales, which was double our peer average at CAD 1.2 million. In Ontario, the largest province and focus for future growth, our outperformance was even more pronounced. Excluding stores open less than six months, which are still ramping up, our average Ontario store was on CAD 2.7 million annual run rate, which was two and a half times our peers at CAD 1.1 million. For the 12 months ended March 2026, total industry sales in the five provinces where we operate were up 3% year over year. In contrast, total Canna Cabana sales were up 13% during this period.

Speaker #3: In March, the average Cabana Cabana store was on an annual revenue runway of $2.4 million in product sales, which was double our peer average of $1.2 million.

Speaker #3: In Ontario, the largest province and our focus for future growth, our outperformance was even more pronounced. Excluding stores open less than six months, which are still ramping up, our average Ontario store was on a $2.7 million annual run rate, which was two and a half times our peers at $1.1 million.

Speaker #3: For the 12 months ended March 2026, total industry sales in the five provinces where we operate were up 3% year over year. In contrast, total Cabana Club sales were up 13% during this period.

Speaker #3: Regarding the outlook, we reiterate our target to add 20 to 30 stores in Canada during this calendar year, and we are already at 10.

Raj Grover: Regarding the outlook, we reiterate our target to add 20 to 30 stores in Canada during this calendar year, and we are already at 10. I am very happy to have announced an agreement to acquire four Northern Helm Stores yesterday. These Northern Helm Stores are strong performers, generating CAD 8.5 million of annualized revenue and CAD 1.7 million of annualized adjusted EBITDA for the three months ended March 2026. This transaction is consistent with our stated objective of supplementing organic growth with acquiring strong performing stores which are not close to Canna Cabana at a fair and accretive multiple, and aiming to get even more juice out of their results with our model. With the transaction expected to close soon, I welcome the Northern Helm Team to the Canna Cabana family. With this one announced, we continue to look for supplemental M&A opportunities which can add shareholder value.

Speaker #3: I'm very happy to have announced an agreement to acquire four Northern Helm stores yesterday. These Northern Helm stores are strong performers, generating $8.5 million of annualized revenue and $1.7 million of annualized adjusted EBITDA for the three months ended March 2026.

Speaker #3: This transaction is consistent with our stated objective of supplementing organic growth by acquiring strong-performing stores that are not close to Cabanas, at a fair and accretive multiple, and aiming to get even more juice out of their results with our model.

Speaker #3: With the transaction expected to close soon, I welcome the Northern Helm team to the Cabana Cabana family. With this one announced, we continue to look for supplemental M&A opportunities which can add shareholder value.

Speaker #3: We maintain our target to exceed 350 stores across the country, with new locations being additive to the total addressable market of consumers we can sign up to our loyalty programs.

Raj Grover: We maintain our target to exceed 350 stores across the country, with new locations being additive to the total addressable market of consumers we can sign up to our loyalty programs. Turning to our US e-commerce business, which is a very minor component of our bricks and mortar segment, I am pleased to report this business has stabilized as we reported last quarter, and has improved its adjusted EBITDA generation. Specifically, our EBITDA earned in the US improved by CAD 2.4 million versus the prior year. There are interested parties at the table on the accessory side regarding a potential transaction, while we see how the US CBD market unfolds given the anticipated upcoming CBD pilot projects through Medicare, given our well-established and leading NuLeaf Naturals brand. As always, we will look to what surfaces the most value for our shareholders.

Speaker #3: Turning to our U.S. e-commerce business, which is a very minor component of our bricks-and-mortar segment, I'm pleased to report this business has stabilized, as we reported last quarter, and has improved its adjusted EBITDA generation.

Speaker #3: Specifically, our EBITDA earned in the US improved by $2.4 million versus the prior year. There are interested parties at the table on the accessory side regarding a potential transaction, while we see how the US CBD market unfolds given the anticipated upcoming CBD pilot projects through Medicare, given our well-established and leading New Leaf Naturals brand.

Speaker #3: As always, we will look to what surfaces the most value for our shareholders. At the same time, given the rescheduling momentum we have seen in the US, we continue to evaluate opportunities to take our Cabana Club brand there across a range of scenarios and without giving up our major US exchange listing.

Raj Grover: At the same time, given the rescheduling momentum we have seen in the US, we continue to evaluate opportunities to take our Canna Cabana brand there across a range of scenarios and without giving up our major US exchange listing. All options are on the table. However, we are being extremely thoughtful in how we approach this massive market. Longer-term investors may recall that we had multiple option style agreements in many US states that were diligent, negotiated, and papered back in 2021. Ultimately, we decided not to pull the trigger on them, given the limitations of the structure, and particularly considering how well our stores were performing in Canada. We ended up passing on those deals and allocating all of our capital on winning the Canadian market, which we did. We are taking the same approach now.

Speaker #3: All options are on the table. However, we are being extremely thoughtful in how we approach this massive market. Longer-term investors may recall that we had multiple option-style agreements in many US states that were diligence negotiated and papered back in 2021.

Speaker #3: Ultimately, we decided not to pull the trigger on them, given the limitations of the structure and particularly considering how well our stores were performing in Canada.

Speaker #3: We ended up passing on those deals and allocating all of our capital to winning the Canadian market, which we did. We are taking the same approach now.

Speaker #3: While we are very interested in entering the market, you can only shoot that bullet once, so it has to be the right markets with the right partner, under the right regulatory environment, and terms that make sense for our shareholders.

Raj Grover: While we are very interested in entering the market, you can only shoot that bullet once, so it has to be the right markets with the right partner under the right regulatory environment and terms that make sense for our shareholders. Fortunately, while we wait for the right conditions to enter the US with a big splash, there is no shortage of obvious immediate term growth ahead for us. Be it adding over 100 stores in Canada, continuing to ramp up in Germany and entering other markets. In conclusion, Q2 was the best quarter in our company's history, and we see a bright path ahead for more growth. Our long-term track record of outperformance and strong results quarter in, quarter out, has not gone unnoticed. I am thrilled to announce that we have secured credit approval with Bank of Montreal for CAD 40 million of facilities.

Speaker #3: Fortunately, while we wait for the right conditions to enter the U.S. with a big splash, there is no shortage of obvious, immediate-term growth ahead for us.

Speaker #3: Be it adding over 100 stores in Canada, continuing to ramp up in Germany, or entering other markets, Q2 was the best quarter in our company's history, and we see a bright path ahead for more growth.

Speaker #3: Our long-term track record of outperformance and strong results, quarter in and quarter out, has not gone unnoticed. I am thrilled to announce that we have secured credit approval with Bank of Montreal for $40 million of facilities.

Speaker #3: This is no small feat for a cannabis retailer. It represents the culmination of years of hard work, persistence, and continued operational execution by our team.

Raj Grover: This is no small feat for a cannabis retailer. It represents the culmination of years of hard work, persistence, and continued operational execution by our team. We expect the facility to close in the coming weeks to start formally working with our new long-term credit provider to help fuel the growth we anticipate ahead. Having Bank of Montreal in our corner gives us more firepower, boosts confidence in our business, and makes us a more institutional-grade company. That said, I'd like to briefly address the valuation of our shares. I see a clear disconnect between the increasing attractiveness of High Tide as an investment in the debt markets, as evidenced by our announced CAD 40 million commitment with the Bank of Montreal, which was the result of a process where multiple tier 1 banks were at the table, and where our shares is currently trading in the equity markets.

Speaker #3: We expect the facility to close in the coming weeks and to start formally working with our new long-term credit provider to help fuel the growth we anticipate ahead.

Speaker #3: Having Bank of Montreal in our corner gives us more firepower, boosts confidence in our business, and makes us a more institutional-grade company. That said, I'd like to briefly address the valuation of our shares.

Speaker #3: I see a clear disconnect between the increasing attractiveness of High Tide as an investment and the debt markets, as evidenced by our announced $40 million commitment with the Bank of Montreal, which was the result of a process where multiple Tier 1 banks were at the table, and where our shares are currently trading in the equity markets.

Speaker #3: As of Friday's close, our shares are trading at an EV to last quarter annualized adjusted EBITDA multiple of just 5.7 times, a level I believe does not appropriately reflect the business we have already built and what lies ahead.

Raj Grover: As of Friday's close, our shares are trading at an EV to last quarter annualized adjusted EBITDA multiple of just 5.7x, a level I believe does not appropriately reflect the business we have already built and what lies ahead. In our view, our adjusted EBITDA is growing faster than the market has been able to digest, with Q2's levels 73% higher than a year ago. Two quarters into fiscal 2026, we have already generated two-thirds of the adjusted EBITDA we did in all of fiscal 2025. Our capital markets team has been meeting with institutional investors across the continent, highlighting the opportunity our shares represent. I believe our job gets even easier with these Q2 numbers. While we cannot control the market, I'm confident that our efforts will pay off.

Speaker #3: In our view, our adjusted EBITDA is growing faster than the market has been able to digest, with Q2's level 73% higher than a year ago.

Speaker #3: Two quarters into fiscal 2026, we have already generated two-thirds of the adjusted EBITDA we achieved in all of fiscal 2025. Our capital markets team has been meeting with institutional investors across the continent, highlighting the opportunity our shares represent.

Speaker #3: And I believe our job gets even easier with these Q2 numbers. While we cannot control the market, I'm confident that our efforts will pay off.

Speaker #3: In the meantime, our management team and board continue to put our money where our mouth is and support the company, as evidenced by another round of insider buying last month.

Raj Grover: In the meantime, our management team and board continues to put our money where our mouth is and support the company, as evidenced by another round of insider buying last month. I believe the fact that the team that is closest to the operations and sees what we are building has been buying more shares is a very strong signal in our conviction and one I truly appreciate. With that, I'll turn it over to Mayank for his comments and a deeper dive into the numbers.

Speaker #3: I believe the fact that the team closest to operations, who see what we’re building, has been buying more shares is a very strong signal of our conviction, and one I truly appreciate.

Speaker #3: With that, I'll turn it over to Mayank for his comments and a deeper dive into the numbers.

Speaker #1: Thank you, Raj. And hello, everyone. Q2 was another great quarter for High Tide. We kept executing in Canada, posted large gains internationally, and set new records on almost all financial metrics.

Mayank Mahajan: Thank you, Raj, and hello everyone. Q2 was another great quarter for High Tide. We kept executing in Canada, posted large gains internationally, and set new records on almost all financial metrics. Let's take a deeper dive into the numbers. Revenue for Q2 was once again a new all-time high at CAD 179.3 million, up 30% year-over-year, the fastest pace of growth in 11 quarters, and up 1% sequentially. This was the fourth consecutive quarter making a new all-time high in revenue. Consolidated gross margins were 27% in Q2 and the highest level in eight quarters. Our two operating segments posted gross margins which were fairly similar, while each was setting new highs. Our brick-and-mortar segment posted its highest gross margins in two years at 27%. Meanwhile, our relatively new medical cannabis distribution segment generated a big leap to 27%, more than double Q1's level of 12%.

Speaker #1: Let's take a deeper dive into the numbers. Revenue for Q2 was, once again, a new all-time high at $179.3 million, up 30% year over year.

Speaker #1: The fastest pace of growth in 11 quarters, and up 1% sequentially. This was the fourth consecutive quarter making a new all-time high in revenue.

Speaker #1: Consolidated gross margins were 27% in Q2, the highest level in eight quarters. Our two operating segments posted gross margins that were fairly similar, with each setting new highs.

Speaker #1: Our brick-and-mortar segment posted its highest gross margins in two years at 28%. Meanwhile, our relatively new medical cannabis distribution segment generated a big leap to 27%, more than double Q1's level of 12%.

Speaker #1: Turning to expenses, salaries and wages represented 11.9% of revenue in Q2, marking a meaningful improvement versus 12.7% a year ago, and just ahead of 11.8% sequentially.

Mayank Mahajan: Turning to expenses, salaries and wages represented 11.9% of revenue in Q2, marking a meaningful improvement versus 12.7% a year ago, and just ahead of 11.8% sequentially. Once again, we demonstrated improving cost controls at High Tide in Q2. General and administrative expenses represented just 4% of revenue, marking the lowest level in seven quarters. This metric was 4.2% a year ago and 4.1% sequentially. Adjusted EBITDA was CAD 13.9 million for the quarter. This was up an outstanding 73% year over year, marking its fastest pace of growth in nine quarters. Our consolidated adjusted EBITDA margin also set an eight-quarter high at 8%. At 10%, the addition of Remaxion was additive to our consolidated adjusted EBITDA margin. High Tide generated CAD 1.5 million of free cash flow in Q2.

Speaker #1: Once again, we demonstrated improving cost controls at High Tide in Q2. General and administrative expenses represented just 4% of revenue, marking the lowest level in seven quarters.

Speaker #1: This metric was 4.2% a year ago and 4.1% sequentially. Adjusted EBITDA was $13.9 million in the fourth quarter. This was up an outstanding 73% year over year, marking its fastest pace of growth in nine quarters.

Speaker #1: Our consolidated adjusted EBITDA margin also set an eight-quarter high at 8%. At 10%, the addition of Remaxion was additive to our consolidated adjusted EBITDA margin.

Speaker #1: High Tide generated $1.5 million of free cash flow in Q2. Again, while this was lower than some recent quarters, when you look at the components of this figure, you see a different picture.

Speaker #1: As Raj mentioned, there was a very meaningful investment in working capital. To produce the growth we saw this quarter. Cash flow from operating activities before investing in working capital was 8.8 million.

Mayank Mahajan: Again, while this was lower than some recent quarters, when you look at the component of this figure, you see a different picture. As Raj mentioned, there was a very meaningful investment in working capital to produce the growth we saw this quarter. Cash flow from operating activities before investing in working capital was CAD 8.8 million, highlighting the ability of our business to generate cash. This was the highest level in seven quarters and almost as much as the entire H1 of fiscal 2025. Over the past 12 months, we generated CAD 13.4 million of free cash flow. We are very pleased to see that we reported positive net income this quarter, and we believe this is sustainable on an adjusted basis, excluding non-cash derivative liability changes. We continue to have a strong balance sheet. As of today, at the High Tide level, total debt stands at CAD 63.6 million.

Speaker #1: Highlighting the ability of our business to generate cash, this was the highest level in seven quarters—and almost as much as the entire first half of fiscal 2025.

Speaker #1: Over the past 12 months, we generated $13.4 million of free cash flow. We are very pleased to see that we reported positive net income this quarter.

Speaker #1: And we believe this is sustainable on an adjusted basis excluding known cash derivative liability changes. We continue to have a strong balance sheet. As of today, at the high tide level, total debt stands at 63.6 million.

Mayank Mahajan: We are very pleased to see that we reported positive net income this quarter, and we believe this is sustainable on an adjusted basis, excluding non-cash derivative liability changes. We continue to have a strong balance sheet. As of today, at the High Tide level, total debt stands at CAD 63.6 million.

Speaker #1: We had 36.5 million in cash and restricted cash at the end of the quarter. I'm looking forward to closing the facility with Bank of Montreal imminently.

Mayank Mahajan: We had CAD 36.5 million in cash and restricted cash at the end of the quarter. I'm looking forward to closing the facility with Bank of Montreal imminently. We will have a CAD 25 million revolving facility with almost CAD 19 million of room available to draw down after paying connectFirst first. The beauty of a revolver is that we only pay interest on the amount we draw, but the remainder is there on demand. Similarly, we will have a CAD 15 million committed delayed draw term loan, which can be used to repay our second position lender, save on ongoing interest payment, and expand our relationship with Bank of Montreal. In closing, Q2 was a breakout quarter for High Tide. We have a retail platform which continues to dominate in Canada, and we have proven our unique ability to leverage that strength to quickly establishing a leadership position overseas.

Speaker #1: We will have a $25 million revolving facility, with almost $19 million of room available to draw down after paying Connect First. The beauty of a revolver is that we only pay interest on the amount we draw.

Speaker #1: But the remainder is there on demand. Similarly, we will have a $15 million committed delayed drawdown loan, which can be used to repay our second-position lender.

Speaker #1: Save on ongoing interest payments and expand our relationship with Bank of Montreal. In closing, Q2 was a breakout quarter for High Tide. We have a retail platform which continues to dominate in Canada.

Speaker #1: And we have proven our unique ability to leverage that strength to quickly establish a leadership position overseas. I look forward to what the future brings for us as we go, as we grow profitably even further.

Speaker #1: Thanks to our amazing team, without whom none of this would be possible. With that, I will now turn the call over to the operator to open the line for the question-and-answer session.

Mayank Mahajan: I look forward to what the future brings for us as we grow profitably even further. Thanks to our amazing team, without whom none of this would be possible. With that, I will now turn the call over to the operator to open the line for the question and answer session. Thank you.

Speaker #1: Thank you.

Speaker #2: Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have any questions, please press the star followed by the one on your touchtone phone.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Bill Kirk from Roth Capital Partners. Your line is now open.

Speaker #2: Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.

Speaker #2: Once again, that is *star one* should you wish to ask a question. Your first question is from Bill Turk from Roth Capital Partners. Your line is open.

Speaker #3: Good morning, everybody. So my question to start is, how has Remaxion's tonnage performed in May? And the bigger part of the question here is going to be, with May and half of June now, our numbers would suggest you're completely through that older sourced or backlogged inventory.

Bill Kirk: Good morning, everybody. My question to start is: how has Remaxion's tonnage performed in May? The bigger part of the question here is going to be: with May and half of June now, our numbers would suggest you're completely through that older sourced or backlogged inventory. If that's the case, how does sourcing and cost of product change? What does it mean for international margins off these two key levels?

Speaker #3: And if that's the case, how does sourcing and cost of product change? And what does it mean for international margins off these two Q levels?

Speaker #4: Good morning, Bill. Thank you so much for your question. So Remaxion is obviously outperformed all of our expectations in Q2. You may recall, Bill, that February was about 20% gross margins, but then we really took off from there.

Mayank Mahajan: Good morning, Bill. Thank you so much for your question. Remaxion has obviously outperformed all of our expectations in Q2. You may recall, Bill, that February was about 20% gross margins, we really took off from there. We have full visibility on May.

Raj Grover: Good morning, Bill. Thank you so much for your question. Remaxion has obviously outperformed all of our expectations in Q2. You may recall, Bill, that February was about 20% gross margins, we really took off from there. We have full visibility on May.

Speaker #4: And we have full visibility on May. May is somewhat between Q2, somewhat between March and April, and February. So, it's not as strong as, let's say, April, but it's not as weak as February in terms of gross margin.

Raj Grover: May is somewhat between March and April and February. It's not as strong as, let's say April, it's not as weak as February in terms of gross margin. Like I said, I said this in my prepared remarks that performance at Remaxion is going to be lumpier over quarters because it just depends on the timing of the international shipments when they actually arrive in Germany. The current situation, Bill is, we can sell our distribution capabilities in Germany are second to none. Our procurement capabilities are definitely second to none here in Canada, as you can see. We've dropped Remaxion's cost price by 30% to 40%. Just given the timing of the situation in Germany with import permits, import permits are still taking eight weeks to get into Germany. This is down from 13 weeks.

Speaker #4: And like I said, I mentioned this in my prepared remarks: performance at Remaxion is going to be lumpier over quarters because it just depends on the timing of the international shipments and when they actually arrive in Germany.

Speaker #4: The current situation, Bill, is we can sell our distribution capabilities in Germany are second to none. Our procurement capabilities are definitely second to none here in Canada, as you can see.

Speaker #4: We've dropped Remaxion's cost price by 30% to 40%. But just given the timing of the situation in Germany with import permits, those permits are still taking eight weeks to get into Germany.

Speaker #4: This is down from 13 weeks. So as soon as this situation gets better, we'll be able to sell even more cannabis. But like I said in my prepared remarks, Remaxion's current quarter, our current quarter should be looked at more in line with Q2 than Q1.

Raj Grover: As soon as this situation gets better, we'll be able to sell even more cannabis. Like I said in my prepared remarks, Remaxion's current quarter should be looked at more in line with Q2 than Q1. If you really want my precise remarks on that, I predict maybe it's going to be somewhere in between. Still very, very good numbers, and margins will remain healthy. Now, the one thing I want to mention about the, I think the second part of the question was the dated inventory that we had stuck in Portugal. We had made a brave move, Bill. You'd remember we had 15 to 17 tons stuck at that time. We knew a whole country cannot shut down to cannabis forever, and businesses cannot collapse. We took that into our stride, and we went ahead with this acquisition.

Speaker #4: But if you really want my precise remarks on that, I predict maybe it's going to be somewhere in between. So, still very, very good numbers.

Speaker #4: And margins will remain healthy. Now, the one thing I want to mention—I think your second part of the question was about the dated inventory that we had stuck in Portugal.

Speaker #4: We had made a brave move, Bill. You remember, we had 15% to 17% of tons stuck at that time. But we knew a whole country cannot shut down to cannabis forever.

Speaker #4: And businesses cannot collapse. And we took that, we took that into our stride. And we went ahead with this acquisition. And it's already paid off.

Speaker #4: You can see the results today. But we are still left with four to five tons still remaining in Portugal. The most dated inventory we got it first.

Raj Grover: It's already paid off. You can see the results today, but we are still left with four to five tons still remaining in Portugal. Like the most dated inventory, we got it first, so this is less dated, but it's obviously still getting aged. We're not concerned. We had a blend of that aged material in February, the same thing with March and April, the same thing in May. This is why the tonnage has gone down in Portugal from that original 17 tons to somewhere close to four or five tons. I don't think it materially affects us or affects us at all in terms of really bringing the margins down. I'm pretty comfortable telling you that margins can remain around 25%.

Speaker #4: So, this is less dated, but it's obviously still getting aged. But we're not concerned. We had a blend of that aged material in February, same thing with March and April, and the same thing in May.

Speaker #4: This is why the tonnage has gone down in Portugal—from that original 17 tons to somewhere close to four or five tons. I don't think it materially affects us, or affects us at all, in terms of really bringing the margins down.

Speaker #4: I'm pretty comfortable telling you that margins can remain around 25%.

Speaker #3: Perfect, Raj. Thank you. And then for a second question, it looks like Ontario has asked a competitor of yours to relinquish control of its retail operations in the province.

Bill Kirk: Perfect, Raj. Thank you. Then for a second question, it looks like Ontario has asked a competitor of yours to relinquish control of its retail operations in the province. How would that change the competitive environment? Would you be interested in any of those locations if they were to become available?

Speaker #3: How would that change the competitive environment? And would you be interested in any of those locations if they were to become available?

Speaker #4: Yeah, absolutely, Bill. So we've obviously seen the media reports over the weekend, but I think it's too early to speculate on how it ultimately all pans out.

Raj Grover: Yeah, absolutely, Bill. We've obviously seen the media reports over the weekend. I think it's too early to speculate how it ultimately all pans out. We've been talking about this for a while that, if the whole industry is playing chess and somebody else is playing checkers, how is that fair? The questions have been answered today, and it's for everyone to see what the regulator has said. Look, Value Buds is a strong competitor. It's a quality store network, and some of those assets, if they were able to become available, we would definitely take a very close look at that opportunity, we'll apply the same discipline lens that we always have to all acquisitions. It's definitely something that we are watching very closely, Bill.

Speaker #4: We've been talking about this for a while—that if the whole industry is playing chess and somebody else is playing checkers, how is that fair?

Speaker #4: And the questions have been answered today. And it's for everyone to see what the regulator has said. But look, value buds is a strong competitor.

Speaker #4: It's a quality store network. And some of those assets, if they were ever to become available, we would definitely take a very close look at their opportunity.

Speaker #4: But we'll apply the same disciplined lens that we always have to all acquisitions. It's definitely something that we are watching very closely, Bill.

Speaker #3: Thank you, Raj. I'll jump back in the queue.

Speaker #2: Thank you. Your next question is from Derek Lessard from TD. Your line is open.

Bill Kirk: Thank you, Raj. I'll jump back in the queue.

Speaker #5: Yeah, good morning, Raj, and congrats to you and the team on a really incredible quarter. I just basically, if I'm nitpicking here, I'd say probably I'd point to maybe the modest same store sales weakness.

Operator: Thank you. Your next question is from Derek Lessard from TD. Your line is now open.

Derek Lessard: Yeah. Good morning, Raj, congrats to you and the team on a really incredible quarter. I just basically, if I'm nitpicking here, I'd say probably, I'd point to maybe the modest same-store sales weakness, just help us quantify how much of the same-store sales pressure is coming from trade down, so formats or volume versus underlying demand softness.

Speaker #5: But maybe just help us quantify how much of the same store sales pressure is coming from trade down. So formats or volume, versus underlying demand softness.

Speaker #4: Yeah, absolutely. Hi, Derek, and thank you so much for your question. So, look, what we're seeing so far is Q3 is relatively stable compared to Q2.

Raj Grover: Yeah, absolutely. Hi, Derek, thank you so much for your question. Look, what we're seeing so far is Q3 is relatively stable compared to Q2. Most importantly, Derek, there's two dynamics at play in terms of our modest same-store sales decline, which is 1.2%. Remember that over the last 5 years since the launch of the discount club model, we've absolutely beaten the industry over and gone to 161% jump versus the average operator has declined 7%. This is the first time we've gone in the red, although very minorly, there's a few things at play here. First thing that you mentioned about formats is very, very true. Remember our core customer, which is I've said this many times, we built our stores to cater to the core customer of cannabis, which is the blue-collar worker.

Speaker #4: And most importantly, Derek, there are two dynamics at play in terms of our modest same-store sales decline, which is 1.2%. Remember that over the last five years, since the launch of the discount club model, we've absolutely beaten the industry average and achieved a 161% jump, whereas the average operator has declined 7%.

Speaker #4: So, this is the first time we've gone in the red—although very minorly—but there are a few things at play here. The first thing that you mentioned about formats is very, very true.

Speaker #4: Remember, our core customer—which, as I've said many times, we built our stores to cater to the core customer of cannabis—is the blue-collar worker.

Speaker #4: And that segment has been facing some pressure from the slowing housing market and the broader trade-related uncertainty between Canada and the US.

Speaker #4: You can look at the auto sector, lumber sector, steel, manufacturing—all are hurting, right? And this is our core customer. So customers are trading down from eighths.

Raj Grover: That segment has been facing some pressure from the slowing housing market, and the broader trade-related uncertainty between Canada and the US. You can look at the auto sector, lumber sector, steel, manufacturing, all are hurting, right? This is our core customer. Customers are trading down from eighths to ounce bags, right? When they have ounce bags, they have less frequent visits because they already have an ounce. Now, they don't have the variety of strains. They are contented with one strain. That's where some of the sales are being traded for sure. We are seeing that for sure. The second reason I can give you, which is an interesting one, is as we continue expanding our store network, Derek, some of our newer stores are helping us capture a larger share of markets where we already operate.

Speaker #4: To ounce bags, right? And when they have ounce bags, they have less frequent visits because they already have an ounce. Now, they don't have the variety of strains.

Speaker #4: They are content with one strain, but that's where some of the sales are being traded, for sure. We are seeing that, for sure. The second reason I can give you, which is an interesting one, is as we continue expanding our store network, Derek, some of our newer stores are helping us capture a larger share of markets where we already operate.

Speaker #4: But in a few cases, that can also create some sales transfer from older stores into newer stores that aren't yet included in the same store sales base.

Speaker #4: So, that is also happening. I have many markets I can give that example for, and now we're being a bit more watchful on that side as well.

Raj Grover: In a few cases, that can also create some sales transfer from older stores into newer stores that aren't yet included in same-store sales base. That is also happening. I have many markets I can give that example for, now we're being a bit more watchful on that side as well. While that can create some pressure reported on same-store sales, we're actually continuing to gain overall market share and grow our total sales in those regions. It's not all bad. It's definitely the formats. It's definitely the less frequent visits because our core customer is definitely impacted. I will tell you this, we've gathered a lot of intelligence on the private side of things. As you know, we just acquired four stores from Northern Helm. We had their numbers. We had multiple other parties that have shared their numbers with us.

Speaker #4: So, while that can create some pressure reported on same-store sales, we're actually continuing to gain overall market share and grow our total sales in those regions.

Speaker #4: So it's not all bad. It's definitely the formats; it's definitely the less frequent visits, because our core customers were definitely impacted. I will tell you this.

Speaker #4: We've gathered a lot of intelligence on the private side of things. As you know, we just acquired four stores. From Northern Helm, we had their numbers.

Speaker #4: We had multiple other parties that have shared their numbers with us, and basically what we see is that the trend is across the board.

Speaker #4: And we have outperformed everything that I have seen, including one of our publicly traded competitors. That have reported. And we're outperforming them as well.

Raj Grover: Basically what we see is that the trend is across the board, we are outperforming everything that I have seen, including one of our publicly traded competitors that have reported, we're outperforming them as well.

Speaker #3: Right, Raj. And to be clear, yeah, I was—again, I'm just—I was nitpicking. So you're right, it's not all bad. So, and then maybe just a follow-up to that.

Derek Lessard: Right, Raj. To be clear, again, I was nitpicking, you're right. It's not all bad. Maybe just a follow-up to that, just on the bricks and mortar margin, just curious on how you're thinking about the sustainability there, just maybe given that slightly softer consumer backdrop at this moment.

Speaker #3: Just on the bricks-and-mortar margin—just curious on how you're thinking about the sustainability there, maybe given that slightly softer consumer backdrop at this moment.

Speaker #4: Yeah, absolutely. So, Derek, I think our bricks-and-mortar margins hit 28%, which is an eight-quarter high. Made me very, very happy. We've been raising our margins gradually and slowly, and still beating sales records.

Raj Grover: Yeah, absolutely. Derek, I think our bricks and mortar margins hit 28%, which is an eight-quarter high, made me very, very happy. We've been raising our margins gradually and slowly and still beating sales records. It's not affected our sales. Given the environment that we live in, we have to get a little bit more cautious on gross margins on the brick and mortar side. We're also starting to notice that a ton of competitors in the industry are copying parts of our models. Some trying to copy us in our entirety, believe it or not, including our color schemes, which is hilarious to watch. Some of the very established competitors as well. I hope you're still on the line, Derek. I just heard some background noise.

Speaker #4: It's not affected our sales. But given the environment that we live in, we have to get a little bit more cautious on gross margins on the brick-and-mortar side.

Speaker #4: We're also starting to notice that a ton of competitors, in the industry, are copying parts of our models. Some trying to copy us in our entirety, believe it or not.

Speaker #4: Including our color schemes, which is hilarious to watch. Some of the very established competitors as well. I hope you're still on the line, Derek.

Speaker #4: I just heard some background noise.

Speaker #3: Yeah, I'm here.

Speaker #4: OK, perfect. Perfect. But despite all of that, our sales are going well. Caba Cabana brand is very, very strong. We have opportunities to raise margins through white label and elite initiatives, which others don't.

Derek Lessard: Yeah, I'm here.

Raj Grover: Okay, perfect. Despite all of that, our sales are going well. Canna Cabana brand is very, very strong. We have opportunities to raise margins through white label and ELITE initiatives, which others don't. Our store-level margins are being copied. We have a lot of competitive pressure, both from legal operators and from illicit operators. For many, it's a survival strategy at this point, given we're winning so much. We think that there'll be slight pressure on brick and mortar gross margins, not too much, but we will adjust it accordingly. Remember, we're playing this game for the long term. We're going to get to 350 stores. I believe our brick and mortar margins in the long term will get to 30%, so we'll be much higher than where we are today. In the short term, we may have to reduce our margins a little bit to compete.

Speaker #4: But our store-level margins are being copied. We have a lot of competitive pressure, both from legal operators and from illicit operators. For many, it's a survival strategy at this point, given we're winning so much.

Speaker #4: But we think that there will be slight pressure on brick-and-mortar gross margins, not too much, but we will adjust accordingly. Remember, we're playing this game for the long term.

Speaker #4: We're going to get to 350 stores. I believe our brick-and-mortar margins, in the long term, will get to 30%. So we'll be much higher than where we are today.

Speaker #4: But in the short term, we may have to reduce our margins a little bit to compete.

Speaker #3: Yeah, remember, Raj, that imitation is the sincerest form of flattery that mediocrity can pay to greatness.

Derek Lessard: Yeah. Remember, Raj, that imitation is the sincerest form of flattery, that mediocrity can pay to greatness. Good numbers.

Speaker #4: Well said, Derek. Thank you. I appreciate it.

Speaker #5: Thank you. Your next question is from Ben Stonecase from Haywood. Your line is now open.

Raj Grover: Well said, Derek. Thank you. Appreciate it.

Speaker #6: Hey, morning guys. This is Ben on for Neil. Can you route some of the great...

Operator: Thank you. Your next question is from Ben Stankus from Haywood. Your line is now open.

Speaker #3: Guys, what you're seeing in the UK—I know last quarter you mentioned the goal of entering through an M&A transaction within the next 12 months.

Ben Stankus: Hey, morning, guys. This is Ben on for Neal. Congrats on the great quarter. Guys, what you're seeing in the UK, I know last quarter you mentioned the goal of entering through an M&A transaction within the next 12 months, and that you're engaging with some of the larger players over there. Curious as to whether there's been any progress on that front and how those conversations have been developing.

Ben Stonkus: Hey, morning, guys. This is Ben on for Neal. Congrats on the great quarter. Guys, what you're seeing in the UK, I know last quarter you mentioned the goal of entering through an M&A transaction within the next 12 months, and that you're engaging with some of the larger players over there. Curious as to whether there's been any progress on that front and how those conversations have been developing.

Speaker #3: And that you're engaging with some of the larger players over there. Curious as to whether there's been any progress on that front, and how those conversations have been developing.

Speaker #4: Yeah, good morning, Ben. Thank you so much for your question. Absolutely, the UK remains a very important target market for us, and we are actively engaged in discussions with a range of parties.

Raj Grover: Yeah. Good morning, Ben. Thank you so much for your question. Absolutely, the UK remains a very important target market for us, and we are actively engaged in discussions with a range of partners industry. We're talking to many larger operators, many smaller-sized specialized businesses. I'm talking to everyone to understand the lay of the land in the UK, and I can tell you it's a very, very interesting market for us. Potentially even more interesting than Germany, because in UK, you can own the entire chain, including that last-mile patient relationship, which we are unable to do in Germany. As we previously communicated, our objective remains to complete a transaction within the next few quarters. That said, Ben, we're being very disciplined and selective.

Speaker #4: So, we're talking to many larger operators, as well as many smaller, specialized businesses. I'm speaking with everyone to understand the lay of the land in the UK.

Speaker #4: And I can tell you, it's a very, very interesting market for us—potentially even more interesting than Germany, because in the UK, you can own the entire chain.

Speaker #4: Including that last-mile patient relationship, which we are unable to do in Germany. So, as we previously communicated, our objective remains to complete a transaction within the next few quarters.

Speaker #4: But that said, Ben, we're being very disciplined and selective. We're focused on finding the right partner, the right strategic fit. And a transaction structure that creates meaningful long-term value for shareholders.

Speaker #4: So we're not going to rush into anything, but conversations are going well.

Raj Grover: We're focused on finding the right partner, the right strategic fit, and a transaction structure that creates meaningful long-term value for shareholders. We're not going to rush into anything, but conversations are going well.

Speaker #3: That's good to hear, and I appreciate the color there. Just a follow-up from me on Free Cash Flow: it came in around $1.5 million in the quarter.

Speaker #3: And as you touched on in your prepared remarks, most of that was a working capital build from new stores and the Remaxian inventory. I just want to see how you're thinking about working capital needs from here, and what a normalized free cash flow conversion looks like.

Ben Stankus: That's good to hear. I appreciate the color there. Just a follow-up from me is on free cash flow. It came in around CAD 1.5 million in the quarter. As you touched on in your prepared remarks, most of that was a working capital build from new stores and the Remaxion inventory. I just want to see how you're thinking about working capital needs from here and what a normalized free cash flow conversion looks like once you're through this say, investment phase.

Ben Stonkus: That's good to hear. I appreciate the color there. Just a follow-up from me is on free cash flow. It came in around CAD 1.5 million in the quarter. As you touched on in your prepared remarks, most of that was a working capital build from new stores and the Remaxion inventory. I just want to see how you're thinking about working capital needs from here and what a normalized free cash flow conversion looks like once you're through this say, investment phase.

Speaker #3: Once you're through this, say, investment phase.

Speaker #4: Yeah, absolutely. So, the devil is in the details, Ben, always. Yes, free cash flow was lower sequentially and year over year, but we made an additional $4.3 million investment into working capital during this quarter.

Raj Grover: Yeah, absolutely. The devil is in the details, Ben, always. Yes, free cash flow was lower sequentially and year over year, but we made an additional CAD 4.3 million investment into working capital during this quarter, which is the highest level in years, right? If you take that out, we would have about CAD 6 million in free cash flow this quarter. We're growing the Remaxion business. We're investing into inventory in our newly operated stores that take a long time to generate cash, just like all other retail businesses. Cash flow from operations before working capital reached CAD 8.8 million this quarter, Ben, which was the highest level in seven quarters. Very, very happy with that trajectory. Now, Remaxion is outperforming all of our internal expectations as well.

Speaker #4: Which is the highest level in years, right? If you take that out, we would have about $6 million in free cash flow this quarter.

Speaker #4: But we're growing the Remaxian business. We're investing in inventory in our newly operated stores. That takes a long time to generate cash, just like all other retail businesses.

Speaker #4: So, cash flow from operations before working capital reached $8.8 million this quarter, Ben, which was the highest level in seven quarters. So, very, very happy with that trajectory.

Speaker #4: Now, Remaxian is outperforming all of our internal expectations as well. So we may need to put in more cash as the business grows, but I think we can still remain free cash flow positive as we build our business.

Speaker #4: Although it's going to be lumpy from quarter to quarter.

Raj Grover: We may need to put in more cash as the business grows, but I think we can still remain free cash flow positive as we build our business. Although it's going to be lumpy from quarter to quarter.

Speaker #3: Yeah, that's great. Thanks for that. Congrats again on the quarter. And I'll hop back in the queue.

Speaker #5: Thank you. Your next question is from Lukanen at Canaccord. Your line is now open.

Ben Stankus: Yeah, that's great. Thanks for that. Congrats again on the quarter, and I'll hop back in the queue.

Ben Stonkus: Yeah, that's great. Thanks for that. Congrats again on the quarter, and I'll hop back in the queue.

Speaker #3: Thanks. Good morning and congratulations on the quarter. I want to follow up, Raj, and see if you can just provide a little bit more information on Northern Helm, you provided the revenue.

Operator: Thank you. Your next question is from Luke Hannan from Canaccord. Your line is now open.

Luke Hannan: Thanks. Good morning, and congratulations on the quarter. I wanted to follow up, Raj, and see if you can just provide a little bit more information on Northern Helm. You provided the revenue and the EBITDA metrics for that business. Can you just give us a sense, how long was this transaction in the works? How long was it in the pipeline for? Then also just historically, I don't know, maybe a two or three-year look back on what the financial performance has been, maybe how long those stores have been in market, just more details on Northern Helm.

Speaker #3: And the EBITDA metrics for that business. But can you just give us a sense? I mean, how long was this transaction in the works?

Speaker #3: How long was it in the pipeline for? And then also just historically, I don't know, maybe a two or three-year look back on what the financial performance has been?

Speaker #3: Maybe how long those stores have been in market? Just more details on Northern Helm.

Speaker #4: Yeah, sure. So, look, we just completed the transaction. Our Northern Helm stores have generated $8.5 million in revenue, so they're doing very, very well at the revenue level.

Raj Grover: Yeah, sure. Look, we just completed the transaction, Luke. Northern Helm Stores have generated CAD 8.5 million in revenue. They're doing very, very good at the revenue level. EBITDA contribution was CAD 1.7 million, and we paid 4.5x, still highly accretive to our results. We're always watching out for our shareholders on that side. The acquisition was more of an inbound into us, although we have been reaching out to many operators, and seeing if they have interest in selling, only in the markets where we don't have a presence yet. You notice that with the Northern Helm acquisition, we entered three new markets in Ontario, which is not going to cause any redundancy issues with our existing portfolio.

Speaker #4: EBITDA contribution was $1.7 million, and we paid 4.5 times. Still highly accretive to our results, and we're always watching out for our shareholders on that side.

Speaker #4: The acquisition was more of an inbound into us, although we have been reaching out to many operators and seeing if they have interest in selling.

Speaker #4: Only in the markets where we don't have a presence yet. You'll notice that, with the Northern Helm acquisition, we entered three new markets in Ontario.

Speaker #4: Which is not going to cause any redundancy issues with our existing portfolio. You can imagine, when you have 224 stores across the country.

Speaker #4: And we're still opening up stores in similar markets that can have that effect, although we get to take a larger chunk of that market.

Raj Grover: You can imagine when you have 224 stores across the country, and we're still opening up stores in similar markets, that can have that effect, although we get to take a larger chunk of that market. The Northern Helm acquisition was especially good because of that, because it's differentiated markets. It was an inbound into us. The operators saw how we've been executing. They wanted our shares. They wanted to take some cash, some shares. It worked out perfectly because they want to get positioned with the largest retailer in the country, and we are starting to see more and more momentum on that side. Although seller expectations out there can still be drastically different, with people, some expecting that they can still get 8x to 10x when we're not trading more than 6x.

Speaker #4: The Northern Helm acquisition was specially good because of that. Because it's differentiated markets. It was an inbound into us. The operators saw how we've been executing.

Speaker #4: They wanted our shares. They wanted to take some cash, some shares. So, it worked out perfectly because they want to get positioned with the largest retailer in the country.

Speaker #4: And we are starting to see more and more momentum on that side, although seller expectations out there can still be drastically different, with some people still expecting that they can get 8 to 10 times.

Speaker #4: But we're not trading more than 6 times. I don't understand how that is possible, and why other buyers would pay such multiples. We don't do that.

Speaker #4: We're very, very disciplined. And I think you'll see more of these types of acquisitions from us in the coming quarters.

Raj Grover: I don't understand how that is possible and why other buyers would pay such multiples. We don't do that. We're very, very disciplined. I think you'll see more of similar types of these acquisitions from us in the coming quarters.

Speaker #3: That's great color. Thanks for that. And then maybe I'll ask a question just more broadly on M&A—and forgive me if you touched on this.

Speaker #3: I may have missed it, but you have a lot on your plate when it comes to an M&A perspective. You have options in Europe. It sounds like now, not just the UK, but Europe a little bit more broadly.

Luke Hannan: That's great color. Thanks for that. Maybe I'll ask a question just more broadly on M&A, and forgive me if you touched on this, I may have missed it. You have a lot on your plate when it comes to an M&A perspective. You have options in Europe, it sounds like now, not just the UK, but Europe a little bit more broadly, and then also in Canada, the market's a little bit stronger. You've talked about exploring optionality in the US. Can you rank order, I guess, your preference as part of all this?

Speaker #3: And then also, in Canada, the market's a little bit stronger. You've talked about exploring optionality in the US. Is there a certain—can you rank order, I guess, your preference as part of all this?

Speaker #4: Yeah, the preference is always home turf. Look, I've always said, never lose track of the home turf. We must win domestically to become successful internationally, right?

Raj Grover: Yeah. The preference is always home turf. Luke, I've always said, Never lose track of the home turf. We must win domestically to become successful internationally. Right? There's no such thing that you jump the gun and you start buying things all over the place, and then we can't control them. The reason we bought Remaxion was we put two and two together, and we're like, We're so strong domestically. We have the strongest licensed producer relationships here. No one does have the same level in Germany, and we can truly make the one plus one equal to three in that regard, and we've done that. We're looking for exactly that type of M&A. It has to be accretive to our results. It has to be a great strategic fit in terms of what we're doing.

Speaker #4: There's no such thing as you jump the gun and you start buying things all over the place, and then we can't control them. The reason we bought Remaxian was we put two and two together.

Speaker #4: And we're like, we're so strong domestically. We have the strongest licensed producer relationships here—no one does. They don't have the same level in Germany.

Speaker #4: And we can truly make one plus one equal three in that regard. And we've done that. So we're looking for exactly that type of M&A.

Speaker #4: It has to be accretive to our results. It has to be a great strategic fit in terms of what we're doing. Given our astounding success in Germany, we're definitely very interested in entering the UK market.

Speaker #4: I think you'll see even more momentum from us in Germany. We are now eyeing a 20% market share in that country, which we feel is within reach in the long term.

Raj Grover: Given our astounding success in Germany, we're definitely very interested in entering the UK market. I think you'll see even more momentum from us in Germany. We are now eyeing 20% market share in that country, which we feel is within reach in the long term. UK lets us own that last-mile patient relationships on top of the wholesale distribution network that we'll set up. UK is a very interesting market for us. Domestic M&A will continue, I can tell you I'm also speaking to counterparties of various sizes in the US. We're also looking at medical opportunities where we don't have to sacrifice our NASDAQ listing, and we can own medically operated stores in medically legal states. That's not a priority for me, right? US is a fantastic market.

Speaker #4: And the UK lets us own that last-mile patient relationship on top of the wholesale distribution network that we'll set up. So, the UK is a very interesting market for us.

Speaker #4: Domestic M&A will continue. But I can tell you I'm also speaking to counterparties of various sizes in the U.S. We're also looking at medical opportunities where we don't have to sacrifice our NASDAQ listing.

Speaker #4: And we can own medically operated stores in medically legal states. But that's not a priority for me, right? The US is a fantastic market. It's the market where I dream to play one day.

Speaker #4: But we're not in any kind of hurry. We keep on winning in Canada. The goal is to get to 350 stores; we're only at 228.

Raj Grover: It's the market where I dream to play in one day, we're not in any kind of hurry. We keep on winning in Canada. The goal is to get to 350 stores. We're only at 228. The goal is to win in Europe. We are the number one player in Canada, the number one player in Germany. We absolutely want to be the number one in all of the European markets where we enter. We're not going to sacrifice our entry into the US just for the sake of it. We'll take our time. Priority sequence will be continue doing M&A in Canada, continue doing M&A in larger European markets, mainly UK, Poland, and let's see how other markets develop there. We've got a ton on our plate when it comes to M&A.

Speaker #4: The goal is to win in Europe. We are the number one player in Canada, the number one player in Germany. We absolutely want to be the number one in all other European markets where we enter.

Speaker #4: So, we're not going to sacrifice our entry into the US just for the sake of it. We'll take our time. The priority sequence will be to continue doing M&A in Canada.

Speaker #4: Continue doing M&A in larger European markets, mainly the UK, Poland, and let's see how other markets develop there. So, we've got a ton on our plate when it comes to M&A.

Speaker #3: Great. Maybe actually, just following up on that last piece—in the outlook, in the press release for this quarter, the final sentence is about you intending to expand into additional European markets.

Luke Hannan: Great. Maybe actually just following up on that last piece. In the outlook in the press release for this quarter, the final sentence is about you intending to expand into additional European markets. If we go back one quarter ago, that outlook was more specific to the UK. What, I guess, has changed from last quarter to this quarter from looking at M&A in Europe?

Speaker #3: If we go back one quarter ago, that outlook was more specific to the UK. So what, I guess, has changed from last quarter to this quarter when looking at M&A in Europe?

Speaker #4: Great, great question, Luke. So, I'll tell you this: the market that interests me the most at this point is the UK, 100%. We're very keenly looking at the UK market.

Raj Grover: Great question, Luke. I'll tell you this. The market that interests me the most at this point is UK, 100%. We're very keenly looking at the UK market, we've had a couple of inbounds. With my travels to Europe on ICBC, and Cannabis Europa, we had a couple of inbounds from two interesting markets that came to us where operators want to partner up with us. Again, I have to be very disciplined. We get these kind of offers all the time. Our execution is being noticed, what we're doing in Germany, everybody wants to get a piece of our supply relationships here in Canada. There are two interesting markets that have popped up that want to partner up with us. Operators want to partner up with us, we have to be disciplined in our approach.

Speaker #4: But we've had a couple of inbounds. With my travels to Europe, on ICBC and Cannabis Europa, we had a couple of inbounds from two interesting markets that came to us.

Speaker #4: Where operators want to partner up with us. Again, I have to be very disciplined. We get these kinds of offers all the time. But our execution is being noticed.

Speaker #4: What we're doing in Germany—and everybody wants to get a piece of our supplier relationships here in Canada. There are two interesting markets that have popped up that want to partner up with us.

Speaker #4: Operators want to partner up with us, but we have to be disciplined in our approach. So, we're still evaluating those markets. But I believe my interest still keenly lies in the UK at the moment.

Speaker #3: Got it, thanks. Last one for me and then I'll toss the line. Just circling back to the Canadian same-store sales performance: can you break out whether or not there was a lot of change throughout the quarter?

Raj Grover: We're still evaluating those markets, but I believe my interest still keenly lies in the UK at the moment.

Luke Hannan: Got it. Thanks. Last one from me, then I'll pass along. Just circling back to the Canadian same-store sales performance, can you break out, I guess, whether or not there was a lot of change throughout the quarter? In other words, did it weaken or strengthen at all as you move from the earlier part of the quarter to the latter? Secondly, I wanted to follow up with the commentary that you had mentioned. Q3 is stable. Is that relative to Q2, so still down roughly a point and change, or are you saying it's relatively flat year-on-year?

Speaker #3: In other words, did it weaken or strengthen at all as you moved from the earlier part of the quarter to the latter? And then, secondly, I wanted to follow up with the commentary that you had mentioned.

Speaker #3: Q3 is stable. Is that relative to Q2, so still down roughly a point and change? Or are you saying it's relatively flat year over year?

Speaker #4: It's exactly how Q2 was, about a point and change that we're seeing in Q3. And the entire quarter was kind of like that. Look, as you know, not just the headlines. Just look around and you'll see—like I mentioned, auto sector, lumber, steel, manufacturing.

Raj Grover: It's exactly how Q2 was, about a point and change that we're seeing in Q3, the entire quarter was kind of like that. Look, as you know, not just the headlines, just look around and you'll see, like I mentioned, auto sector, lumber, steel, manufacturing. These are all our core customers. The blue-collar worker, that's 70% of our business, right? As these things course-correct, we will get stronger. People are not leaving us. They're just buying different formats in this high inflationary environment. Oil prices are still very, very high, and it's going to take some time for them to come down, and it's going to take some time for our government to course-correct with everything that's happening between Canada and US. I think this is very, very temporary. Our core case, what Canna Cabana means to our customers, we keep on winning.

Speaker #4: These are all our core customers—the blue-collar workers. That's 70% of our business, right? As these things course correct, we will get stronger. People are not leaving us.

Speaker #4: They're just buying different formats in this high-inflationary environment. Oil prices are still very, very high, and it's going to take some time for them to come down.

Speaker #4: And it's going to take some time for our government to course-correct with everything that's happening between Canada and the U.S. But I think this is very, very temporary.

Speaker #4: Our core case—what Canna Cabana means to our customers—we keep on winning. Our brand is performing 50% better than the next closest competitor, so we're winning on all fronts.

Speaker #4: This is a matter of time. Business never goes in a straight line, only up. It goes up and it goes down. In our case, it only goes slightly down.

Raj Grover: Our brand is performing 50% better than the next closest competitor. We're winning on all fronts. This is a matter of time. Business never goes in straight line only up. It goes up, and it goes down. In our case, it only goes slightly down. You could see the record-breaking numbers that we produced. We've been beating analyst consensus throughout, across the board. We've got holding power. I can't say the same thing about our competitors, our privately held competitors and publicly traded competitors. They don't have Remaxion. They don't have the volumes that we have with our suppliers. They don't have the discount club. They don't have the largest cannabis loyalty program globally. We've got so many advantages here. I am not worried at all.

Speaker #4: And you can see we’re producing record-breaking numbers—we’ve been beating analyst consensus throughout, across the board. So we’ve got holding power. I can’t say the same thing about our competitors.

Speaker #4: Our privately held competitors and publicly traded competitors—they don’t have Remaxian. They don’t have the volumes that we have with our suppliers. They don’t have the discount club.

Speaker #4: They don't have the largest cannabis loyalty program globally. So we've got so many advantages here. I am not worried at all.

Speaker #3: Got it. Thanks. I'll pass the line.

Speaker #1: Thank you once again. That is Thor One. Should you wish to ask a question? And your next question is from Brandon Cunnington from APB.

Luke Hannan: Got it. Thanks. I'll pass the line.

Operator: Thank you once again. That is star one should you wish to ask a question. Your next question is from Brennan Wellington from Wellington. Your line is now open.

Speaker #1: Your line is now open.

Speaker #5: Hey, y'all. This is Brennan for Fred. Thanks for taking our questions, and congrats on the quarter. Just starting off with the potential expansion of Ontario's retail cap—how likely do you think this is to happen based on the conversations that you're having and the things that you're hearing?

Brennan Wellington: Hey, y'all. This is Brennan for Fred. Thanks for taking our questions, and congrats on the quarter. Just starting off with the potential expansion of Ontario's retail cap. How likely do you think this is to happen based on the conversations that you're having and the things that you're hearing, how positive could it be for the long-term growth prospects? A couple of add-on considerations with that would be, we know that High Tide targets 350 stores longer term. If this were to materialize, how could this affect your longer-term target? Also just curious about BC and if you see the cap potentially expanding there as well.

Brenna Cunnington: Hey, y'all. This is Brennan for Fred. Thanks for taking our questions, and congrats on the quarter. Just starting off with the potential expansion of Ontario's retail cap. How likely do you think this is to happen based on the conversations that you're having and the things that you're hearing, how positive could it be for the long-term growth prospects? A couple of add-on considerations with that would be, we know that High Tide targets 350 stores longer term. If this were to materialize, how could this affect your longer-term target? Also just curious about BC and if you see the cap potentially expanding there as well.

Speaker #5: And how positive could it be for the long-term growth prospects? And a couple of add-on considerations to that would be: so, we know that High Tide targets 350 stores longer term.

Speaker #5: So, if this were to materialize, how could this affect your longer-term target? And then, also, just curious about BC and if you see the cap potentially expanding there as well.

Speaker #4: Sure. Good morning, Brennan. Thank you so much for your question. So yes, we are hearing that the government may consider raising the cap from 150 stores in Ontario to 300 stores.

Raj Grover: Sure. Good morning, Brennan. Thank you so much for your question. Yes, we are hearing that the government may consider to raise the cap from 150 stores in Ontario to 300 stores. Obviously, that would again mean an exponential opportunity for High Tide. Our stores do CAD 2.7 million as an average unit revenue in Ontario versus CAD 1.1 million, which is peer revenue there. That would be a dream come true. I know that there's a lot of noise from competitors. In fact, rightfully so. The independent competitors are feeling that the chains will have a lot more power, they are lobbying very hard against it. I kind of understand that narrative, we'll see how everything evolves there. If that happens, we are absolutely going to increase our long-term cap to over 500 stores because Ontario alone will give us another 150 stores.

Speaker #4: Now, obviously, that would again mean an exponential opportunity for High Tide. Our stores do $2.7 million as an average unit revenue in Ontario, versus $1.1 million, which is peer revenue there.

Speaker #4: So, that would be a dream come true. But I know that there's a lot of noise from competitors—in fact, rightfully so. The independent competitors are feeling that the change will have a lot more power.

Speaker #4: And they're lobbying very hard against it. I kind of understand that narrative, but we'll see how everything evolves there. If that happens, we are absolutely going to increase our long-term cap to over 500 stores, because Ontario alone will give us another 150 stores.

Speaker #4: So, Canadian opportunity—we've said in the long term, Canada will generate over $1 billion in revenue for us. We think that number could get to $1.3, $1.4 billion if this happens.

Raj Grover: Canadian opportunity, we've said in the long term, Canada will generate over CAD 1 billion in revenue for us. We think that number could get to CAD 1.3 billion, CAD 1.4 billion if this happens, maybe even higher. It's all a blue sky scenario from here, but if it does not happen, we're still looking very good. We can generate over CAD 1 billion in revenue in Canada. On the B.C. store cap front, we came pretty close 2 years ago from the cap increasing from 8 to 16. It didn't happen. Again, the independents were against it. They were fearful that the chains would come in, but look at the result of what that's done to that province. B.C. has some of the highest illicit rates in the country after Quebec, or very similar to Quebec. Over 45% to 50%. In comparison, Alberta is sitting at under 20%, right?

Speaker #4: Maybe even higher. So it's all blue sky scenario from here. But if it does not happen, we're still looking very, very good. We can generate over $1 billion in revenue in Canada.

Speaker #4: On the BC store cap front, we came pretty close two years ago to the cap increase from 8 to 16. It didn't happen. Again, the independents were against it.

Speaker #4: They were fearful that the change would come in. But look at the result of what that's done to that province. B.C. has some of the highest illicit rates in the country after Quebec.

Speaker #4: Or very similar to Quebec—over 45, 50%. In comparison, Alberta is sitting at under 20%, right? It's a very forward-looking province. So, I think at some point, B.C. will increase the store cap.

Speaker #4: There are conversations that are taking place. They may be slow to do it, which is an increase in time over 12 months to 16 stores.

Raj Grover: Okay. Understood. As someone who's actually born and bred in the West Coast, that illicit number does not surprise me. I think at some point, B.C. will increase the store cap. There are conversations that are taking place. They may be slow to do it, which is increase it in time over 12 months to 16 stores and then maybe raise it higher again. They definitely have to do something about it because the illicit market is thriving in British Columbia, and that should not be the case 7 years after or 8 years after legalization.

Speaker #4: And then maybe raise it higher again. But they definitely have to do something about it, because the illicit market is thriving in British Columbia.

Speaker #4: And that should not be the case seven years after or eight years after legalization.

Speaker #5: OK, understood. As someone who's actually born and bred in the West Coast, that's an illicit number does not surprise me. So then just looping back to Remaxian and just kind of looking at the margins, so around 27%, which is definitely above what you expected.

Brennan Wellington: Okay. Understood. As someone who's actually born and bred in the West Coast, that illicit number does not surprise me. Just looping back to Remexian, just kind of looking at the margins, around 27%, which is definitely above what you expected, and you mentioned roughly 25% from the segment is expected going forward. We are hearing about pricing pressure in Germany, just wanted to dive a little bit deeper into this. Just how should we be thinking about these dynamics, and is the move to value products in Germany benefiting Remexian because of the segments that you're playing in? And over time, do you think that mid-20s is still sustainable?

Brenna Cunnington: Okay. Understood. As someone who's actually born and bred in the West Coast, that illicit number does not surprise me. Just looping back to Remexian, just kind of looking at the margins, around 27%, which is definitely above what you expected, and you mentioned roughly 25% from the segment is expected going forward. We are hearing about pricing pressure in Germany, just wanted to dive a little bit deeper into this. Just how should we be thinking about these dynamics, and is the move to value products in Germany benefiting Remexian because of the segments that you're playing in? And over time, do you think that mid-20s is still sustainable?

Speaker #5: And you mentioned roughly 25% from this segment is expected going forward. We are hearing about pricing pressure in Germany, so I just wanted to dive a little bit deeper into this.

Speaker #5: So, just how should we be thinking about these dynamics? And is the move to value products in Germany benefiting Remaxian because of the segments that you're playing in?

Speaker #5: And over time, do you think that mid-20s is still sustainable?

Speaker #4: Yeah, absolutely. Look, when we acquired the business, we said that, long term, we intend to do mid-20s gross margins in Remaxian. Well, that day has already arrived.

Raj Grover: Absolutely. Look, when we acquired the business, we said that long term, we intend to do mid-20s gross margins in Remexian. Well, that day has already arrived, and I couldn't be more excited. We're definitely 90 days ahead of our own expectations. I like to underpromise, overdeliver, and it's happened in this case again. Given the relationships we have with the Canadian licensed producers, the biggest differentiator has been not only have we strengthened and diversified our supply chain, and also receiving directly into Germany, so we can receive more tonnage and receive it quickly, which is again, very different from what was happening there prior. We've also been able to reduce cost in terms of procurement from Canada by 30% to 40%. While there's a lot of price compression taking place in Germany, you're absolutely right. It's not affecting Remexian.

Speaker #4: And I couldn't be more excited. We're definitely 90 days ahead of our own expectations. I like to underpromise and overdeliver, and it's happened in this case again.

Speaker #4: Brennan, given the relationships we have with the Canadian licensed producers, the biggest differentiator has been not only have we strengthened and diversified our supply chain, but also that we're now receiving directly into Germany, so we can receive more tonnage and receive it quickly.

Speaker #4: Which is, again, very different from what was happening there prior. We've also been able to reduce costs in terms of procurement from Canada by 30% to 40%.

Speaker #4: So while the actual market is—there's a lot of price compression taking place in Germany, you're absolutely right. It's not affecting Remaxian; it's affecting all of our other competitors.

Speaker #4: They don't have the same strengthened relationships and supply chain, so we feel we'll continue to benefit from this. I cannot tell you how many inbound opportunities I'm getting from producers that want to work with us directly.

Raj Grover: It's affecting all of our other competitors that don't have the same strengthened relationships and supply chain. We feel we'll continue to benefit from this. I cannot tell you how many inbound opportunities I'm getting from producers that want to work with us directly. We've just launched seven exclusive brands in Mary Jane, which we'll share with the market in more detail, I believe tomorrow. Canadian brands. We have exclusivity agreements with all these top-tier brands, and more and more are signing up every single day. I believe with the market price compression becoming more and more real and taking place, Remaxion is nicely shielded because of these very strong relationships that we have in Canada.

Speaker #4: We've just launched seven exclusive brands in Mary Jane, which we'll share with the market in more detail—I believe tomorrow. These are Canadian brands. We have exclusivity agreements with all these top-tier brands.

Speaker #4: And more and more are signing up every single day. So I believe, with the market price compression becoming more and more real and taking place, Remaxian is nicely shielded because of these very strong relationships that we have in Canada.

Speaker #5: OK, perfect. That's great color. I'll jump back into Q2. Thank you.

Speaker #1: Thank you. There are no further questions at this time. Please proceed with closing remarks.

Brennan Wellington: Okay, perfect. That's great color. I'll jump back in the queue. Thank you.

Brenna Cunnington: Okay, perfect. That's great color. I'll jump back in the queue. Thank you.

Speaker #4: Thank you, operator. And thank you to everyone for your interest and continued support for High Tide. We're very proud of what we've achieved this quarter and remain excited about the road ahead.

Operator: Thank you. There are no further questions at this time. Please proceed with the closing remarks.

Raj Grover: Thank you, operator, and thank you to everyone for your interest and continued support for High Tide. We're very proud of what we've achieved this quarter and remain excited about the road ahead. With that, I will ask the operator to close the line. Have a great day, everyone.

Speaker #4: With that, I will ask the operator to close the line. Have a great day, everyone.

Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.

Q2 2026 High Tide Inc Earnings Call

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