Andrew Semple

Andrew Semple from Ventum Capital Markets Inc. inquired whether the exclusivity agreements with licensed producers for the Remexian business were an expected outcome or a positive surprise, and if such deals lead to lower margins for Remexian. He also asked about the geographic performance of High Tide's brick-and-mortar stores, specifically if other Canadian provinces are catching up to Ontario's historical lead in same-store sales growth.

Answer

Raj Grover, President and CEO of High Tide, confirmed that exclusivity was an expected outcome, aligning with their 'house-of-brands' approach for Germany. He stated that exclusivity does not result in lower margins; instead, High Tide's significant buying power in Canada allows them to procure biomass at best-in-class terms for Remexian. Grover happily reported that same-store sales are growing in every Canadian province, including an improvement in Saskatchewan where previous illicit activity had caused a slowdown, indicating broad-based growth beyond just Ontario.

Andrew Semple asked whether the exclusivity agreements secured with Canadian Licensed Producers for Remexian's German distribution were an expected outcome or a positive surprise, and if such deals negatively impact Remexian's margins. He also questioned the geographic performance of High Tide's Canadian brick-and-mortar stores, specifically if other provinces are catching up to Ontario's historically stronger performance in same-store sales growth.

Answer

Raj Grover, Founder, CEO & President of High Tide, clarified that exclusivity was an expected part of their 'house-of-brands' strategy for Germany, leveraging strong relationships and buying power, and confirmed that these agreements do not result in lower margins. He also stated that same-store sales are growing in every Canadian province, including improvements in Saskatchewan, indicating broad-based strength across the country, not just Ontario.

Andrew Semple asked if exclusivity agreements with licensed producers for Remexian were anticipated and if they lead to lower margins. He also inquired about the geographic performance of High Tide's brick-and-mortar stores, specifically if other Canadian provinces are catching up to Ontario's historically stronger performance in terms of same-store sales growth.

Answer

Raj Grover (President, CEO, High Tide) confirmed that exclusivity agreements were expected as part of the German house-of-brands strategy and do not result in lower margins due to High Tide's significant buying power. He stated that same-store sales are growing in every Canadian province, including improvements in Saskatchewan, indicating an overall positive trend across the country, not just in Ontario.

Andrew Semple questioned if the recent acceleration in Canadian cannabis sales could be linked to a temporary HST break on other consumer goods, and what trends have been observed since. He also asked about the e-commerce segment's year-over-year revenue decline, seeking to understand if factors beyond the loyalty program launch, such as one-time items, were at play.

Answer

President and CEO Harkirat Grover expressed uncertainty that the HST break was the primary driver for sales growth, suggesting it was more likely a market normalization after eight months of negative growth. He noted momentum has continued into the current quarter. For the e-commerce segment, Grover explained that seasonality was a major factor, as the launch of the new pricing model coincided with a seasonally weaker period compared to the strong holiday quarter. He emphasized the long-term strategic value of the e-commerce platform and highlighted a 50% increase in international ELITE members in the last six weeks as a positive sign.

Andrew Semple asked if the HST break on other goods could have positively influenced cannabis demand in Canada during November and December. He also inquired about the e-commerce segment's year-over-year revenue decline, seeking to understand if factors beyond the loyalty program launch were at play.

Answer

President and CEO Harkirat Grover responded that he couldn't directly attribute the sales acceleration to the HST break, suggesting it was more likely a market normalization after eight months of negative growth. For the e-commerce segment, Mr. Grover noted that seasonality makes direct comparisons difficult, as December is the strongest month. He emphasized the strategic value of the e-commerce assets for future U.S. legalization and pointed to a 50% increase in international ELITE members in the last six weeks as a positive indicator for the new model.

Andrew Semple questioned whether the temporary HST break on other goods positively impacted cannabis sales in late 2024 and asked about trends since its conclusion. He also sought to understand if factors beyond the Cabana Club launch contributed to the year-over-year revenue decline in the e-commerce segment.

Answer

President and CEO Harkirat Grover was uncertain if the HST break directly caused the sales acceleration, suggesting it was more likely the market leveling off after eight months of negative growth. He noted positive momentum has continued into the current quarter. For e-commerce, Mr. Grover highlighted strong ELITE membership growth but cited seasonality as a major factor, making it too early to assess the full impact of the new model. He emphasized the segment's long-term strategic value for potential U.S. legalization and the strength of the core brick-and-mortar business.

Andrew Semple questioned whether the recent HST break on other goods in Canada might have indirectly boosted cannabis sales and asked about trends since the break ended. He also sought clarification on the e-commerce segment's year-over-year revenue decline, wondering if factors beyond the Cabana Club launch were at play.

Answer

President and CEO Harkirat Grover suggested the sales uplift was more likely due to the market normalizing after eight months of negative growth, rather than the HST break, and noted positive momentum has continued. For e-commerce, Mr. Grover explained that seasonality was a major factor, as Q1 is seasonally weaker than the preceding holiday quarter. He highlighted strong recent growth in international ELITE memberships and reiterated the long-term strategic value of the e-commerce platform, despite short-term EBITDA headwinds.

Andrew Semple sought clarification on the 2025 new store outlook, asking if M&A would be incremental to the 20-30 store target, and inquired about the recovery of Canadian cannabis demand and the market growth outlook.

Answer

Executive Harkirat Grover confirmed the 20-30 store target is for organic growth, with any M&A being incremental. He noted that while sales picked up strongly in Q4, with 3% sequential same-store sales growth, the market remains challenging due to illicit competition. He believes High Tide is well-positioned to benefit as weaker competitors continue to exit the market.

Andrew Semple asked for an early outlook on 2025 store growth targets and the reasons for lower lease payments despite significant store expansion.

Answer

President and CEO Harkirat Grover projected that 2025 organic store growth would mirror 2024's target of 20-30 stores, supplemented by disciplined M&A. He explained that lease payments are decreasing because the company is securing better rates, focusing on smaller store footprints, and successfully renegotiating legacy leases on more favorable terms as it has become a premier tenant for landlords.

Andrew Semple inquired about store opening plans outside of Ontario and asked about the performance and ramp-up of new Ontario stores opened year-to-date.

Answer

President and CEO Raj Grover confirmed Ontario remains the primary focus but reiterated a long-term 300-store target in Canada, which includes adding 40-50 stores across Alberta, Saskatchewan, and Manitoba. He acknowledged that the ramp-up pace for new Ontario stores has slowed due to intense competition but expects this to improve as competitor closures accelerate and drive sales disproportionately to High Tide.

Andrew Semple of Echelon Wealth Partners asked about the sustainability of the strong Q1 gross margin profile for the remainder of the year and questioned how the company balances capital allocation between share repurchases and M&A opportunities.

Answer

Executive Keith Stauffer addressed both questions, stating that while Q1's 51.8% margin may not be sustainable every quarter, the company expects to remain in the 50% range, driven by strong performance in Maryland. On capital allocation, Stauffer explained the need to balance CapEx, M&A, and share buybacks. Executive Jason Wild added that the stock is significantly undervalued, and the company intends to actively execute its buyback program.

Andrew Semple asked about M&A strategy, specifically regarding potential retail acquisitions in Pennsylvania and whether the company would wait for more clarity on adult-use legislation. He also questioned the slower-than-expected pace of M&A in New Jersey and Ohio and what is needed for the pace to accelerate.

Answer

Executive Jason Wild stated that while TerrAscend is always looking, dispensary price expectations in Pennsylvania remain too high, as the company values them as medical assets until an adult-use launch date is certain. Executive Ziad Ghanem explained that in New Jersey, M&A conversations are active but complex deals take time. In Ohio, he noted the company's disciplined approach and refusal to overpay has been validated, as potential sellers are now returning with much more favorable valuations.

Andrew Semple from Echelon Wealth Partners questioned the potential for SG&A cost savings through regional management consolidation and asked about the willingness of M&A targets to accept equity as consideration.

Answer

CFO Keith Stauffer clarified that regional SG&A synergies are primarily expected in the context of M&A, such as leveraging Michigan's infrastructure for an Ohio acquisition. He confirmed the 30% SG&A target is not dependent on deals and is being pursued through ongoing internal cost-saving exercises. Executive Chairman Jason Wild noted that while targets are now more interested in taking stock, TerrAscend is using its equity more sparingly in negotiations, preferring a balanced deal structure.

Andrew Semple questioned the outlook for gross margins in 2024, asking if they could return to above 50%, and also inquired about the expected pace of wholesale growth for the rest of the year, particularly in New Jersey and Maryland.

Answer

CFO Keith Stauffer clarified that the full-year 2023 gross margin was 50.3% and expects the 2024 range to be 48%-50%, noting that accretive M&A would be the primary catalyst to push margins above that level. President Ziad Ghanem added that leveraging fixed costs with new revenue streams improves OpEx efficiency and supports margin expansion. Regarding the wholesale outlook, Ghanem described a two-step model for success: establishing distribution through a strong ground game, followed by building loyalty via product quality, a diverse brand portfolio, and continuous innovation.

Andrew Semple of Echelon Wealth Partners asked for clarification on the Q2 revenue guidance, the expected timeline for adult-use sales in Delaware, and details regarding a bad debt expense recorded in the quarter.

Answer

CFO Mario Pinho confirmed the high single-digit Q2 revenue growth guidance is on a quarter-over-quarter basis. CEO Jon Levine stated that Delaware has appointed a head for its cannabis program and expects the first recreational sales within 60 to 120 days. Pinho clarified the bad debt was a one-time reserve against a receivable from a vendor, not trade receivables, and the company is actively pursuing collection.

Andrew Semple from Ventum Financial requested insight into the expected Q4 EBITDA ramp-up implied by revised guidance, details on recent operating cost management, and the future trend for inventory levels.

Answer

CFO Mario Pinho stated that the drag from start-up costs is diminishing, which should allow the company to leverage new assets and expand margins in Q4. He also highlighted initiatives like packaging automation and product mix optimization to improve efficiency. COO Tim Shaw added that after ramping up for new market launches, inventory levels are expected to level out and not continue increasing.

Andrew Semple of Echelon Wealth Partners inquired about the initial performance of newly operational assets, including the Quincy, MA dispensary and the Maryland cultivation facility. He also asked for clarity on the expected timeline for margin recovery and an update on wholesale market dynamics in Massachusetts.

Answer

CEO Jon Levine confirmed that the new Maryland grow rooms are performing well and are on schedule, with the Quincy store seeing a steady increase in traffic since its recent opening. He stated that margins should improve as new assets like the Hagerstown facility ramp up revenue in the coming months. Chief Revenue Officer Ryan Crandall added that MariMed is faring very well in the difficult Massachusetts wholesale market, gaining share due to the strength of its brands and product innovation.

Andrew Semple of Vantum Financial inquired about the current cannabis pricing environment in Canada and the timing for the expected 2,000 kilograms of incremental third-party contract supply.

Answer

Executive Margaret Brodie responded that the Canadian domestic market is seeing price stabilization rather than increases, particularly in the premium category. In the wholesale market, she noted a shift where prices are stable but for lower-quality products. Brodie clarified that the incremental 2,000 kilograms of third-party supply was not reflected in Q4 results and is expected to begin arriving in Q2 2025, spread evenly through the remainder of the year.

Inquired about the future of the vape portfolio, the status of contract manufacturing partnerships, and the progress of the debt refinancing.

Answer

The company plans a focused vape portfolio with core SKUs and limited-time offers, while exploring future expansion. Contract manufacturing partnerships are crucial and performing well, with plans to increase flower supply by 20% in 2025 through these relationships. The debt refinancing is in its final stages and expected to close by year-end with similar interest rates.

Andrew Semple of Echelon Wealth Partners Inc. inquired about the strategy for the vape portfolio, asking if the planned five SKUs are sufficient for 2025 or if expansion is likely. He also requested an update on contract manufacturing relationships and the progress of the company's debt refinancing.

Answer

CEO Margaret Brodie stated that the focused five-SKU approach for the 1964 vape brand is intentional to build momentum, with potential for limited-time offers and expansion into other company brands in H2 2025. She praised current manufacturing partners and announced a plan to increase premium flower capacity by 20% in 2025 via new partnerships. Regarding the debt, both CEO Margaret Brodie and CFO Janis Risbin expressed high confidence in closing a long-term refinancing deal with similar rates before year-end, pending finalization.

Inquired about the potential for retail margin pressure in Colorado, the company's spare wholesale capacity, and the capital expenditure plans for 2024.

Answer

The company expects retail pricing pressure to continue in Colorado, which could lead to margin pressure and a market "shake out" in the second half of the year. They have adequate capacity to meet planned wholesale demand. Capital expenditures for 2024 are expected to be lower than in 2023, with a focus on in-store improvements like branding and storytelling.

Andrew Semple from Echelon Capital Markets asked if recent retail activities, such as the New Jersey store expansion and Florida rebranding, had a temporary negative impact on Q2 retail revenues. He also sought to understand the primary drivers of the increased wholesale demand seen in Massachusetts during the third quarter.

Answer

President & CEO David Goubert explained that the modest 1% sequential retail growth was primarily impacted by significant price compression in Florida, which offset strong gains in customer numbers and transactions. He clarified that the benefits from the Eatontown, NJ expansion would be realized in Q3 and Q4. Regarding Massachusetts wholesale, Goubert attributed the increased demand more to a rebalancing of the state's supply and demand dynamics rather than the current strength of AYR's brands, which are scheduled for a revamp later in the year.

Andrew Semple of Echelon Capital Markets inquired about Ayr's significant market share gains in Florida, asking if there is further room for growth or if the focus will shift toward margin expansion. He also asked whether new stores or same-store sales growth would be the primary driver for the remainder of the year.

Answer

President & CEO David Goubert responded that Ayr sees growth potential from both opening new stores and increasing same-store sales in Florida. He explained that while they are still expanding their store footprint, they also see an opportunity for organic growth in existing stores by better aligning pricing with product quality. Goubert estimated the contribution from new stores and same-store sales growth to be roughly 50/50 for the rest of the year.

Andrew Semple asked for an outlook on gross margins following the significant Q4 improvement and inquired about the key drivers for future expansion. He also requested a breakdown of the sub-$30 million CapEx budget for 2023 by state and its expected financial impact.

Answer

CFO Brad Asher explained that while price compression and inflation persist, these pressures are being offset by increased internalization of their national brand portfolio and various optimization efforts. He anticipates maintaining a mid-50% gross margin for 2023. CEO David Goubert added that margin improvement is a core part of their optimization plan, driven by supply chain enhancements and building customer loyalty. Regarding CapEx, Asher specified that approximately two-thirds, or $20 million, is allocated to Florida for store expansion and cultivation improvements.

Andrew Semple from Echelon Capital Markets asked for details on the exit from lower-margin wholesale business and inquired about the location of the third store closure, beyond the two being relocated in Pennsylvania.

Answer

Chairman and CEO Jim Cacioppo explained that exiting lower-margin wholesale involved stopping the practice of buying bulk materials like trim for processing and resale, which he deemed a low-margin, high-risk activity. He confirmed the third store closure was in California, and that this non-strategic asset is currently in the process of being sold.

Andrew Semple from Echelon Capital Markets inquired about the primary drivers of the quarter-over-quarter gross margin improvement and asked if these gains were sustainable and likely to trend higher.

Answer

CEO, Chairman and Founder Jim Cacioppo confirmed that he expects margins to continue improving. He attributed the Q1 increase to several factors: cost reduction programs at grower processors, new grow rooms becoming productive after previously only incurring costs, and improved purchasing of third-party biomass. He emphasized that further gains are expected, as a significant retail labor cost reduction was only implemented in April (Q2) and yield efficiencies are still being realized.

Andrew Semple from Echelon Capital Markets asked for details on the inventory adjustments added back in the quarter, whether the impact would continue into Q1, and if Q2 was expected to be clean.

Answer

CEO Jim Cacioppo acknowledged the detailed nature of the question regarding inventory adjustments. He deferred a specific answer on the call, inviting the analyst to a private follow-up discussion with the management team, including the CFO, to go through the details.

Andrew Semple from Echelon Wealth Partners questioned if the successful outlet store model was attracting more third-party suppliers or leading to better pricing on wholesale products. He also asked for more granularity on the expected financial impact from the New Jersey cultivation issues in the second half of the year.

Answer

CEO John Hartmann and CFO Dan Neville confirmed that strong third-party supplier relationships continue and that higher volumes naturally lead to better purchasing power. Regarding New Jersey, CFO Dan Neville stated that the financial impact in Q3 would be similar to Q2, describing it as a transitional quarter, with the most significant improvement expected to be reflected in Q4 results.

Andrew Semple from Echelon Capital Markets asked about the Massachusetts market, questioning if expected capacity came online early to support Q1 growth. He also requested an update on the company's full-year 2023 guidance for 15% revenue and EBITDA growth.

Answer

Frank Perullo, President and Interim Co-CEO, clarified that the new Massachusetts capacity did not come online in time for Q1 but is becoming available now. Daniel Neville, CFO and Interim Co-CEO, added that they can supplement with bulk flower if needed. Regarding guidance, Abner Kurtin, Executive Chairman, stated they are neither reiterating nor withdrawing it. He expressed confidence on the revenue side but noted uncertainty for EBITDA due to the $6 million to $9 million impact from the New Jersey production issues, which the company will work to offset.

Andrew Semple of Echelon Capital Markets requested a quantification of the success of the 'outlet model' in Pennsylvania and sought more detail on the performance and growth trajectory of the Fort Lee, New Jersey flagship store.

Answer

President and Interim Co-CEO Frank Perullo described the outlet model as a strategy to rapidly gain market share in competitive markets with everyday low prices. CFO and Interim Co-CEO Daniel Neville quantified its success, stating it yields a 25-30% uplift in gross profit dollars versus a traditional store model. Regarding the Fort Lee location, Frank Perullo confirmed it is seeing consistent week-over-week growth. Executive Chairman Abner Kurtin added that while it's not reaching the levels of the Rochelle Park store, it is still a top-quartile performer in the company's portfolio.

Andrew Semple of Echelon Capital Markets asked if slowing wholesale opportunities were causing inventory builds in states outside of Florida and how that was being addressed. He also inquired about the potential to recapture a 30%+ EBITDA margin in the coming year.

Answer

CEO Kim Rivers clarified that the primary inventory build was an intentional part of the Jefferson County facility ramp-up in Florida. She acknowledged wholesale pressure in other markets but stated the impact is minimal to Trulieve as wholesale is not a significant part of its business. Regarding EBITDA margin, she noted it will be impacted by inventory wind-down and expense reclassifications from idled facilities, making the path non-linear, but expressed confidence in managing core business expenses.

Andrew Semple of Echelon Capital Markets asked about Verano's production capacity in Connecticut ahead of the state's adult-use market launch and its potential to be a key wholesaler. He also sought clarification on the Q4 revenue outlook of 'flat to down,' asking which states were driving the softness and whether wholesale or retail would be more impacted.

Answer

CEO & Founder George Archos confirmed that Verano is one of the largest wholesalers in Connecticut and has prepared additional supply to meet anticipated adult-use demand, expecting strong growth. He clarified that the cautious Q4 outlook is primarily driven by uncharacteristic softness in Florida, which is not experiencing its typical seasonal Q4 strength. He added that other markets are also relatively flat, contributing to the conservative forecast.

Andrew Semple of Echelon Capital Markets asked whether the Q2 SG&A increase was a full-quarter impact and inquired about the effect of launching Verano's signature branded products on demand and margins in core markets.

Answer

CEO George Archos confirmed the SG&A step-up reflected a full quarter's impact. He stated that the new brands, Essence and Savvy, are seeing strong demand, allowing Verano to compete across all price points. While there may be a slight margin impact from value-priced products, he expects it to be partially offset by increasing operational efficiencies in cultivation and production.

Andrew Semple asked for a timeline on when new, non-affiliated dispensaries might open in New Jersey and sought to understand the primary drivers behind the quarter-over-quarter gross margin improvement.

Answer

CEO George Archos estimated that new stores could begin opening around Q1 of the following year, approximately 8 months out. CFO Brett Summerer attributed the slight gross margin lift to operational improvements at the Illinois cultivation facility and the company's ability to reduce discounts in the market.

Andrew Semple of Echelon Capital Markets asked about the primary drivers of the gross margin compression in Q4 and which of those might persist into Q1. He also inquired about any surprises from the first week of New Jersey's adult-use sales and the timeline for converting the Neptune Township store.

Answer

CEO George Archos identified seasonal holiday discounting and production issues in Illinois as the two main drivers of Q4 margin compression, noting both should be resolved or improved in Q1. He said the biggest surprise in New Jersey was the short one-week notice to launch, but sales have been 'better than expected.' He anticipates the Neptune store will receive its adult-use approval by May or the end of June.