Michael Regan

Michael Regan sought to clarify the margin potential of the Netherlands facility, asking if its profitability would significantly exceed that of the Canadian operations given the much higher pricing and lack of excise tax. He also questioned whether the non-branded sales in Canada were opportunistic or part of a more recurring, relationship-based strategy.

Answer

CEO Mike DeGiglio confirmed that margins from the Netherlands facility will be 'well in excess' of Canadian margins and more aligned with their U.S. business, which operates in the 60-70% range. COO Ann Gillin Lefever clarified that the non-branded B2B sales in the quarter were opportunistic, driven by favorable strengthening in market pricing, rather than a strategic shift to an asset-light model. Mr. DeGiglio added that B2B and international sales are also attractive because they do not incur the Canadian excise tax.

Michael Regan questioned the impact of the Tokyo Smoke bankruptcy on the competitive landscape and asked for details on the resurgence of the illicit market.

Answer

President and CEO Harkirat Grover stated that while High Tide is evaluating closed Tokyo Smoke locations, many are unattractive due to large footprints and high legacy rents. On the illicit market, Grover confirmed a recent surge in illicit brick-and-mortar stores is pressuring legal sales and has forced High Tide to lower margins in certain areas to compete, which he believes will further squeeze weaker legal operators.

Michael Regan asked about the drivers behind the significant gross margin expansion in the brick-and-mortar segment and inquired about the state of cannabis supply from licensed producers.

Answer

President and CEO Raj Grover stated that the 9-quarter high in gross margin was driven by a large base of mature stores and the ability to raise prices as nearby competitors close down. He also noted a positive, albeit small, impact from higher e-commerce margins. Regarding supply, Grover confirmed it remains consistent and is not an issue, as the pain felt by LPs, who often sell at a loss, becomes a benefit for retailers who can offer value to consumers.

Michael Regan of Excelsior Equities asked if the 47-50% gross margin range is still a reasonable expectation for Q3, inquired about any observed trends in Michigan border stores since Ohio's adult-use launch, and asked about the financial impact of a California store closure.

Answer

CFO Keith Stauffer confirmed that the gross margin is expected to remain in the 48% to 50% range for Q3. President & COO Ziad Ghanem stated it was too early to see any trends in Michigan border stores and noted that the closure of a small California store had a negligible financial impact as the company was simply waiting for the lease to expire.

Michael Regan asked about the strategy for closing acquisitions in Ohio before adult-use sales begin, given the accelerated timeline, and whether the vertical integration of Maryland stores is primarily a revenue or margin opportunity.

Answer

Executive Chairman Jason Wild responded that the company is moving with urgency to secure an Ohio deal before adult-use sales commence, similar to its Maryland strategy, but does not believe a slight delay would materially alter deal terms. President Ziad Ghanem explained that vertical integration in Maryland is both a margin and a revenue opportunity, as selling their own quality brands in their stores drives higher margins and can also increase overall sales.