High Tide Inc (HITI) 2022 Q3 法說會逐字稿

Good evening. My name is Dante, and I will be your conference operator today. At this time, I would like to welcome everyone to High Tide Inc.'s third quarter of 2022 unaudited financial and operational results conference call. (Operator Instructions) I will now turn the call over to your host.

Thank you, operator. Good evening, everyone, and welcome to High Tide Inc.'s quarterly earnings call. Please note that all earnings discussed on this call are presented on an unaudited basis. Joining me today on the call are Raj Grover, President and Chief Executive Officer; and Rahim Kanji, Chief Financial Officer. Earlier today, the company released unaudited highlights from its financial and operational results for the third quarter that ended July 31, 2022.

Before we begin, let me remind you that, during the course of this conference call, High Tide's management may make statements, including management's expectations or estimates of future performance. All such statements, other than statements of historical facts, constitute forward-looking information or forward-looking statement 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. For more information on the company's risks and uncertainties related to forward-looking statements, please refer to the company's press release dated September 14, 2022, released earlier today; our latest annual information form and our latest management discussion and analysis each filed with Securities Regulatory Authority at sedar.com or on EDGAR at www.sec.gov; or on the company's website at www.hightideinc.com, and which are hereby incorporated by reference herein.

Although these forward-looking statements may reflect management's current beliefs and reasonable assumptions based on the current 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. For any reconciliation of non-GAAP 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.

Thank you, Crystal, and good evening, everyone. Welcome to High Tide Inc.'s financial results conference call for the third quarter ended July 31, 2022. I'll start this call by providing an overview of our results and other key developments in the third quarter. Rahim will discuss the financials in depth and, after that, we would be pleased to answer any questions you may have.

Regarding the results, total revenue for the third quarter was $95.4 million. This was up 98% year over year and was up 18% sequentially. While it continues to be a very competitive market for cannabis, High Tide continues its strong momentum forward. Our sequential revenue gains were primarily in Canada, driven by significantly higher same-store sales, as well as adding more stores to our corporate network. While we are very excited at the Q3 revenue figure, we note that revenue grew throughout the quarter and beyond.

In fact, we calculate that we are on an annual revenue run rate exceeding $400 million today. This puts us within striking distance of becoming number one among all Canadian cannabis companies that report in Canadian dollars, second only to Canopy Growth, which for its last reported quarter, was on a $440 million annual run rate. While our revenue levels are only about 10% apart, we can't help but highlight the discrepancy between their market cap of $2.2 billion and ours at $135 million.

Gross profit for the quarter was $25.8 million. As a percentage of revenue, gross profit remained relatively flat from 28% in Q2 2022 to 27% this quarter. The change was due to a shift in mix with more revenue coming from our Canadian cannabis business, which now stands at 85% of total revenue. While our Canadian business carries a lower margin, it is important to note that the gross margin percentage we earned by selling cannabis in our stores was stable sequentially in Q3 versus Q2.

Adjusted EBITDA for Q3 2022 was $4.2 million, representing our 10th straight quarter of positive adjusted EBITDA, up 176% versus Q3 2021 and up 77% versus Q2 2022. You'll recall that in the second half of last year, we cautioned the market regarding two items: a new layer of costs related to NASDAQ listing and the initial impact of our discount club model. We indicated that these two items would depress EBITDA in the short term, however, we expressed confidence that we would grow through them and would pay off in a few quarters. And that's exactly what happened as we executed our communicated business plan.

Q3 represented the third full quarter since we launched our innovative discount club concept across the country in October. And I'm very pleased to say that we keep performing on an upward trajectory. Same-store sales in Q3 were up 18% versus Q2 and 46% versus Q3 of last year. Driven by both these very impressive same-store sales figures, as well as opening new stores, we estimate our national market share, excluding Quebec, to have been over 7% in Q3, up from 6% in Q2 and 5% in Q1.

Our store count is at 140 today, and we continue to feel good about hitting our target of 150 by the end of the calendar year through a combination of organic openings and accretive M&A. This growth will be supported by the $19 million facility with Connect First Credit Union at its floor interest rate. Last month, we signed the commitment letter for this facility, and we anticipate it to close imminently.

On the M&A front, note that this quarter's results do not include the addition of nine stores from Choom, representing our largest bricks-and-mortar transactions since we acquired META. Eight of these stores were added to the High Tide family in August and the last one in September. This is the third public company's assets we've acquired in the last two years, the other two being META and Smoke Cartel. Adding Choom also allowed us to magnify our presence in BC, adding two more stores in Vancouver.

We continue to see lots of inbounds from operators, making inquiries, and looking to us as the acquirer of choice. This puts us in a position to be extremely strategic and selective to make sure that whatever opportunities we choose to pull the trigger on are compelling in terms of our approach of being both highly accretive and a strategic fit within our diversified ecosystem, thus creating long-term value for our shareholders. While we do not typically press release deals that are in the LOI stage, rest assured that there are a number of prospects in the funnel that we are working through and hope to announce in the near term.

As the largest shareholder of High Tide, it does pay me to use our shares to acquire companies at today's depressed multiple, but we remain true to our strategy. I always prefer to take a broader view that these M&A deals are nonetheless very accretive for High Tide and add long-term value. Because of how selective we are and the terms we can get, they continue to add more and more to our revenue and EBITDA.

No one can predict exactly how long capital markets may continue to be depressed. However, the way we have positioned ourselves over the last many quarters through organic growth and accretive M&A should result in higher EBITDA and market share for us to be properly valued on as the broader cannabis capital markets recover.

We would also note that, despite evaluating several opportunities over the last 12 months, we did not pull the trigger on any options types agreements with cannabis operators in the US. Such agreements would have us issue more stock without clarity on when we can recognize the related financial benefits.

Given our network, relationships, and execution, we are confident that we will still be ready to go with operating bricks-and-mortar locations in the US when federal legalization occurs. Our entry into the US will be additionally supported by the 3 million existing e-commerce customers we have outside of Canada, 80% of which reside in the United States.

We have been focusing on our current business, the results of which are plain for all to see in our release today. As everyone is painfully aware, valuations across the cannabis landscape have come down significantly across the board, often driven by weakening fundamentals unlike High Tide, where our fundamentals are improving with every passing quarter. Our innovative discount club model continues to catch fire across Canada and our entry into British Columbia in mid-July provides more of a national platform to keep growing.

Our Cabana Club membership has now surpassed 750,000 members, which you will recall seemed like an incredibly ambitious target when we originally set it less than a year ago. Our membership now represents more than 12% of cannabis users across the country outside Quebec for Statistics Canada data.

Our Cabana Club members are the lifeblood of our company. And as they represent over 90% of our daily transactions, we are working on ways to start monetizing this base by introducing Cabana ELITE, our premium offering, which should over time only further reinforce loyalty and profitability.

Recall that our discount club offering is anchored by our points of differentiation, not simply offering a lower price, such as our unique loyalty plan, our years of experience in the consumption accessories manufacturing business, our top-tier international CBD brands, as well as our white label offerings under the name Cabana Cannabis Co. So our competitors can match our holistic and unique offering just by lowering their price.

Our Cabana Cannabis Co. products that launched in Saskatchewan in June have been well received and we have another 10 product SKUs under development. We expect our first few in Ontario, which are newly, multi-cannabinoid capsules to launch next week with more coming in October and November. We aim for Cabana Cannabis Co. products to represent 25% or so of our sales in the longer term, which again, should help significantly boost our bottom line.

While our Canadian business continues to outperform, we have seen some continued softness in our consumption accessories and CBD e-commerce businesses. Frankly, we aren't that surprised by this. The COVID-19 pandemic supercharged e-commerce sales across the board in 2020 and 2021. Now that restrictions have largely eased, people are readjusting and are able to go back to brick-and-mortar stores, which we are definitely seeing in our stores.

We remain very bullish in the long-term trajectory of e-commerce once it has completed the process of normalizing. While early, and some macro factors such as heightened inflation levels in North America and Europe aren't helping with consumers' discretionary spending relating to CBD and consumption accessories, we are encouraged by initial signs of stabilization in our e-commerce businesses looking at the start of Q4 versus the end of Q3.

Ultimately, our core bricks and mortar business in Canada represents 85% of our consolidated revenue, and it is firing on all cylinders as demand for THC products tends to be more recession resistant. Our CBD and accessory e-commerce business has performed very well in previous quarters, where our bricks-and-mortar business was temporarily depressed due to the initial impact of the discount club model and NASDAQ listing costs.

Now while e-commerce softened somewhat, at the same time the investments we made in the bricks-and-mortar side are bearing fruit. That is the beauty of our ecosystem, which is diversified by vertical, geography, and product type. Speaking of which, we are close to entering a new, very complementary, and profitable vertical. So stay tuned for that as well.

While impacted by delays in international logistics, our Fastendr rollout is going well. We currently have 28 locations equipped with the kiosk and still expect to have the vast majority of locations live by the end of the calendar year. While we continue to dominate the Canadian retail landscape, let's also quickly discuss an up-and-coming opportunity for High Tide, Germany.

Omar Khan, our Senior Vice President of Corporate and Public Affairs, and I have been following the developments very closely in Germany and have recently participated in the ICBC conference in Berlin. While we expect to get further clarity soon, our expectation is that a bill will be introduced in Parliament by the end of Q1 '23, which should allow foreign operators such as High Tide to apply for and receive retail licenses. Once we see the entire legal and regulatory framework, and if we find it attractive, we plan to be quite active in that market. That said, to set expectations, we do not expect retail sales to start before 2024.

So in conclusion, we are extremely happy with our performance in Q3 as it represented a breakout quarter in terms of our revenue and EBITDA trajectory. We are unmatched in terms of retail leadership with 140 locations generating strong organic growth, which is complemented by highly accretive M&A, putting us in a position to now be running neck and neck for the most cannabis revenue in Canada. Our concept and market share keep getting stronger, which should help us with markets that are more down the road like Germany and the US as they open up.

Despite a very difficult macro environment, our team has its head down and is moving our business forward every day, working on driving sales, identifying new complementary business lines, streamlining operations, focusing on cost control to improve cash flows even further as well as working with regulators and evaluating strategic and accretive M&A opportunities. Four years into legalization in Canada and with footholds in other markets, it's clear that we have the best team in the business. And for this, I'm eternally grateful.

With that, I will now turn the call over to Rahim Kanji, our Chief Financial Officer, to discuss our financial results.

Thank you, Raj, and good evening, everyone. Let's dig into these results, which were stronger than ever, even our best case internal forecast. In the third fiscal quarter ended July 31, 2022, the company recorded consolidated revenue of $95.4 million, representing an increase of 98% year over year and 18% sequentially.

Our gross profit was $25.8 million in the third fiscal quarter of 2022, representing 27% of revenue versus 28% in Q2. The modest sequential decline was explained by the increasing mix of revenue of our Canadian bricks-and-mortar, which carries a lower gross margin profile.

While the ultimate consolidated gross margin in subsequent quarters will depend on the mix of revenue, which will be influenced by organic growth rates and future acquisitions, I can say that our gross margin percentage -- margin percentage in Canada has been holding steady.

Our adjusted EBITDA was $4.2 million in Q3, up 176% versus Q3 2021 and up 77% sequentially. I note that our business is already becoming more efficient. This was due to a combination of revenue growth and strong cost controls to improve our cash flows.

Speaking of, while our revenue rose $14.3 million sequentially, our two primary expense items, salaries and wages and benefits and general and administrative only rose by a combined $1.5 million. This allowed 13% of the revenue increase or $1.8 million to flow to adjusted EBITDA. Our adjusted EBITDA margin increased from [3.3%] in Q2 to 4.5% in Q3 due to our ongoing emphasis on cost controls. While our sales are going great, we are now looking at how we can tighten our ship even further and enact operational efficiencies to get more down to the bottom line.

We continued shoring up our balance sheet through the quarter and beyond. In Q3, we raised $5 million in nonconvertible subordinated debt, followed by $11.5 million in an oversubscribed equity offering and paid out our secured debt holders. We ended the quarter with $18 million of cash on hand. Total principal value of our debt is approximately $29 million to date.

Our cash flows continue to be strong in Q3. Our cash flow from operations before changes in non-cash working capital was $2.3 million in the quarter, showing significant gains versus the $1.6 million generated in Q2 this year and negative $0.2 million in Q3 last year.

We are almost at the finish line with Connect First, and we expect to close our $19 million non-dilutive credit facility imminently, which should provide more than sufficient resources to keep growing and executing on our objectives. Investors can see what kind of business we have built without ever having a massive war chest. This should help provide comfort for what we expect to have once Connect First closes.

We ended the quarter with 131 retail locations and currently have 140 with the nine added from Choom. Due to a default by Halo, High Tide was able to seize the shares of Halo KushBar Retail Inc., taking control of three operating cannabis retail stores in Alberta.

One thing to note is that we have been cleaning up and tying some loose ends in our portfolio over the past few months. Specifically, we acquired three existing Canna Cabana branded stores in Ontario, which were previously owned by a lottery winner, and we absorbed the only Canna Cabana franchise we ever had in Calgary.

Accordingly, we now fully own all of our 140 locations with the exception of one store in Sudbury, Ontario, where we own a 50% partnership and two stores in Manitoba, where we have a 49% interest in two stores which were inherited from the META acquisition.

In closing, Q3 was a record-breaking quarter for High Tide, and we continue to see strong customer loyalty for our brand and products heading into Q4 and beyond. I would like to thank our dedicated High Tide team, which consistently generates industry-leading results.

With that, I will now turn the call over to the operator to open the lines for the question-and-answer session.

(Operator Instructions) Frederico Gomes, ATB Capital Markets.

Hi. Congrats on the quarter, guys, and thanks for taking my questions. My first question is on the Cabana ELITE membership that you are planning on launching. Could you provide more color on the economics of this program in terms of pricing? What sort of advantages an ELITE member would have over a regular member? And do you have any target in terms of how many members you think you can convert to this premium tier? Thank you.

Hi, Frederico, and thank you for your question. So look, Frederico, we are very excited about launching Cabana ELITE, which we have messaged the market that we will be launching it at some time towards the end of this year. We actually have all of the perks lined up and measured and we are just getting embedded with all the different regulators in the country. As you can understand, we are dealing multi-provincially in Canada and those conversations are happening right now.

So we remain very confident that we would be able to launch this towards the end of the year. But I would be a bit immature to speak about what exactly those terms would be. One, I would like to keep this in my back pocket still until we actually launch it. And second, we want to make sure that they're fully compliant in all ways.

So we are currently working on it. I can give you some color on pricing. It's going to be around the $50 to $60 annual mark or $5 a month. There's a ton of advantages in becoming a member. But like I said, I'd be able to share that more towards the end of the year when we launch that program.

And I think on your last point there you asked about what do we anticipate in terms of sign-ups. I think the program is so compelling that we will have a nice inflow of customers trying to sign up for Cabana ELITE. But it may be a little slow to start with, but I think we're going to keep our foot on the gas pedal in terms of keeping it compelling and making it even more compelling as the time passes that we'll get more and more sign-ups. So with every passing quarter, we should be able to announce more and more paid memberships, which will, again, boost our bottom line every passing quarter.

Thanks, Raj. That's really helpful. And then my second question is on just your margins in Canada. So relatively stable quarter over quarter. We note that the market's still very fragmented, but are you seeing any sort of easing of the competitive environment in any specific provinces? Are there any meaningful opportunities to increase those gross margins over the next few quarters? Thank you.

Yes. So Frederico, we always have our pulse on the margin conversation. It's always a big conversation at High Tide, and we are very attuned with what's actually happening in the market. And I'm very happy to report that margins have stabilized.

And being the biggest retailer in the country with the corporate portfolio comes with its benefit. So it's practically other chains and independents that are looking up to us on where we set these margins. And I am not seeing any type of intense pressure. In fact, I'm seeing some stability and margins slightly increasing.

So we're very happy where the margins are right now. And let's say the margins did go backwards, the High Tide advantage is our ecosystem is so diversified and unique that we can always go and get some more margin to add to our portfolio. So we don't see any trouble going forward in terms of margin. At the moment, margins remain very stable for ourselves in Canada across all provinces.

Thanks for that. Congrats on the quarter again. I'll hop back in the queue. Thank you.

Thank you, Fred.

Andrew Semple, Echelon Capital Markets.

Hi there. Good evening and congrats on the very good results, Raj and team.

Thank you, Andrew.

High Tide's been very active with -- no problem, Raj. High Tide's been very active with retail M&A year-to-date. I would appreciate an update on your M&A plans, particularly in Ontario, a province where you're capped on the number of stores. Are you continuing to see attractive opportunities to acquire brick-and-mortar retail stores to hybrid your portfolio? Or have you already kind of picked away at some of the best assets that are available for sale?

And if you are seeing those opportunities, and I think you did mention this in your prepared remarks, would those be at similar kind of valuation levels to trailing EBITDA that we've seen in the past? Has there been any shift in the valuations being asked for by potential targets?

Andrew, thank you very much for your question. So there's tons of M&A opportunities that remain for us. On purpose, Andrew, we've slowed down in terms of our international acquisition and more e-commerce-related acquisitions. One, we wanted to see how things unfold with e-commerce with discretionary spending down. But on the brick-and-mortar front, we have been very active in terms of M&A, with our last acquisition being adding nine stores from Choom.

So we're very active on that side. But, like I mentioned in my prepared remarks, it pains us to issue stock at these levels. But at the same time, I'm very aware of if the acquisition is accretive, we want to do it. We're adding more and more value for High Tide shareholders in the long term. So we are very active in the market. In fact, over the next few weeks you should hear some more M&A transactions from us, especially related on the brick-and-mortar front.

On the valuations, we are already known in the market with every single transaction that we've done has been highly accretive to High Tide's results, and we're picking up these businesses at the 3.5 times, 4 times EBITDA, which is very, very accretive to us. So I don't think we can go much lower from here.

However, we are being very selective because we have a lot of inbound requests for us to take a look at these small operators, independents and also even some regional chains. So we can really be strategic and pick and choose on what do we want to add to the High Tide family. But nonetheless, there must be a strategic or geographically welcome location that we would like to see in our portfolio. And at the same time, they have to be highly accretive to our results. So if they match that, then we will be pressing the trigger on that.

Understood. That's such great color. Thank you. Just a follow up, again, going back to the prepared remarks. Rahim, I heard you talking about there still being some opportunities to tighten up the ship. Just maybe want to clarify that comment there, which was in regards to operating expenditures.

Where do you continue to see the best opportunities for operating leverage within the business going forward? I presume that comment would relate to operating expenses growing less quickly than revenue, and that's what's really going to drive that operating leverage that you're speaking to.

Yes, sure. Thanks, Andrew. And as I commented, our revenues are in a very good trajectory. It's going as expected, or far beyond our expectations. We're now looking at sort of our cost bases. With the scale and size that we have now, we have the ability to look at some of the costs that are fixed in nature and try to bring those costs down so we can get the benefit going right to the bottom line.

There's core services that go up with the expansion of every store you hire, like store -- store level staffing and some other expenses. And those are -- that you can't manage, but there's also some fixed costs. And as you grow and as you get that scale, you're able to negotiate those costs with vendor now because your volumes have gone up. So we're always looking at those opportunities where we can make our operations more efficient and have that cost savings go right to our bottom line.

Doug Cooper, Beacon Securities.

Good evening, everybody, and congratulations on a nice quarter. So Raj, just curious, if I take a look at the macroenvironment, the Canadian market has essentially flat-lined in Alberta. Your largest market is essentially flat for the past six or seven months.

The results coming from major participants, whether it be Aurora's losing tons of share, Canopy is losing tons of share, Tilray is losing share -- Fire & Flower clearly losing share, their numbers were not very good. So certainly one of these things is not like the other. I mean, your numbers stand out like a sore thumb in this environment. So like what do you attribute this to? Let's start there.

Hi, Doug, and thank you very much for your question. So Doug, I can't speak for others, but we have always been a company that has always executed on our business plan. This is a business plan that we communicated, and we acted on it. Our innovative discount club model has proven to take market share outside of Quebec, and we are now 7% of the market share this quarter, which was only 6% last quarter and 5% a quarter previous to that.

And, Doug, this is because we are leveraging our points of differentiation. Again, as I highlighted in my prepared remarks, our loyalty plan, which is very differentiated in the country; our vertical integration of the consumption accessories front, there's no other player that has this experience. We've been doing this for over a decade.

And also, launching innovative ideas like our Cabana Cannabis Co. white label program that is now live in Saskatchewan, but also going in Ontario. But most importantly, Doug, we know the reality of the situation in Canada. Canada is not an easy landscape to win. So this quarter, although we added $[40] million-plus to our revenue on the brick-and-mortar front, our cost to offset that was only $1.5 million.

Our SG&A actually went down from 8% to 7% and all of this is adding up to run our business more efficiently. We've also created a very attractive concept. So you can see that with the speed of membership that we are getting, we're at 750,000 members. And when we launched the discount club model we were sitting at 245,000 members. So this is exponential growth no matter how you look at it. And it also put us in a really good position to now monetizing this membership base, which takes it to another level.

So again, I can't speak for other competitors, but we keep our heads down and we execute on our business plan, and this is the result here for everybody to see today.

And just a follow-up on the M&A side. There has been some talk that in Toronto, in particular, maybe a third of the stores are about to go under. And I'm assuming this is happening in other jurisdictions across the country. How many stores across the country do you think need to go out of business before the market can stabilize in general?

I mean, obviously, you guys are doing well right now, but in general, to be able to -- just how many -- just take Ontario, how many stores do you think that this market can actually support? And when you're looking at M&A, how do you differentiate between ones that are going out of business and which ones to buy? Like Superette's assets are clearly up for bid now, and that's a relatively well-known brand. So how do you differentiate the crap from the good ones at the end of the day?

Unfortunately, Doug, we're seeing more than just anecdotal signs of store closures. And also regularly, we get these inbound requests of unprofitable stores considering to sell. So I think you're totally correct. I think at least one-third of the stores in Canada will not exist within the next 12 to 24 months. And we will pick up a lot of this business. One, organically with what we already have in the market with our 140 stores, and others constantly, we are doing good accretive M&A deals, but we're being very, very selective on what we purchase.

We can't buy everybody, and we don't want to. I feel bad for the independent operators out there, but this happens to every industry, but it's rightsizing and the rightsizing is now going on. But we're already very healthy, Doug.

So we're going to continue doing good deals. And I think there will be a lot of -- a lot more bloodshed in the market where we'll be able to pick up even better deals and bring in even more stores to our portfolio. Our long-term goal initially was 200, and I always like to under promise and over deliver.

But I think we can now get to 250 stores looking at what's happening in the market, especially in provinces like Manitoba and Saskatchewan and Alberta, where there's no cap. So, things are looking really good on that front in terms of the market rightsizing. And you will see us announcing more of these M&A transactions related to brick-and-mortar in the coming weeks ahead.

Scott Fortune, ROTH Capital Partners.

Hey, this is Nick on for Scott. Congrats again on a good quarter. First question from me on the supply chain. You mentioned last quarter prioritizing sourcing your Canna Cabana locations over your legacy wholesale business. Could you just provide an update on the current status of your supply chain and just your thoughts around sourcing moving forward here? Thank you.

Sure. Hi, Nick, and thank you for your question. So our supply chain remains stable. It can always get better. You know, my goal was to be over 50, 60 locations installed with our Fastendr kiosks, and that has not happened. We're sitting at 28. However, I'm very hopeful that we'll have over 100 locations fully installed by the end of this year.

When it comes down to prioritizing between the wholesale business and the retail business, we made that very clear to the market that retail is less than 1% of our overall -- wholesale is less than 1% of our overall business. And we have always been a retail-focused company. So the priority will always be given to Canna Cabana and our e-commerce platforms.

And we're doing exactly that on that front. Because we prioritize Canna Cabana and because we prioritize accessories on our e-commerce platforms, we're doing quite well for the supply chain, we are not seeing any issue whatsoever. Now if our wholesale business was a lot bigger, then we would have to ration a little bit into wholesale, but we're not having to do that.

Okay. I appreciate the color. And then second one for me, just on the US CBD side. I appreciate the update there. Just looking for color on new potential SKUs you could roll out there. There's obviously an opportunity within some of these alternative cannabinoid segments that offer maybe some better pricing dynamics than just regular CBD. So just wondering how you're looking at those categories moving forward here? Thank you.

So, Nick, we always want to introduce new products into the market because that's all incremental revenue to what we already have. And over the last quarter, we press released that we were starting -- we were launching the sales of D8/D9. That launch has gone relatively slow for us just considering dynamics of supply chain for the vendors, because we don't make these products ourselves, particularly, depending on state-by-state regulations.

But we are active on D8/D9. We've launched D8 for NuLeaf, some oils in certain states, and we're working D9 products to be launched in certain states as well. And then we're always looking at the brand-new cannabinoids that are coming out. Cannabis is an amazing plant, and it has 100-plus cannabinoids and same with hemp.

And we are actively looking to bring in more products on that particular basis and also expand other lines such as our pet lines and get into cosmetics, high-end cosmetics on the CBD side, because we already have the customer base that want these products. So we are working on these new products, and we anticipate launching these products during this year and also all throughout next year.

Doug Cooper, Beacon Securities. After this, we will be exhausted of all questions. (Operator Instructions)

Rahim, just on the average revenue per store on 131 stores, I get about $640,000 or $650,000, something like that in the quarter in Canada showed $2.5 million run rate per average store, is that right?

Yes. I mean, we are spread around four or five geographies -- provinces now. So each province sort of has its own average when we look at a compare against the market, and we're right at the average or above the average in most of our stores. So we have very high-volume stores, and we have some average stores and some a little bit lower. But on average, we seem to be doing better than the market average per store.

And I guess my question is around the M&A. I'm assuming the stores you're looking at buying aren't doing that type of business. So when you look at a store to bring in your portfolio, what would you want it to be able to generate on a per-store basis, at a minimum, to be considered to be part of the portfolio? And at what level does the economics really start to get the operating leverage, at what level of revenue per store?

Sure. And before I get our master acquirer, Raj Grover, to answer that question here, look, we're always looking for -- as Raj mentioned, looking for that accretive acquisition. We're very strategic into what we purchase. The location has to be perfect, the volumes have to be attractive and accretive to our current operation. So we're always looking for those qualities in a location before we make a decision. But I'll get Raj to maybe add more color to that.

Sure. Thanks, Rahim. Doug, that's a great question. So we definitely have a minimum threshold, and this is why I was saying that we have a lot of operators, independents, and smaller chains reaching out and when we look at their revenue levels and where the locations are, there's nothing to see there, there is nothing to act upon. And unfortunately, these businesses will cease operations some time, so -- depending on their holding capacity.

So our threshold is $1.8 million a year, and that is a minimum threshold. Now if I'm buying three stores and one store is doing $1.4 million and the other store is doing $2.2 million and the other store is doing over $1.8 million, yes, we will take it as a combined package. We have done that in the past because we know, even when we buy these stores at these levels, we are going to make them better by launching our own model, which is our discount club model to the Canna Cabana stores.

So, if it's below $1.8 million, we don't entertain it. If it's a group that averages to $1.8 million, game on.

And so, how many stores out there would meet that threshold?

Not many, Doug, and there may be some that are still living the cannabis dream and they want to run the stores themselves, and that is totally okay, too. But as we continue to execute, Doug, it becomes more and more clear to the market, which is our investors and also our competitors where this business is going and who are the real players in the market.

So join the High Tide family and let's ride this wave together. It's my play always. That is how I approach all the deals, and so far, so good. We have a lot of inbound action. Forget about us approaching other stores. We have a lot of stores coming to us. And if our stock price was not depressed to these levels, you would have heard a lot more. However, like I said, as long as they're accretive, as long as they meet those minimum thresholds, we're going to go for it.

Thank you for your question. Now, I'd like to turn the session back over to High Tide's Chief Executive Officer, Raj Grover, for final comments.

Thank you, operator, and thank you to everyone for your interest and continued support for High Tide. We are very proud of what we achieved this quarter and remain excited about our growth trajectory. With that, I will ask the operator to close the line. Have a good evening, everyone.

That will mark the conclusion of today's High Tide Inc. conference call. Thank you for your participation. You may now disconnect your lines.