NASDAQ:HITI
Michael Kim: Thank you for joining us today. My name is Michael Kim. I'm a senior analyst here at Zach Small Cap Research. Welcome to the next episode of our CEO Fireside Chats. Today, I'm happy to have with us Raj Grover, the founder, president, and chief executive officer of High Tide Inc., a company we recently initiated research coverage on. So High Tide engages in the distribution and sale of cannabis and cannabis related products with 210 stores across five provinces in Canada. In addition, the company recently closed the acquisition of a majority ownership stake in Remexian Pharma, a leading medical cannabis importer and wholesaler in Germany. The stock trades on the NASDAQ under the ticker symbol HITI. So, with that, welcome Raj, great to see you, and really appreciate your time today.
Raj Grover: Great to be here with you, Michael. Thank you for having me.
Michael Kim: So, I think this is a great time to sit down and chat with you for a number of reasons, but maybe most importantly, you recently reported very strong quarterly results, which I think really reinforces the power of your business model and bodes well for continued growth going forward. So, I've got a number of topics that I think are top of mind with investors, but maybe just to start. It would be great if you could provide just a brief introduction to the company and your business model, and how you're maybe differentiated relative to other cannabis companies in Canada or here in the US.
Raj Grover: Yeah, absolutely. Nice to be here with you, Michael. So, High Tide is a publicly traded company. As you mentioned, we trade on the NASDAQ, the TSXV, and the Frankfurt Stock Exchanges. We are the highest revenue-generating cannabis company here in Canada. We have been for the past three years. Our annual revenue run rate now is approximately $600 million, as per our last reported quarter. That is not including the majority stake we announced in Remexian, which is another $100 million boost to the top line on top of that. Our core business is our brick-and-mortar business under the Canna Cabana brand. So, Canna Cabana brand is the largest cannabis retail brand in Canada with 210 locations across five Canadian provinces of Ontario, Alberta, British Columbia, Saskatchewan, and Manitoba.
The biggest differentiator between us and our peers, both in Canada or North America or beyond North America, I would say, is our loyalty-focused discount club model, which no one else is doing. It was an original idea of High Tide and has been ever since. Cabana Club is also the largest cannabis loyalty program, as per our understanding. We have 2.15 million members of the Cabana Club, which is up year over year. And then we also have our paid tier, which is the paid membership tier of the Cabana Club, which is called Elite, which was only launched about two years now have 115,000 members and counting that're paying us a fee of $35 a year, up from $30 a year 12 months ago. That is up 102% year over year. In fact, it continues to grow at its fastest pace since inception. We keep breaking those records every single quarter.
A big differentiator that we're able to provide our customers, our club members, is that they save 10-25% on cannabis for discounts and up to 80% on consumption accessories. Also, the first company to reach positive free cash flow, which you know is imperative for any business to do. We reached that milestone about two years ago, and since then, we've generated over $38 million in free cash flow. Like I said, the Remexian acquisition adds another $100 million or so of a boost to our top line in general.
Michael Kim: Great, appreciate that, super helpful. Maybe just in terms of growth beyond the recent acquisition in Germany, which we'll get to, just seems like you've got a lot of levers to pull, whether it's continuing to open new stores, or the ongoing maturation of existing stores, or continuing to just leverage your scale and brand advantages that you just talked about. So, just curious how you think about market shares and same-store sales growth, just trending going forward.
Raj Grover: In Calendar 2024, we targeted 20 to 30 new locations, and we delivered 29. So, we opened 28 locations organically, and we acquired one. That brought us to 29 Calendar 2024. Calendar 2025, we put out the same goal that we were targeting 20 to 30 new locations. As you may be aware, Michael, we've already opened 19 from that goal, and over a dozen still remain in construction. Our construction pipeline is always very, very robust, given our relationships with some of the landlords in the country here, national-level landlords.
Our acquisition spree has been a little bit limited, and that's not because of a shortage of trying, but it's simply because 60 to 70% of everything we see out there, myself and Juan, we just don't see it worth buying. Either the location quality is inferior, or it's not ideal in terms of demographics where it's located, or there's a lot of redundancy in our portfolio because at 210 stores across five Canadian you can see, Michael, that we're here, there, and everywhere, and it's harder to get a block of 10, 15, 20 stores where seven of them are not in a this redundancy situation.
So, given that our acquisition pipeline has been limited, but we've supplemented that with organic growth trajectory. We've done an amazing job at growing our portfolio organically, which puts the best value in the pockets of shareholders. Our goal is to go from 210 stores currently to exceed 300 stores in Canada. So, you can see we still have nearly 50% growth more left on the organic side in Canada alone. So, we feel that our revenues could breach the billion-dollar mark in Canada alone. And we are starting to head towards that trajectory.
Our current market share in Canada is sitting at 12%, which is the largest in this country. It has been for quite some time. We've been the market leaders in terms of market share. We put our long-term plans to reach 15% market share in each of the five provinces where we operate. Some of the provinces we've already reached 20%, but we intend to reach 15% market share in Canada in the long term. I think that we can even breach the 15% number.
And then on the same-store sales front, I think your second part of the question is about same-store sales. You know, this is truly a retailer's dream come true when you can execute on your same-store sales trajectory quarter after quarter. That is exactly what is happening to High Tide. Our same-store sales since the launch of our discount club model in October of 2021, so over four years now, up 137% in this time frame of four years, while the average operator in the country has declined by 2%. So, there's no comparison between our model and the rest of the peers or the average peer in Canada.
Then I'm also very happy with the recent acceleration in our same-store sales growth. Our Q1 was, I believe, 5%. Q2 was 6.2%. Q3 was 7.4%. So, we're actually accelerating after being in such mature innings in cannabis here in Canada. So, I couldn't be more happy with that. And I believe the industry in this period was up 4.4%. We're still leading the industry by a lot.
Michael Kim: Sure. So, Raj, you mentioned earlier your Cabana Club loyalty membership program. Obviously, that remains an important differentiating factor for the company and a key driver for growth. Would love to learn a bit more in terms of how you're leveraging the 2.15 million members and how you're focused on transitioning those members into paid Elite subscriptions.
Raj Grover: Sure, so Michael, it's very, very clear to us that Cabana Club is our crown jewel. At 2.15 million members, it's the biggest loyalty program in the world, not just here in Canada, per our knowledge. We are up 39% year over year in our Cabana Club. So, it's still growing exponentially. Like I said, we're going to go from 210 locations to over 300 locations. And every new location we open, every new market we get into, we get a very good opportunity to increase our Cabana Club membership base, and that's exactly what we've been doing, and you can see our membership numbers rising very, very quickly. Our long-term target is to exceed a million Cabana Club members in Canada. I think we will easily breach that. We'll probably get to 3, 3.5 million Cabana Club members in Canada.
Having access to customers, having access to club members, being able to speak with them, it's imperative in a country like Canada, where branding and promotion of cannabis are extremely restricted. We can only do that in age-gated environments, and even then, it's quite limited. We send five emails a week to our Cabana Club members and our Elite members. We send them text messages. We constantly keep in touch with them and keep them excited about our product selection and our unbeatable pricing. So, we're able to communicate with them. And some of our competitors, most of our competitors didn't have a loyalty program. And some are just now getting on board with it when I feel it's the most important part of your business. So, we're leading in that front. And our focus is to keep our members very, very happy and loyal and solidify the loop with price selection and service that we keep our eyes on, them top-notch service. And price and selection are unbeatable, always at Canna Cabana, and this is what's resulting in Elite memberships picking up.
So, with us now having more Elite-focused inventory, remember, we started from zero. We had no members and no products in the Elite category two years ago. So, we've been building up that category. But it's kind of like the chicken and egg story. So, once you start building this category, you start getting more members. And that is starting to happen now. While we started from zero two years ago, today we are at 115,000 Elite members that are paying us $35 a year, which is growing year over year. And it's been the fastest pace of onboarding for us every quarter for the last few quarters. So Elite keeps breaking those growth records.
We have data to prove that Elite members or Elite shoppers tend to shop with us more frequently, more often, build larger baskets, and are a lot more loyal because now they've paid for the whole year. They paid to be a member at our store. And over the long term, I'll give you this, Michael, that our goal is to convert at least 40% of all of our club members into Elite. Today, you know, just 5% of them are club members, giving like 150,000 over 2.15, just quick math. But the goal is to get to over 40% in the long term.
Michael Kim: Appreciate that. And beyond sort of the loyalty membership programs, a big part of the story obviously is the company's transition into more players starting in Germany with the investment in Remexian. So, I think it'd be helpful if you could sort of just frame the opportunity there and then talk about specific initiatives, designed to accelerate growth and realize operating efficiencies with Remexian.
Raj Grover: Yeah, for sure. So, look, Germany became an attractive market after medical cannabis was reclassified from being a narcotic to a regular prescription drug in April of 2024. I think that was the big game-changing moment for the cannabis industry in Germany. We’re watching this progress very, very closely because, you know, we're on the NASDAQ stock exchange, but we have global ambitions, so we cannot play in the U.S. right now, although we're also exploring some opportunities through our licensing pathway. But we've been monitoring what's happening with the imports going up in Germany and the patient count increasing very aggressively, the prescriptions going up.
There’s no company on the planet, Michael, that has sold more federally legal cannabis, over $1.9 billion of legal cannabis, in Canada since the legalization happened in October of 2018. We've developed a very strong network. With Canadian licensed producers and our relationships have stood the test of time while we build this very strong business together for ourselves. And in the meanwhile, in the process, also help propel their business while also taking a big chunk out illicit market here. So, we already have these relationships with LP. So, we put two and two together, and we're like, 50% of all of the imports getting into Germany, or approximately 50% are Canadian. We're the largest customer here in Canada with almost $400 million or more now, with procurement cost, and what could we do if we reach out to the LPs and say, look, we want to be the distributor of Canadian products in Germany. And that idea was received extremely Canadian licensed producers.
Remexian is a leader in its own right. It's leading the market today. As we purchase them, they already have 16% of the market share. grams sold or in tonnage, Germany imported 43 tons in Q2 2025, and in that same time period, Remexian sold seven tons out of it, giving them a 16% market share. You know, Germany has gone from a quarterly average of eight tons to 43 tons in two short years, and the market is projected to increase and go close to 250 tons or even breach that mark. So, there's a ton of growth left.
And there is a very strong cultural alignment between our two groups. We're both focused on, you know, giving the most competitive prices and making sure our bottom line remains strong, so focused on profitability. bringing sourcing profits here from Canada, our relationships. We're putting that on the table, and the Remexian team is working on increasing our distribution capabilities in Germany. So, it's a very complementary relationship. We also understand a thing or two about distribution with our store reach here. So, we think it's a great marriage.
And we also, Michael, structured this transaction in a very good way for our shareholders. The transaction was extremely accretive to High Tide. We acquired 51%, as you may know, of Remexian at just 3.64 times annualized adjusted EBITDA last six months ending March. You know, the Remexian team remains in place, boots on the ground in Germany. They're heavily incentivized to keep driving that EBITDA forward. We have a runway to increase that EBITDA, and then they have a put option they can put to us, or we can exercise our call option for the remaining 51%. So even the second half of the price that we're going to pay, which is 3.624 times EBITDA, the accretion is already built in, even for the second half. And then we also, the payment mix was quite thoughtful as well. We paid 42% of the payment in High Tide shares, which gives the Remexian group about 6% holdings in High Tide's fully diluted share portfolio. And then the cash consideration came from the Kronos loan. And then we have 29% structured loans. So basically, we can pay it back from the dividends we generate in Remexian and Remexian, the remaining part can pay for itself. Last six months financials just to reiterate it was $70 million, a 70 million euro in top line, about 100 million Canadian dollars in top line, and 15 million euro in EBITDA or about 24-25 million CAD in EBITDA.
Michael Kim: Just to pivot, you obviously maintain a strong balance sheet and have consistently generated positive free cash flows. So, with that as a backdrop, just curious how you're thinking about balancing capacity to continue to open 20 to 30 new stores every year while at the same time, preserving capital to potentially capitalize on incremental M&A opportunities that might come along, particularly those that might further broaden your footprint outside of Canada.
Raj Grover: Yeah, absolutely, Michael. So, we generated more than $38 billion in free cash flow over the last two years, including $7.7 million in our last quarter, which was our second-highest free cash flow generation ever. You know, Canadian retail operations continue to generate meaningful cash. I have cash left over, even after adding an average of seven stores a quarter. If we did about 28 stores, organically built, I still had money, free cash flow left over. And this is why it's propelling our cash balance every quarter. You can see we exited again at the highest balance ever. That's despite building so many stores and growing aggressively at the same time.
Now, Remexian still needs to be assessed because we're just getting into that business, and we may need some extra cash because the business is growing so fast. But we have extra cash left over from Canadian operations, even after the Canada growth plan. So, we're looking really good there.
Organic growth remains at the forefront of what we are doing, Michael. Like I said, we put up 29 stores last year, we're already at 19, a dozen or so are still under construction, so we feel that we can hit the higher end of the target in Canada. And like I was telling you about, we have an appetite for M&A, but most targets, about 60 or 70% of them, are not worth buying, given the redundancy in our portfolio and given poor locations, or the store revenues that it currently generates, many times just $500, $2,000 a day. And you just can't make money in cannabis. So, we're very, very focused on increasing our and the highest quality locations available because we have that opportunity, unlike many other operators with larger landlords.
And, you know, regarding our balance sheet, it's at its strongest point ever. Right? Like we've never had this much cash in our bank, and we still built over half a billion-dollar business just with 29 million dollars in our bank historically. We exited the last quarter with 63 million. Now, mind you, that's before paying for Remexian. So, we would have to part away with some cash after that quarter. But still, it is one of the largest cash balances that we have ever had while growing our business so aggressively. So, I couldn't be more happier with that.
Our gross debt to EBITDA, another thing I can mention, is just 1.5 times, which we believe is very, very manageable, especially with no debt maturities for the next two years. And our current debt sits around 54 million. So, you know, we had $63 million in our bank before paying that cash component to Remexian. So, we're almost in a net cash position or very little net debt position, I would say.
Michael Kim: And then maybe just finally curious to get your perspective on the regulatory backdrops both in Canada as well as here in the US, and maybe how you might be positioning the company to further expand the footprint should a more favorable regulatory environment here in the US.
Raj Grover: Yeah, sure. So, look, we are seeing great signs, some very regulatory reform signs from Canadian provinces, especially Alberta and Ontario, have been showing very encouraging signs. None of this information is public, so I would have a lot more to share soon, but we have been lobbying the government, the provincial governments on various fronts. Provincial governments in Canada understand that hell is not broken loose by assisting the legal cannabis industry. In fact, every time they help us, we take more and more share of the illicit market, protecting the health of Canadians and generating income taxes, amongst other taxes, and amongst employment, the cannabis industry is able to create in Canada.
And provincial governments are becoming more receptive to that. So, I'm actually very happy GR trajectory that we have in Canada. Our GR team is constantly in the loop of things. It's speaking to the various levels of provincial governments. On the United States front, I think you know as much as I know, it seems like the Trump administration is very keen to maybe reschedule cannabis before the end of the year.
Now this is a very, very good thing and a big thing for the entire industry. It directly helps the MSOs to begin with, but like I said, we've also been exploring our ambitions that are global. The United States is definitely one of my favorite markets in the world. We are exploring opportunities in the US through a branding licensing type of structure that is not fully baked in yet. So, I may not want to comment more than that. We are working with two or three different legal firms to get their opinion on how something like that could be achieved after rescheduling. But regardless, rescheduling is going to create more for other federal reforms. Now the genie's out of the bottle, and other countries are looking at it too, and the US does not want to be left behind, so I think more and more reform will take place, and our GR team is monitoring Congress to see where we can find some opportunities, so you know they're totally on top of it.
Michael Kim: Excellent, Raj, this has been great. Again, really appreciate your time today. Look forward to continuing to follow the company's progress. If anyone has any follow-up questions, please feel free to reach out to me at mkim@zacks.com. Thanks again, Raj, and thanks, everyone, for joining us today. Have a great day.
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