High Tide Inc. Q4 FY2022 Earnings Call

My name is indiscernible, and I will be your conference operator today. I would like to welcome everyone to High Tide Inc.'s fourth quarter of 2022 unaudited financial and operational results conference call. I will now turn the call over to your host.

Thank you, operator. Good morning, everyone. I'm Krystal Dafoe, Director of Corporate Governance, and welcome to High Tide Inc.'s year-end earnings call. Please note that the earnings discussed on this call are presented on an audited basis. Joining me on the call today are Mr. Raj Grover, President and Chief Executive Officer; and Mr. Rahim Kanji, Chief Financial Officer. Last night, the company released audited highlights from its financial and operational results for the fourth quarter and year ended October 31st, 2022. 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 and other than statements of a historical fact constitute forward-looking information and 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. The specific forward-looking statements include, without limitation, all disclosures regarding future results of operation, 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 January 30, 2023, released last night, our latest annual information form, and our latest management discussion and analysis each filed with securities regulatory authorities 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 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. For any reconciliation of non-GAAP measures mentioned 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, Krystal, and good morning, everyone. Welcome to High Tide Inc.'s financial results conference call for the fourth quarter ended October 31st, 2022, and what a quarter it was. As disclosed in last night's press release, we generated record revenue, record adjusted EBITDA, and year-over-year same-store sales growth of 50% and 9% sequentially. I'll start this call by providing an overview of our results and other key developments in the fourth quarter. Rahim will discuss the financials in depth, and after that, we'd be pleased to answer any questions you may have. Before getting too deep into the quarterly numbers, let's take a step back and look at how this was yet another exceptional year for High Tide. We generated revenue of $356.9 million in fiscal 2022. This was up 97% versus fiscal 2021 and up 329% versus fiscal 2020. No matter what the short-term dynamics that the Canadian cannabis market has experienced from initial product shortages to COVID-related uncertainty to retail market saturation, the High Tide team has always found a way to grow our business through leaps and bounds. And this hasn't been just topline growth for growth's sake. It has also translated into handsome adjusted EBITDA increases. This fiscal year, we generated $14.6 million of adjusted EBITDA, up 17% versus fiscal 2021 and 83% versus fiscal 2020. Our business is currently on an annual revenue run rate of $450 million, further cementing our position as having the highest cannabis revenue of any Canadian operator. It's fair to say we expect the company to keep growing its top line, achieving its operational objectives, and continually generating value for shareholders. Now let's dig into the new information to the market, our Q4 results. Total revenue for the fourth quarter was $108.2 million. This was up 101% year over year and was up 14% sequentially. As it represents 87% of our revenue and with enviable same-store sales and new stores popping up regularly, it's no surprise that sequential revenue gains were led by our core bricks-and-mortar cannabis business. I note that our consolidated gross margin profile remained stable at 27%, while gross margins from selling cannabis in our bricks-and-mortar stores ticked slightly higher. Adjusted EBITDA for Q4 2022 was a record $5 million, representing our 11th straight quarter of positive adjusted EBITDA, up 18% versus Q3 2022 and up 206% versus Q4 2021, and we are extremely pleased to have set this new record. You will recall that in the second half of last year, we cautioned the market regarding two items: a new layer of costs relating to our NASDAQ listing and the initial impact of lower margins arising from our innovative discount club model. We advised shareholders that these two items would depress adjusted EBITDA in the short term. However, we said stick with us, and we will grow through it. And that's exactly what happened. We set a new high in adjusted EBITDA, and we expect it to continue to grow looking forward. In Q4, we completed the first full year since we launched our innovative discount club concept in October 2021, and the results speak for themselves. Our same-store sales alone in Q4 were up a tremendous 50% versus Q4 2021. In contrast, total national sales across Canada outside Quebec were up just 14% year over year in our fiscal Q4, including the impact of new store growth. Our customers continue to become more loyal to our Canna Cabana brand. Our average store in Alberta generates more than twice the revenue as the provincial average. While our average store in Ontario, the biggest province, generates almost triple the average revenue as the provincial average. In our view, we have the best retail concept in the country, which is significantly outperforming our peers, and we believe it will be well received in international markets such as Germany. Our same-store sales in Q4 rose 9% versus Q3, and with the increase in bricks-and-mortar gross margins previously mentioned, this is driving our improved profitability as shown by our consolidated gross margin dollars being up 15% sequentially. These very impressive same-store sales figures as well as rapidly opening new stores in high-quality locations have resulted in continued market share gains in Canada. We estimate our national market share, excluding Quebec, to have been over 8% in Q4, up from 7% in Q3, 6% in Q2, and 5% in Q1. We expect the string of steady market share gains to continue in Q1 of fiscal 2023. Our balance sheet remains strong. We ended the fiscal year with $25.1 million of cash on hand. As of year-end, we had drawn $16.4 million of the $19 million facility we closed with Connect First Credit Union at a very attractive rate of prime plus 2.5%. While the stock market has yet to reward our solid financial performance, fortunately, Connect First has, and we believe there's room to significantly deepen our relationship. Financial institutions tend to look at the last four quarters of adjusted EBITDA in assessing how much credit they can advance. With Q4 2021 now having rolled off this calculation and replaced with Q4 2022, our trailing adjusted EBITDA has increased by 30% from $11.2 million to $14.6 million. Accordingly, we expect upward movement in our borrowing capacity with our partner in the near term. In the first half of 2022, we communicated to the market that we wanted to reach 150 stores by the end of the calendar year. In typical High Tide fashion, it came right down to the wire, and we needed every day up to New Year's Eve to make it happen. But our hardworking team did it. We added 45 stores during 2022, reaching our target. Looking ahead, we plan on adding another 40 to 50 Canna Cabana locations in 2023, similar to last year. We expect this to come from a fairly even split between accretive M&A and organic store openings. While much of the capital markets was focused on what may or may not happen in Washington, we had our heads down plowing our business forward. Our Cabana club membership currently stands at approximately 950,000 members versus 379,000 when we announced our Q4 2021 results a year ago. Per Health Canada's 2022 Canadian cannabis service findings, we calculate that over 13% of cannabis users outside Quebec are members of our loyalty plan, a true achievement and by far the largest such program in Canada. Not only does our base of loyal customers keep increasing, but the total addressable market, which we can draw from, keeps expanding as well. We note that Health Canada's 2022 survey found that the number of cannabis users, excluding Quebec, had increased compared to the 2021 survey. That’s over 900,000 new Canadians using cannabis, and we are disproportionately attracting them to our discount club model. In late November, subject to individual provincial regulations, we launched the first-of-its-kind paid membership program in cannabis called ELITE, where we begin monetizing our existing Cabana club membership base. For $60 a year or $5 a month, ELITE membership offers our customers access to exclusively ELITE flash sales, limited edition and exclusive ELITE branded products, discounts on delivery, and discounts across High Tide's global e-commerce accessories portfolio among other benefits at non-cannabis retailers and restaurant partners across Canada. And it offers our shareholders a base of recurring, high-margin revenue. Given these inflationary times, we wanted to be there for our customers. So for the first year, we are offering ELITE at half price, so just $2.50 a month. While it is still brand new, we have already signed up over 6,000 members, which we feel is a very good start. Over the long term, we will be gearing our SKU selection towards ELITE by having over 25% to 30% of our in-store offerings be ELITE only versus less than 2% today. And we expect to show a steady increase in members, which is why we have made the move to be elite. Accordingly, we will start seeing the benefit of ELITE over the coming quarters, which will further enhance profitability. As indicated before, our CBD e-commerce businesses have been softer over the past few quarters, driven by two main factors. Global inflation at multi-decade highs has crimped consumers' wallets. And compared to THC products, CBD purchases are simply easier to cut back on during inflationary times than other consumer staples. Also, the end of COVID restrictions has resulted in the realization and pent-up demand for in-store shopping, which has impacted e-commerce sales across all retail sectors, including CBD. As a result of these factors, we had to take the unusual step of a $49 million impairment, which was primarily related to our e-commerce CBD businesses. This phenomenon is in line with what several other major US CBD companies are experiencing. We note that this is a non-cash charge, and in particular, a credit union has indicated that in no way impacts how they view the strength of our company. While we are not pleased with this charge, we note that it is not reflective of the strength of our ongoing operations. We continue to believe in the long-term outlook of our internationally leading CBD brands that have global potential as new markets open up. They provide higher gross margins and round out our overall ecosystem and value proposition. However, recall that 87% of our revenue is driven by our Canadian bricks-and-mortar business, which continues to motor ahead. And our online CBD platforms represented just 6% of High Tide's consolidated revenue. Despite the short- to medium-term softness we are experiencing in our CBD business, we were able to deliver record revenue and record adjusted EBITDA quarter for our shareholders. As promised during our last conference call, we entered a new vertical in late 2022 selling cannabis seeds online in the US initially on our Grasscity and Smokecartel online platforms and more recently on our Dailyhighclub and Dankstop e-commerce sites. The initial uptake has been going well, which we feel will only get better over time as we continue to add some of the most sought-after genetics in cannabis seeds from breeders in the US. This is a strategic move, which we believe is the first of its kind by a publicly traded cannabis company, which gets us one degree even closer to the US cannabis consumer without jeopardizing our NASDAQ listing and provides another high-margin revenue business line, all created organically. We continue to roll out fast tender across our bricks-and-mortar portfolio. During our last quarterly conference call on September 14, we had 28 locations equipped with this technology, and we ended calendar 2022 with a total of 120 locations outfitted with fast tender. Once we are finished with the rollout across our organization, we intend to license this exciting technology to cannabis retail outlets across the US, representing another high-margin, recurring, and NASDAQ-compliant revenue stream for us. We have already had inquiries from US operators, but we need to outfit our own stores first. Another big announcement we made yesterday was our LOI with Sanity Group, a Berlin-based health and life science company. Investors will note that we don't typically announce LOIs. However, in this case, given the long-term and strategic nature of our potential German expansion and frankly, how excited we are about it, we felt that our shareholders should have a good sense of our concrete plans as cannabis legislation in Germany is possible as early as this spring. Sanity Group has a well-established track record in Germany with respect to medical cannabis, finished pharmaceuticals, and cannabinoid-based consumer goods. They will help us with identifying and evaluating quality M&A opportunities in Germany as well as sourcing high-quality real estate for our Canna Cabana bricks-and-mortar stores. Sanity Group will also assist High Tide in navigating German regulatory compliance as well as the retail licensing process. In addition, High Tide and Sanity Group agreed to take a coordinated approach to German government relations activities. Sanity will also provide us with a right of first refusal to pursue similar arrangements as new market opportunities develop across Europe. In turn, High Tide will provide Sanity Group with expertise in building its retail cannabis brand strategy based on our decade-long experience serving cannabis consumers in Canada, the United States, and Europe. This way, both companies can help each other succeed by leveraging each other's complementary strengths. With 3.2 million customers across the country and now the ability to sell cannabis seeds online, we haven't taken our eye off the ball regarding the US opportunity. We continue to have many acquisition candidates in the US THC sector across many states in our pipeline, and we are keeping them warm with regular updates. We are monitoring company-specific and macro developments, and we will pull the trigger when we feel the time is right and not before. So far, especially with the drama in Washington in December, our decision to not hastily enter into an options deal has proven to be the right one. Despite the turbulent environment both for cannabis operationally and the capital markets overall, 2022 was another monumental year for High Tide. We grew our revenue to be first place in Canada amongst all Canadian cannabis companies, all while making sure this translated to record adjusted EBITDA and improved cash flows. Our reach with our customers has never been broader, and we are going deeper with the launch of ELITE. Despite all these achievements, we see room for much more growth ahead. We plan to open many more stores by cherry-picking the best organic locations and engaging in accretive M&A. Further, fast tender, cannabis seeds, ELITE, and our white-label program are all margin-enhancing initiatives, which germinated in 2022 and should begin bearing fruit in 2023 and beyond. Our incredible team continues to deliver on our objectives and will be there cementing our leadership in the Canadian cannabis market while laying the groundwork for German expansion. Our team's tireless work and dedication is what allows us to outperform our peers, both operationally and financially every day. I want to give a huge shout out to our team for everything that they do for High Tide. Since Omar Khan joined High Tide two years ago, we have led the industry in many government relations initiatives, and we have had many incremental wins that add up over time. I'm very proud to note that earlier this month, we promoted Omar to the position of Chief Communications and Public Affairs Officer. Congrats, Omar. Well deserved. 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 morning, everyone. I'm very excited to share the meaningful progress we made as shown in our record-breaking Q4 and year-end results, so let's go over the numbers. In the fourth fiscal quarter ended October 31, 2022, the company recorded consolidated revenue of $108.2 million, representing an increase of 101% year over year and 14% sequentially. While we are very excited about the Q4 revenue figure, we know that revenue has continued to grow significantly after the quarter. Recall that we opened eight new stores in December alone and had a very strong holiday season. As a percentage of revenue, gross profit remained relatively constant versus the prior two quarters at 27%. Of primary importance, however, is that our four-wall gross margins earned from selling cannabis in Canada, which drives the vast majority of our revenue, was up a full percentage point in Q4 versus Q3 and has continued to tick higher so far through Q1. Our gross profit was $29.5 million in the fourth fiscal quarter of 2022. While gross margin as a percentage of revenue of 27% was down compared to 33% in Q4 2021, this was fully anticipated and communicated due to our shift in strategy with the launch of our innovative discount club model, which aims to increase gross margin dollars by generating more sales. And this has undoubtedly worked. For example, I highlight that the gross margin dollars in the last two quarters of fiscal 2022 were $55.3 million, meaningfully higher than the $34.2 million generated in the last two quarters of fiscal 2021. The more important factor for me is seeing that gross margins in our cannabis stores have not only stayed stable, but they have actually moved higher over the past 12 months. And as ELITE cannabis seeds and our white-label initiatives start to become more meaningful over time, they should each have a positive impact on our consolidated gross margins in the future. We hit a new high in our adjusted EBITDA at $5 million in Q4, up 206% versus Q4 2021 and up 18% sequentially. On the costs side, we held our salary, wages, and benefits constant at 12% of revenue, which is among the lowest in the industry. Similarly, our SG&A was only 6.6% of revenue, which is a testament to our strong cost controls. One area we are particularly proud of and want to highlight for our investors is how our revenue growth has translated to improved cash flows. Our cash flows from operations before changes in non-cash working capital were positive in each quarter of fiscal 2022 totaling $9.1 million for the year and $3.5 million for Q4. This shows that our existing base of stores is generating cash. Cash flows generated from working capital were $4.8 million in Q4. Quarter-to-quarter cash flows will change based on how many stores we open in a quarter, which require working capital investment and the overall management of payables and receivables in any given period. However, with Q4 results now available, we can look at it on an annual basis and see that non-cash working capital changes represented a use of cash of $4.6 million in fiscal 2022, just less than half the drag compared to fiscal 2021, where it was $9.9 million. So total cash flows from operations, including the impact of working capital, were positive $4.5 million this year, a big swing from negative $2.8 million last year. Considering that total CapEx for the year, including intangibles, was quite manageable at $9.1 million, you can see that we are not too far off from becoming free cash flow positive, a telling phenomenon for a company growing so quickly. We made significant improvements to our balance sheet during the quarter with the closing of the Connect First facility. Not only do we see meaningful near-term upside to the size of the facility, but with it in place and other debt being paid down, we now have no meaningful debt maturities until December 31, 2024, exactly 23 months from today. For context, I know that our adjusted EBITDA has almost doubled in the past two years from $8 million in fiscal 2020 to $14.6 million in fiscal 2022, and merely annualizing our last quarter puts us at a $20 million run rate. Our total debt currently is at $38.7 million, less than two times this run rate. In closing, Q4 was another record-breaking quarter for High Tide. And based on what we have seen for Q1, we are at a $450 million annual revenue run rate today, cementing us as a market leader in Canadian cannabis. With that, I now turn the call over to the operator to open the lines for the question-and-answer session.

Our first question today comes from Scott Fortune from ROTH Capital Partners. Your line is now open.

Good morning, afternoon, or wherever you are. Congratulations on the quarter. I want to reiterate that you provided useful insights on your M&A and organic store growth targets, aiming for 40 to 50 stores annually. However, your press release mentioned a potential slowdown in M&A activity. I'm interested in understanding where the strong store growth is coming from in the different provinces. As some of these provinces reach saturation, do you anticipate more organic growth or M&A store growth going forward? I'm looking for more details on the store growth as we enter 2023.

Good morning, and thank you, Scott. Absolutely. So Scott, as far as you know, this current year or this past calendar year, we added 45 stores to our portfolio. Most of that store growth came from Ontario, and we had a very even split between organic growth and accretive M&A that we executed on. And we believe 2023 calendar year will be no different. Our intention is to add 40 to 50 stores, pretty much an even split of organic growth and accretive M&A opportunities that we are seeing. We are constantly getting inbound opportunities that we are exploring. But we're going to be very opportunistic and only buy the ones that are most accretive and strategic. So we are the biggest players now, Scott, and we have been for some time, and we are practically setting the price for what these stores are worth. And we continue to get these opportunities, but we're going to be very strategic in terms of how we approach this. But I feel we can still add 40 to 50 locations this year. It's not going to be easy, like I said. We, in typical High Tide fashion, we needed the last day of the year to make it happen, but we did. Our amazing team always comes through. So we believe we can add another 40 to 50 locations this year.

Thank you for the insight. For my follow-up, could you elaborate on your white-label product stores? Specifically, I would like to know more about the offering, the number of SKUs available, the introduction of your own products in the store, and the proportion of your own products that will be sold there. Additionally, I anticipate that white label could contribute over 20% to the revenue mix in the long run. How do you envision white-label growth plans developing as 2023 progresses?

Certainly. Currently, we have 10 SKUs available in the market, with seven being Cabana Cannabis Co. products and three being New Leaf natural products. Our average store in Ontario is generating only 2% of our total inventory sales with these SKUs, which is a small percentage but is expected to increase as we introduce more offerings this year. We've recently added three additional SKUs and will continue to expand our selection. Over the long term, we believe we can reach 25% of our SKUs in our white-label products, which will encompass Cabana Cannabis Co., FAB CBD, New Leaf, and other brands we are developing. We've already seen about 4% in additional gross margins from our existing white-label SKUs. Everything is progressing as planned. Additionally, we anticipate the Alberta market may open up to white-label offerings, which would further enhance our market size. We are very optimistic about the opportunities for margin growth with our white-label products, and you can expect a steady introduction of more offerings from us throughout the year.

Our first question today comes from Frederico Gomes from ATB Capital. Your line is now open.

Hi. Thank you. Good morning, Raj and Rahim. Congrats on a great quarter, and thanks for taking my questions. My first question is about cash flow. You had a good year and generated positive cash from operations. Rahim, you mentioned this regarding free cash flow. I know you might be getting close to that, but could you provide any additional information on when you think that could happen? It's clear you are reducing your burn and improving your business, but any guidance on when you anticipate reaching that would be appreciated. Thank you.

Thanks, Frederico. We've experienced strong momentum this year as we move toward a position of free cash flow. In the fourth quarter, our cash flow from operations before working capital was $3.5 million, and our core cash flow from changes in working capital was $4.8 million. Therefore, our total cash flow from operations in Q4, including working capital, was $8.3 million. Looking at the entire year of 2022, cash flow from operations before working capital stood at $9.1 million, an improvement from $7.1 million in 2021. Our cash flow from changes in working capital was negative $4.6 million, which is better than the negative $9.9 million recorded in 2021. For the year, our total cash flow from operations, including working capital, resulted in $4.5 million, a significant improvement from the negative $2.8 million in 2021. Our free cash flow for 2022 was negative $4.6 million, a substantial enhancement from negative $13.5 million in 2021. Clearly, things are moving in the right direction.

Okay. Thanks for that. And in terms of your margins, your gross margins were pretty stable this quarter, even though you had a higher mix of sales from retail in Canada, which is a lower margin than . So could you comment on that dynamic? What should we expect in terms of gross margins for this year? And what is the opportunity that you see for potential margin increases in Canadian retail? Thank you.

Yes, sure. So our consolidated gross margins have stabilized over the last three quarters. Our CBD margins have come down, given the environment. But more importantly, our brick-and-mortar gross margins have been ticking steadily higher, maintaining that balance. Looking ahead, we think we can increase margins by slowly increasing prices in certain markets, and other initiatives are gaining steam, such as our ELITE program, white-label program, and the introduction of seeds and implementing fast tender across all our locations.

Our first question today comes from Matt Bottomley from Canaccord Genuity. Your line is now open.

Hi there. This is for Matt Bottomley. Congrats on the quarter, and thanks for taking our question. So I just have a quick question regarding the Cabana ELITE program. I know it's only been two months since the program launched, but could you provide some color on how the program has been rolling out so far, and what kind of expectations you have for the program's ramp-up in fiscal 2023, and what kind of drivers you have in place to support the growth of the program over time? Thanks.

Good morning, Johan, and thank you for your question. We have signed over 6,000 members already in Cabana ELITE with less than 2% of our inventory in actual ELITE products. We are very excited about this uptake as we have just launched this program. It's a unique initiative that we believe sets us apart from others in the industry. We see a bright future for the ELITE product line, anticipating it could make up 30% to 40% of our in-store offerings in the long run. Currently, we are at 2%, and we expect significant growth as we roll out more ELITE products. This week alone, we expect to introduce around 55 to 75 new SKUs, which should positively impact the uptake of ELITE products over the next few years. We plan to introduce new ELITE offerings every quarter, creating a high-margin recurring revenue stream for High Tide, which will enhance customer loyalty. Our club members already make up over 90% of daily transactions in stores, and transitioning these members to ELITE will strengthen that loyalty. Currently, we are achieving over 70% gross margins on ELITE, offering it at half price for now. However, prices will increase to $60 a year or $5 a month next year, which we believe will enable us to yield over 80% gross margins on ELITE.

Right. Thank you so much. I appreciate the color. I'll jump back into the queue.

Our first question today comes from Andrew Partheniou from Stifel. Your line is now open.

Thank you for taking my questions. Congrats on the cash generation this quarter. I wanted to just get a little bit of clarity on the language. In the press release, you discussed slowing down M&A activity. But in your outlook for new stores, it seems that you're guiding for roughly the same number of acquisitions as last year. So if you could just clarify what you meant by slowing down M&A activity in the press release, that would be helpful.

Good morning, Andrew, and thank you for your question. I understand the confusion, so let me clarify. In 2021, we acquired six e-commerce platforms both in the U.S. and internationally, including one in the UK. By slowing down M&A activity, which I have mentioned multiple times, I mean that with our equity prices remaining depressed, we are not willing to pay 5 or 6 times EBITDA. Our focus is now shifting towards smaller, highly accretive brick-and-mortar M&A similar to what we did last year. As you know, 87% of our revenue comes from brick-and-mortar operations, which have no impairment, and impairment is not typical for us. Considering the current market dynamics, our complementary business lines are supporting our brick-and-mortar operations, particularly the e-commerce platforms for consumption accessories, which are healthy due to having some of the most searchable websites for these products. We plan to slow down on larger M&A transactions like those from 2021. Although we explored many opportunities in 2022, we decided not to proceed due to ongoing macroeconomic factors, inflation, and its impact on consumer spending. Our brick-and-mortar business remains strong and our strategy is effective. We have numerous inbound opportunities and we are not actively soliciting M&A candidates. However, if a suitable opportunity arises in the right location, which is critical for us, we know our model will significantly outperform. Our sales in Alberta are more than double the provincial average and nearly three times the average in Ontario. We will continue to focus on our core brick-and-mortar business through accretive M&A and organic growth, but we will be cautious with online opportunities unless an exceptional deal presents itself.

I appreciate the clarification. Thank you. For my second question, I would like to follow up on what you mentioned regarding valuation multiples. Last year, I believe you paid below one-time sales on average and between 4.5 to 5 times EBITDA for your stores. What multiples are you observing now, and what are your thresholds? Additionally, how are you planning to fund these? You just announced a credit agreement, and last year it seems there were only two transactions with cash components.

Correct. For clarification, most of our deals last year were between 3.5 and 4 times EBITDA, primarily in Ontario and Saskatchewan, with some in Alberta. The only deal in British Columbia exceeded a 5 multiple, specifically 5.25, which is typical for that market due to its limited-license opportunities. We have been disciplined in our acquisitions and will continue to be. As for this year's multiples, we believe our stock is currently undervalued, trading at an enterprise value to current annual run rate sales multiple of 0.4 times, with EBITDA multiples of less than 9 times annualized last quarter. With the addition of Jimmy and considering our future growth, we are cautious with our M&A approach, and the multiples will reflect our previous decreases. We might achieve better deals than last year but with minimal improvement at 3.5 times EBITDA. In mature industries, such as restaurants and retail, multiples below 3.5 or 4 times EBITDA are rare, making them reasonable amounts to pay. There are two ways to approach M&A: buying with cash or equity. While others have raised significant funds, we have not and focused our total CapEx spend last year at about $9 million. This year, we plan to manage cash effectively by pursuing half of our growth organically and the other half through strategic M&A using our equity effectively, ensuring an even split between the two.

Our first question today comes from Andrew Semple from Echelon. Your line is now open.

Hi there. Good morning, and congrats to the High Tide team on the very strong fourth quarter results. I'm glad to see the continuing momentum in retail in Canada. First question here, just wanted to go back to, I guess, some of the prepared remarks about the e-commerce sales, and I really appreciate the additional color there. Based on my math, it actually appears that the e-commerce revenues are actually beginning to show a bit more stability, maybe down low single digits quarter over quarter compared to the double-digit declines you saw in Q2 and Q3. Do you believe the segment could return to growth in the year ahead, or is it too early to tell on that?

Good morning, Andrew, and thank you for your question. Our e-commerce segment has been stable quarter over quarter. I want to emphasize that our accessories business is performing well because GrassCity and Smoke Cartel are the top two online accessories platforms globally, which has helped them remain unaffected by market fluctuations. The impact we've experienced is mainly within our CBD businesses across the board, both in the United States and with Blessed in the UK. As I mentioned in our last earnings call, when consumers prioritize essentials like food and gas, they tend to be hesitant about purchasing a $100 bottle of CBD. However, this doesn't imply that our brands aren't strong or positioned to capture market share as more global markets become accessible. We prefer to under promise and over deliver and avoid discussing unrealistic expectations. We are stable quarter over quarter and had a successful holiday season. As we noted in our earnings release, sales typically slow down after the holiday season across sectors, including cannabis, CBD, and consumption accessories. This trend was also evident with ELITE; during the holiday season, customers have more disposable income, but spending tends to decrease as we move into the next season. We believe our e-commerce platforms will remain stable and are not experiencing significant declines. As always, we prefer to be cautious. Our core business is predominantly brick and mortar, comprising about 87% of our operations. The remaining 6% to 7% of our online accessories business continues to thrive thanks to our strong search visibility on Google. Regarding our CBD brands, I am optimistic about their future, especially as new markets, including Japan, begin discussions on medical cannabis legalization, which could lead to greater acceptance of CBD products. I am also engaging in conversations in the Middle East. We are not worried about the long-term outlook for our CBD business; we just want to keep our expectations realistic and remain cautious.

That additional color was very helpful. Thank you, Raj. Moving to another topic, I just wanted to touch on the German market. As you look to enter that potential market opportunity, do you have any views on how the German market may regulate adult-use cannabis retail distribution as of yet? Have those rules been made clear, and do you have any thoughts on timing? I know you said it's early as this spring, but as we go back to our models, how should we be thinking about timing after this potential opportunity?

Certainly. Andrew, while this is currently speculative, we believe it's informed speculation. We're hearing that Germany plans to introduce legislation this spring, with a draft expected to be released soon, possibly allowing retail sales to start in the first quarter of 2024. We're closely monitoring these developments in Germany. This is also why we're excited about our strategic partnership with Sanity. They are an ideal partner to help execute our strategy in that market. Sanity is a leader in Germany, and our business operations complement each other well. As a retail-focused company, we benefit from their expertise as producers and distributors of cannabis brands. We want our investors to know that we are serious about entering the German market. Sanity has already made significant strides in Germany and can support us in identifying quality M&A opportunities in Germany and other EU countries, as well as securing retail licenses. Additionally, both companies can collaborate on government outreach, which we've already started. We will also assist Sanity with various initiatives to build their brands while adhering to local regulations. We have real-time insights into product trends in Canada and understand what cannabis consumers are seeking. Overall, this partnership is promising. We're looking forward to the German market opening, which we anticipate will happen in the first quarter of 2024, and we will be prepared for that.

That concludes today's Q&A portion of the call. I'd now 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're 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 great day, everyone.

That concludes today's High Tide Inc. year-end 2022 earnings call. You may now disconnect your line.