Good morning. My name is Leo, and I will be your conference operator today. I would like to welcome everyone to High Tide Inc.'s First Quarter of 2023 Unaudited Financial and Operational Results Conference Call. I will now turn the call over to your host.

Thank you, operator. Good morning, everyone, and welcome to High Tide, Inc. quarterly earnings call. Please note that all 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. Sergio Patino, Interim Chief Financial Officer. On March 17, 2023, the company released unaudited highlights from its financial and operational results for the first quarter ended January 31, 2023. 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, other than statements of a historical fact, constitute forward-looking information or 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 March 17, 2023, our latest annual information form, and our latest management discussion and analysis each filed with the 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 first quarter ended January 31, 2023. As disclosed in Friday's press release, we generated record revenue and adjusted EBITDA for the second consecutive quarter, as well as a 64% improvement in free cash flow from our operations. Following this momentum on Friday, we made it clear that it is our objective to become free cash flow positive by the end of this calendar year. I'll start this call by providing an overview of our results and other key developments in the first quarter. Sergio will discuss the financials in-depth and after that, we'd be pleased to answer any questions you may have. Let's go over the highlights from our Q1 results. Total revenue for the quarter was $118.1 million. This was up 64% year-over-year and up 9% sequentially. Our consolidated gross margin was 27.3% in Q1, which is consistent with the prior three quarters. I note that gross margins earned from selling cannabis in our core bricks-and-mortar stores were higher this quarter. Our Canadian revenue represented 84% of total revenue and continued to post gains. Same-store sales in our stores were up a massive 52% year-over-year and 4% sequentially, making it the sixth consecutive quarter of sequential same-store sales increases. While the quarter-over-quarter same-store sales growth number has normalized over time from the supercharged pace we saw initially, we continue to outpace national same-store sales changes within the Canadian cannabis sector. If we can keep it up, 4.25% translates to a pace of 17% annualized, a rate I suspect most of our competitors would love to reach. Our national market share outside Québec rose another percentage point during Q1 to 9%, which was the fifth consecutive quarter where we made a 1% increase. We continue to believe that we have the best retail cannabis concept in the country, and this is evidenced by the outperformance of our stores. Our average store in Alberta, where we have our largest footprint, generates twice the revenue as the provincial average, while our average store in Ontario, by far the largest cannabis market in Canada, generates more than triple the average revenue in that province. Adjusted EBITDA for Q1 2023 was a record $5.5 million, representing our 12th straight quarter of positive adjusted EBITDA. Our adjusted EBITDA was up 10% versus Q4 2022, which itself was a record high for the company, and was up 86% versus Q1 2022. Our results have never been stronger and they are sustainable, as evidenced by the fact that we have now generated $17.2 million in adjusted EBITDA over the past four quarters, which is more than ever in the history of High Tide. Our balance sheet remains strong. We ended the quarter with $23.7 million in cash on hand. Our total debt currently stands at $40.3 million, with no meaningful maturities until December 31, 2024. We continue to have a great relationship with Connect First Credit Union. Our $19 million facility with them carries an enviable rate of prime plus 2.5%, and we are in discussions to increase our borrowing capacity with them. During our last conference call, we outlined our objective to add another 40 to 50 Canna Cabana locations in 2023 via a fairly even mix of accretive M&A and organic store openings, which is what we achieved in 2022. Today, given the macro dynamics in the market, we are no longer aiming to grow that much this year. A quick look at our store count, revenue, and EBITDA charts can tell you that we know how to grow at High Tide. We have built the largest revenue-generating company in Canadian cannabis despite never having more than $30 million at the end of any quarter, and we have improved profitability as we did so. However, we also know how to be nimble and adapt to the changing environment. About two years ago, it became clear to us that we needed to shift to a well-rounded value offering in our stores to be able to really outperform in the market. So we launched our innovative discount club concept, which has been a smashing success. Similarly, the past two years, we had the time to grow our footprint at an unmatchable pace, and we did exactly that. We have now cemented our standing as the clear leader in Canadian cannabis retail. We will continue to grow, but it's no longer the time to keep the gas pedal continuously slammed on the floor and drive as fast as possible unless a compelling opportunity presents itself. Already having achieved more scale, now is the time to tighten up our operations and focus on becoming among the first group of Canadian cannabis companies to be free cash flow positive. We have already made great strides on that front, which I will highlight in a moment, but it's time for a relative pause on the pace of expansion of our network. On the organic side, there are still some leases we are building out, which are located in prime real-estate plazas in thriving markets, and we have high hopes for these sites. However, this will be at a significantly reduced space than in the past. Slowing down will help reduce our cash outlays to build out new locations, accelerating our goal of becoming free cash flow positive by the end of this calendar year. Further, we won't have to endure as much of a ramp-up period before new stores can reach maturity. While this ramp-up period is shorter now with our discount club model, newer stores still represent a drag on consolidated metrics in the short term as they advance towards maturity. For example, we opened eight stores organically in British Columbia, Ontario, and Manitoba since November. We are happy with the performance of these stores, and each one of them has posted sequential gains every month since opening, including February. However, because they are new, the revenue run-rate is currently still well below Canna Cabana's average in those provinces. In aggregate, onboarding fewer new stores throughout calendar 2023 will reduce these growing pains and pressure on the near-term cash flows. We continue to get the best real estate opportunities offered to us by major landlords, so we can be very selective and opportunistically build them out over the course of the year. Similarly, the environment for consummating M&A transactions has become much tougher. Despite our proven leadership in the market, the consistently improving profile of our financials and a strong balance sheet, our share price has nonetheless fallen to new lows, which we largely see as a guilt-by-association phenomena across the cannabis sector. As a painful milestone of this disconnect, I note that we just reported about the same level of revenue for one quarter as our entire current market cap. This has made entering into M&A now significantly less attractive or accretive than in the past. Accordingly, we are doing the prudent thing and meaningfully slowing down acquisition activity. I remain High Tide’s largest shareholder, having never sold any of my shares and dilution is on my mind more than ever, especially given the current share price. If a transaction is strategic and the terms are too good to pass up, we can still engage. But we have raised the bar for what we will buy, and therefore, we no longer expect to add 40 to 50 stores in this calendar year. Despite our market leadership position in a growth industry, our operational excellence, and our strong balance sheet, our shares are currently trading at 0.3x our current annual revenue run rate and just 6x our recently reported adjusted EBITDA annualized. This is not the time to issue more shares unless an opportunity is absolutely compelling. Again, we know how to grow, we know how to execute operationally, and we know how to adapt to changing circumstances. Our focus right now is on fine-tuning our existing operations, on improving how we manage working capital, becoming more efficient in our back office, and all with the goal of being in the first group of Canadian cannabis companies to achieve free cash flow profitability. So let's look at the strides we've already made in that regard. Cash flows from operations before changes in non-cash working capital were $4.4 million in Q1 2023. This was the sixth consecutive quarter where this figure was positive and was up meaningfully versus $1.7 million in Q1 2022. Over the past four quarters, cash flow from operations before changes in non-cash working capital has totaled $11.9 million. In Q1 2023, including the impact of changes in non-cash working capital, which excludes leases and CapEx, total cash flows from operations were positive $2.1 million, a huge swing versus negative $1.6 million in Q1 2022. Recall that we opened eight new stores organically in Q1 2023, and as we slow down the pace of new store builds going forward, we expect investments in working capital to represent less of a drag on our overall cash flows. CapEx was $1.7 million in Q1 2023, which was again down from $2.5 million in Q1 2022. So our cash flows from operations this quarter were more than enough to cover working capital investments and capital expenditures. Again, as we put up fewer new stores going forward, the drag on cash flows represented by CapEx should further lessen. Now due to IFRS standards, lease payments are shown as financing items in our cash flow statement, and investors may want to consider the full free cash flow picture including leases. Lease liability payments were $2.7 million in the first quarter of this year while they were $2.2 million in Q1 2022. Putting it all together, our total cash flows from operations after CapEx and our leases were negative $2.3 million this quarter versus negative $6.3 million in Q1 2022, representing a 64% improvement. This is the number we are aiming to improve and shrink to positive territory in the near future. 9% of the increase in revenue between Q1 2022 and Q1 2023 flows down to free cash flow improvements. This was also helped by the strong cost controls we have been implementing. We note that SG&A was only 6% of revenue this quarter, down from 8% in Q1 2022 and 7% in Q4 2022. We are confident that by slowing down growth for now, focusing on maximizing our operations, and further tightening up our SG&A, we can achieve this goal. We will keep our eyes on macro conditions, and when the time is right, we will shift up and step back harder on the gas as we continue to capture market share in Canada and internationally in the coming years. We are closing in on the milestone of 1 million Cabana Club members, and this membership base will be key to us reaching our objectives. We are currently sitting at over 975,000 members today, representing 14% of cannabis users across the country, excluding Quebec, by Health Canada's 2022 Canadian cannabis survey. ELITE signups continued to grow, currently standing at approximately 9,500, representing a 58% increase since we last reported our financial results just over six weeks ago. Having paid $30 a year for ELITE status since the first year, at half price, we expect these customers to be even more loyal to the Canna Cabana banner. Recall that we only launched ELITE in late November and ELITE-only SKUs represent approximately 2% of our in-store offerings today. Over the long term, we will be focusing our SKU selection towards ELITE by having at least 25% to 30% of our in-store offerings be ELITE-only. With the ramp-up in our ELITE inventory and with more word of mouth, we anticipate ELITE sign-ups to accelerate over the coming quarters. Given the higher gross margin profile and the fact that we collect annual membership fees all upfront, this shift further helps improve our operational cash flows. In terms of what we are seeing in the competitive dynamics in Canadian cannabis retail, the margin landscape is starting to show positive signs and things are inching higher. Many operators can't keep up with this market and are closing stores. We expect this to continue as we approach the five-year anniversary of cannabis legalization this year, and we expect to receive a disproportionate amount of that revenue. I would like to offer a piece of insight regarding expectations for Q2 for two reasons, which are entirely calendar-based. First, our fiscal Q1 includes the holiday season, which always makes it a difficult comp for both our bricks-and-mortar stores and our online consumption accessories and CBD businesses. And second, Q2 has three fewer calendar days when compared to fiscal Q1. With no new stores having been opened so far through the quarter, it leaves same-store sales as the main driver of consolidated revenue growth. We have often compared our same-store sales gains to the total national picture, including the impact of new stores. On that front, we made solid gains in daily same-store sales in February versus January, with the moving parts of daily average sales growth on one hand versus there being three fewer days a tough comp and not much in the way of new store openings in aggregate. We expect Q2 to look very similar to Q1. These factors of having three fewer calendar days and comparing against the holiday season will disappear after Q2. Again, we're tightening up our shift, focusing on optimizing cash flow from operations, slowing down new store expansion, and margin-enhancing initiatives including Fastendr, ELITE, and our white-label program gaining momentum. We expect to once again increase our rate of Canadian store expansion once we have reached our objective of becoming free cash flow positive later this calendar year. Since High Tide's inception 14 years ago, we have built what is now the largest revenue-generating Canadian cannabis company, which includes the largest non-franchise bricks-and-mortar retail portfolio in the country. We are now the clear retail leader in Canada and we are taking steps to ensure we keep it that way. As Canada's cannabis revenue leader, even with timid assumptions, we anticipate passing $0.5 billion in annual revenue run rate by the end of our current fiscal year. I want to give a huge thanks to our team for helping deliver the best quarter yet in High Tide's history and for enthusiastically embracing the next chapter in our company. On that note, I would like to pass it over to Sergio Patino, our new Interim Chief Financial Officer for his comments.

Thank you, Raj, and hello everyone. I'm very excited to be part of the High Tide team and share these great results and the road ahead. In the first quarter ended January 31, 2023, the company recorded consolidated revenue of $118.1 million, representing an increase of 64% year-over-year and 9% sequentially. As a percentage of revenue, gross profit remained consistent versus the prior three quarters at 27.3%, but down from 32% in Q1 2022. This reduction was intentional, given the new discount club model, we launched almost a year and a half ago. The primary importance, however, is that our retail stores' gross margins earned from selling cannabis in Canada, which drive the vast majority of our revenue, were up sequentially in Q1. Our consolidated gross profit was a record $32.2 million in the first quarter of 2023, up 40% year-over-year and matching the 9% revenue growth sequentially. Gross margins in our cannabis stores have not only stayed stable; rather, they have moved higher over the past 12 months. And as ELITE membership and our white-label initiatives start to become more meaningful over time, as well as Fastendr, which is the retail kiosks technology that continues to roll out, each of these will have a positive impact on our consolidated gross margins in the future. We hit a new high in our adjusted EBITDA at $5.5 million in Q1, up 86% versus Q1 '22 and up 10% sequentially. On the cost side, we have our salaries, wages, and benefits at 12% of revenue, consistent with the last three quarters, but much lower than 14% in Q1 2022. Similarly, our G&A was only 6% of revenue, representing an improvement from 8% in Q1 '22 and 7% in Q4 '22. This is a testament to our strong cost control, which we are looking to further tighten, as well as a demonstration of the tangible benefit of scale for shareholders. As highlighted by Raj, our cash flow situation improved significantly in Q1. Our operations generated enough cash to cover working capital investment and operations. We are within striking distance of also covering our lease payments. It is tough to predict exactly when this will happen, but with continued improvement in our operations, optimizing the back-office, and higher-margin initiatives kicking in, we don't believe that day is far off. Meanwhile, we are in good shape for cash. We ended the quarter with $23.7 million in cash and have no meaningful debt maturities until December 2024. In terms of our ability to access more non-dilutive capital, I note that in a market where so many cannabis companies are going to CCAA protection, given our execution, we are currently in talks to meaningfully increase how much we can borrow with Connect First. At the same rate, prime plus 2.5%. In closing, Q1 was another great quarter for High Tide. Our company is a clear leader in Canadian cannabis and is the largest revenue-generating cannabis company in Canada, reported in Canadian dollars. Our new objective to generate free cash flow by the end of this calendar year will ensure that we will not only survive but continue to grow in the future. With that, I will now turn the call over to the operator to open the lines for the question-and-answer session.

Thank you, Sergio. Our first question comes from Scott Fortune from ROTH MKM. Scott, please go ahead.

Yes, good morning and congratulations on the quarter. Just wanted to provide a little color if you could on the current retail market in Canada and the strategy to step back and target. You were targeting 200 stores in the timeline. Are you seeing consolidation occur? There has been some over-saturation. How do you look at that kind of store opportunity for you from a maturing marketplace from that standpoint? And then can you provide color on the different provinces, where you still have some focus or opportunities to grow, as you look at the opportunity overall for 2023 for your store opportunity from that standpoint? Just kind of step in the strategy, as you look going forward and what will need to change to kind of really accelerate from that store growth?

Sure. Good morning, Scott. Thank you so much for your question. So just first of all, answering your overall question about the situation of the retail market in Canada. So obviously, we are still experiencing, and I think we will continue to experience, hyper-competition overall in the Canadian cannabis retail landscape. But for the last five months, if you look at Alberta, which is our largest store footprint, it has actually shown negative store growth, which is healthy for this environment that not more stores are opening up and operators that are currently existing can improve their economics in these markets. And if you look at Ontario, which is the largest market in Canada, Ontario's new store growth has also drastically slowed down. Now overall on our goal, Scott, 200 stores was our goal almost to reach in 2023 or early to mid-2024. But we are now focusing on free cash flow generation ahead of broadening our store network. Scott, if you look at our track record, we have clearly delivered growth. Cannabis was in early innings. And if you look just four years ago, our total revenue was $8 million. Now our current run rate is exceeding $472 million. So you can see the exponential growth there. We have clearly proven that we can grow. So I'm not concerned about how quickly we reach 200 stores anymore. The good news is being the market leader already in Canada, it's up to us we can practically dictate terms on slowing down and picking up stores when we need or ramping up organic growth. Like I said in my prepared remarks, we're getting a lot of high-quality real estate sites offered to us by some major landlords in the country. And I'm a sucker for good locations, so it's really hard to deny those excellent locations, but we are still going to be very picky and we're going to pace out the build-out of these stores. So the focus remains on free cash flow generation. But at any given time, if the market improves and the macro improves, right now we have a lot of challenges in the cannabis capital markets. As these dynamics improve, we can always shift back to store growth again and meet our long-term goals of 200 stores in the next year and a half. And in the next two to three years, our overall long-term goal of hitting 250 stores in Canada. That's totally possible. But I think the most responsible thing to do right now while the market right-sizes itself is just to focus on our operations. As you can clearly see, we've done a great job with our SG&A. We are going to continue to do that, Scott, and eventually reach our long-term goal of 200 stores.

I appreciate that color. And then one follow-up for me is kind of the cadence of the Cabana club members has been flowing. Obviously, you've done a great job to meet your original expectations with 975,000 there. But what do you see? Are you having to add more incentives, more marketing for them, the continued spend? What do you think on the current spend, average spend for those members in the stores? And just a little bit color on the cadence of the ELITE number growth. You kind of say it's more gradual growth throughout the year, but a little more color on the ELITE member side of things would be great.

Sure. So, Scott, I'm extremely happy. And I'm actually very pleasantly surprised how rapidly we've grown our Cabana club. As you remember about 15, 16 months ago, Scott, when we launched the discount club model, we were sitting at 245,000 members to be precise. And we've exceeded 975,000 members in just 15 months. I mean, if we were close to 800,000 members right now, I would have been very happy. But we've clearly surpassed that growth and it's been at an extremely rapid pace over the last year and a half since the launch of our discount club model. We cannot be expected to continue growing at such explosive growth. It's basically not possible because a lot of our locations are starting to hit maturity. But I'm very, very pleased with where we sit today; like I said, we have currently about 14% of the Canadian cannabis marijuana smoking population in our ecosystem outside the province of Quebec. I think that's a pretty large number. So I'm very happy with Cabana clubs sign-ups, where they're currently sitting. Like I said, we still have the opportunity long-term to add 80 to 100 stores to get our 250 store number. That would also be in new markets, as well as existing markets. So we think that that growth will start to ramp up again. But I think we are going to go through a more reserved time in the Cabana club sign-up growth because we are not focused on opening new stores, and our existing stores are getting close to maturity now. On your question on ELITE, so we grew 58% in the last 45 days, which was adding another 3,500 members in ELITE, which I'm very, very happy with because you think about it, Scott, we are the first paid concept in cannabis and we've started this from scratch. And our current store inventory only represents 2% in ELITE items. When customers come in, they need to see more inventory that represents ELITE for them to be sold in this market that, yes, this is the direction we want to go. So having signed up another 58% of our members in just 45 days, a growth by 58%, I'm very, very happy with it. I want to see a steady increase every quarter, and we are confident that we can make it happen. Long-term, we think we can add 25% to 30% of all of our in-store offerings to represent ELITE inventory. So I think as the SKU offerings go up, our ELITE number will continue to climb sustainably.

Hi, good morning. This is Yewon on for Matt Bottomley from Canaccord Genuity. Just one from me here regarding the bolt to generate positive free cash flows from ops this year. Understanding that you guys are trying to shift gears away from looking at further M&A opportunities and focusing more on generating positive cash flows throughout the rest of the year, are there any other initiatives apart from the elimination of additional store openings to further safeguard your position?

Good morning, Yewon, and thank you for your question. Yes, there are absolutely more initiatives that play. Slowing down store growth is only one of the factors that is going to help us get to free cash flow positive. But one other very important internal factor, as you can see, is we made significant strides in improving our SG&A, which was 8% in Q1 2022, 7% in Q4 2022, and now 6% in Q1 2023. So we're very, very focused on cost controls, and we recently initiated a company-wide project that looks at all of our systems and processes, especially in our acquired entities. We acquired six e-commerce platforms in 2021, five in the U.S., one in the U.K., three in the accessory space, three in the CBD space. All of these companies use different systems, different processes, and what we are doing now is by initiating this internal review project, which we will act upon in the coming months, I think it will help us considerably tighten our operations further and yield a lot more efficiencies than we are currently realizing, which will be the end result of that would be, again, free cash flow improvements in our overall cash flow. So we're looking really good from that perspective. This is a multi-pronged approach. It's not just slowing down growth. It's a total focus now on strengthening and tightening our operations.

Hi, good morning. Thanks for taking my questions and congrats on the good cash generation this quarter. Just a housekeeping item. I'm not sure, maybe I missed this in the prepared remarks, but could you quantify your sales from Cabanalytics this quarter? And how should we think about that going forward?

Sure. Good morning, Andrew. Thank you for your question. This quarter, we generated $6.6 million from our Cabanalytics data sales, which is an increase of about 3%. This is a timely question because we are observing significant disruptions in the market, with many licensed producers struggling to remain operational. The CCAA proceedings are widespread, and data has become crucial for these growers. It helps them determine their manufacturing priorities and provides real-time insights into what products are selling in our stores, which form the largest network in the country. Therefore, they cannot afford to overlook our data program. Nevertheless, I understand the difficulties in the market; when they can't manage their payroll, they won't have the funds to subscribe to our program. We are already noticing a considerable slowdown in our data program and do not expect to maintain our current growth rate. In fact, we may see some negative growth in data sales, which is acceptable. On our end, this presents an opportunity to increase margins. We executed our strategy effectively by starting as a discount club model, and now, given our sales volume, we are in a position to dictate terms as a major retail player in the country. Currently, we have 151 stores open, but the cannabis sales we generate are equivalent to what about 350 to 375 stores would produce. This gives us the chance to raise our margins, and the industry is looking to us to do so. Our focus is shifting more towards this approach. I sincerely hope for a swift improvement in the industry, particularly for growers, who are experiencing significant challenges and are our largest customers. While we are starting to see a slowdown in our data sales, I cannot predict the exact trajectory of this situation, but it will certainly slow further. However, this will be balanced out by the margin increases we can achieve in our retail operations.

Thanks for that. And maybe going off what you just talked about, potentially improving the margin on the Canadian retail store side. I mean, we've seen, at least in the Canadian geography here, that your gross margin has been roughly stable over the past three quarters. Could you remind us what your growth levers are? I think earlier you talked about Fastendr, you talked about ELITE, you talked about your white-label strategy. Could you go into a little bit more detail on how that could impact gross profit and help us understand a little bit better, please?

Sure. Andrew, our gross margins have not only remained stable but have actually improved in our brick-and-mortar business, which is at a level of 84%. We have seen gross margins increase from around 16% to over 20% since launching our discount club model. However, we have experienced some margin loss in our CBD businesses, where we've lowered prices to stay competitive and continue generating revenue, which we expect to improve over time. Our core brick-and-mortar operations have consistently shown steady margin growth each quarter, and we expect this trend to continue. As the market leader in Canada, we have the potential to further drive margins higher, but we are approaching this cautiously to ensure our customers remain satisfied with our pricing, as we guarantee the lowest prices in the country. To support this, we have implemented initiatives like white-label programs and ELITE membership fees. The white-label program, including products such as Cabana Cannabis Co. and NuLeaf Naturals, is generating an additional gross margin of about 5% to 7%. Currently, we have about 10 products on the market, including vapes, gummies, and pre-rolls, and while we would like a quicker rollout, we face regulatory challenges in different provinces that slow the process. The growth of the white-label program will be gradual but beneficial for our margins. As for the ELITE membership, even at $30 a year, it is yielding over 70% gross margins, which is excellent and will contribute significantly to our margins as it continues to expand. Fastendr has recently been reintroduced in our stores after a brief hiatus, and its new operating system is performing exceptionally well, with customer feedback being very positive. As we see increased usage of Fastendr, we expect that our revenue can grow without a corresponding increase in payroll expenses, thereby improving our margin situation. With initiatives like Fastendr, ELITE, and the white-label program, we are optimistic about enhancing our margins and achieving a healthier business structure.

Thank you, and congrats to the High Tide team on the strong first quarter results. Also, want to welcome Sergio to the call. Apologies if any of these have been asked. I had some technical difficulties just a moment ago. But just want to ask first on the e-commerce segments, which appeared to show some really nice momentum in the quarter. Based on my math, I think that was up maybe 25% to 30% quarter-over-quarter. Just want to get some color on whether that was mostly due to the December holiday seasonality or were there some other factors at play? I know you also launched cannabis seed sales within the quarter and wonder how meaningful that was within the initial launch?

Good morning, Andrew. Thank you so much for your question. So great question on e-commerce, and I'm glad you asked because it can be looked at in a way where it won't match the rest of the year. So the holiday season, as I mentioned in my prepared remarks, Andrew, is always hard to compare with our bricks-and-mortar business and also our e-commerce business. It's definitely the biggest quarter for our e-commerce business, more so than even the brick-and-mortar business. So you're not going to see the same type of growth and momentum in e-commerce that you did in Q4 or in Q1 definitely. So that you will see us slowing down. And again, people are prioritizing more on the TSC sales and more recession-proof and more stable than when it comes to consumption accessories and especially CBD businesses where it's hyper-competitive in the CBD landscape today. So our CBD businesses are not performing as well as I would like them to perform, and it's also a result of where the current market conditions are in terms of the overall macro conditions. So, you'll definitely see e-commerce sales slowing down in Q2, but we are hoping they'll pick up back again in Q3. There's always a bit of a lag after the holiday season where folks end up spending a lot and then they mind their wallet over the next quarter, which is our current quarter that we're in. So you're not going to see that kind of momentum. Your second part of the question, I think you asked me about cannabis seeds. So we had a great cannabis seeds launch. We were very excited about it. We actually extended that launch to Dankstop and Dailyhighclub as well. We extended it from Smokecartel and Grasscity and we just hit a peak revenue on our seeds, a weekly peak revenue, which I was very, very happy to see just about a week and a half ago. And then we got a call from our payment processor that their credit card partners are reevaluating their strategy on whether they want to allow seed sales or not. So we have halted our seed sales over the last week or so, I would like to say or maybe 5, 7 days or so. And we are waiting for direction from our payment processor on which way they are going to proceed. Or are we going to have to look for a different payment processor? We are just not sure. But currently, seed sales are on hold after a really nice start.

Great. Good to know and appreciate the additional color there. Turning again to the free cash flow outlook and the comments on positive free cash flow expectations. Once you hit that milestone, do you think there will be opportunities to reaccelerate growth? Just trying to get a sense of what you might envision doing with positive free cash flow once that's achieved. And particularly on the M&A side, I know much of the M&A in the past has been driven by share consideration. I'm wondering once the business sits positive free cash flow whether cash consideration becomes increasingly important to prevent dilution going forward?

Yes, Andrew. So currently, like I said, currently the focus is entirely on free cash flow rather than broadening our store network. But we live for growth. We've proven to the market what we can do. We are the clear leader in Canada for a reason. We added 45 stores last year alone, and we added 45 or 50 stores a year before that. So anytime we want, Andrew, we can add another 40 to 50 stores in a year. It's not easy to do, but we've proven our execution that we are able to do so. So I'm totally not worried that we are taking a bit of a pause from growth and focusing on free cash flow. We've been a Canadian leader in terms of doing many firsts in cannabis, whether it was top revenue generation, bricks-and-mortar store count, building a diversified cannabis ecosystem, launching ELITE, which is a first-of-its-kind paid membership program in cannabis; we are not worried whatsoever that we'd be able to get to that 200 store number once macro improves. We definitely want to take our time, and Andrew, things just continue to get cheaper and cheaper. As we wait, stores are going down even more in value. And when we were paying 3.5x EBITDA, we were still trading at 8x, 9x, 10x, 12x. Now we are trading at 6x EBITDA on a current annual run rate. Right? So it just doesn't make sense to push hard at the moment on M&A. So we are going to take a good pause on M&A unless the opportunity is absolutely compelling. And going forward, your question was, would we be using cash for M&A versus stock for M&A? The intention is going to be built out our stores organically with the cash that we are generating. That is the number one priority. Again, we will be again eventually in the future in hyper-growth mode again when Germany opens up, when the United States opens up, and we still have about 80 to 100 store opportunity in Canada. And the first focus is going to be to build that bricks-and-mortar network, continually build that bricks-and-mortar network from the cash flow that we generate. And then if we have additional cash flow, yes, that can also start going towards M&A. But I think it's a little ways out, and I'll be able to talk to you about that progress within the next two to three quarters out, but you're going to see that we've calmed down on M&A, and we are absolutely delivering on our goal to become free cash flow positive.

Hi, good morning Raj and Sergio. Congrats on a great quarter. Thanks for taking my questions. Just you mentioned that you have a company-wide initiative with some consultants to improve your integration. Could you maybe provide some specific areas where you think you could become more efficient and how much in terms of cost you think you can save on the OpEx side with those initiatives? Thank you.

Sure. So good morning, Fred, and thank you for your question. So the company-wide initiative that we launched about six weeks ago is really evaluating all of the systems that we have company-wide, and we have many. We acquired six companies in 2021 alone. On top of that, we've acquired a lot of bricks-and-mortar stores, which is more of a plug-and-play situation for us. But anything at an entity level that we've been doing in the U.S. and the U.K., the three CBD units, and the three consumption accessory units, they all use different systems. They all use different processes. Now, Dankstop came with a New Jersey office and warehouse, which we've shut down now. FABCBD came with the Wisconsin office and that's in the process of shutting down and moving everything to our Denver, Colorado office. But there is a lot to evaluate when it comes to our systems, our processes, and our global warehousing and office consolidation. At the moment, we are too spread out. We are generating some fantastic results. But imagine what we can achieve when we can further tighten up our ecosystem with some of this low-hanging fruit that we have. So this company-wide initiative that we launched, we are very, very hopeful that we would be able to find some really nice savings and really good efficiencies for our people to work smarter, not harder because at the moment using spreadsheets on top of four or five different systems is just not ideal. It's just a product of necessity that we are dealing with because of these acquisitions. But now that we have some downtime from growth, we are not looking to buy entity-level businesses. We are not looking to do unlimited M&A in Canada on the brick-and-mortar level. I call this the calm before the storm again. We get to review each and every part of our organization, systems, processes, and workflow, and get some really good efficiencies out of it. So I remain very excited about it, and you know, things are looking good on that front, Fred.

Thank you for that. And then maybe you have pulled back your guidance on new stores, but I understand that you will continue to expand your footprint at a slower pace. So can you talk about maybe what sort of base of expansion should we expect this year, absent any M&A that might be compelling enough that may come along the way? You mentioned you have some leases in place already, and will that expansion come from Ontario mostly or any other provinces you want to highlight? Thank you.

Sure. So Fred, we may still add a couple of stores this quarter towards the end of this quarter or at least one store. And then you'll see a bit more growth towards the latter half of the year, the second half of the year. And this is simply again because we want to keep an eye on our cash flow number, free cash flow number and see where it's headed at the end of this quarter, the current quarter that we are in. I think we would still be able to add 10 to 20 stores by the end of this calendar year. Again, I don't want to put any fixed number in place because we want to remain fluid with this strategy, but we have a lot of beautiful organic research that we currently have in our hands that we've slowed down on the build, but we will build them throughout the course of this year and bring them to the market and start realizing great revenue out of these sites because they're located in some amazing power centers. So that will happen. On the M&A question, the M&A opportunities have to be absolutely compelling. When I say absolutely compelling, it needs to be a lot lesser than what we were even paying in the past. And if that's not going to happen, I don't have interest at the moment to issue more shares or to part away with cash, cash which is the need of the hour for every company. So we will let them come to us. We're not going to chase any deals. We've always been very disciplined when it came to our M&A. But I think through organic store openings minus M&A, we can add about 10 to 20 locations by the end of this calendar year. Thank you, Operator. And thank you to everyone for your interest and continued support for High Tide. We are very proud of what we've achieved this quarter and remain excited about the road ahead. With that, I will ask you, operator, to close the line. Have a great day, everyone.