Earnings Call Transcript - HITI Q1 2021

Operator, Operator

Good morning. My name is Kevin and I will be your conference operator today. At this time, I would like to welcome everyone to High Tide Inc. First Quarter Fiscal Year 2021 Financial and Operational Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I will now turn the call over to your host, Krystal Dafoe.

Krystal Dafoe, Host

Thank you, Kevin. Good morning, everyone, and welcome to High Tide Inc.’s quarterly earnings call. Joining me on the call today are Mr. Raj Grover, President and CEO; and Rahim Kanji, CFO. Yesterday evening, the company released its financial and operational results for the fiscal quarter ended January 31st, 2021. These results are available on the company's website and on SEDAR. Before we begin, I'd like to remind everyone that certain statements made on today's call may contain forward-looking information within the meaning of applicable securities laws. Such statements may include estimates, projections, goals, forecasts, or assumptions, which are based on current expectations and are not representative of historical facts or information. We want to be clear that such forward-looking statements represent the company's beliefs about future events, plans, or objectives, and are inherently uncertain and are subject to numerous risks and uncertainties that may cause the actual results or performance to differ materially from such statements. Additional information about both the material factors and assumptions forming the basis of our forward-looking statements and risks, which could cause actual results or performance to differ materially, and the material factors or assumptions that were applied to make certain conclusions, forecasts, or projections in forward-looking statements on this call is contained both in readily available document available upon requests and in our regulatory filings available on SEDAR under the company's profile. High Tide does not undertake any duty to publicly announce the results of any revisions to any forward-looking statements in this call or to update or supplement any information provided in today's call. In addition, on this call, we will refer to supplemental non-GAAP accounting measures including adjusted EBITDA, which do not have any standardized meaning as prescribed by IFRS. We believe this non-IFRS financial measure assists management and investors in understanding and analyzing our business trends and performance. Please refer to our earnings press release for a calculation of these measures and reconciliation to the most directly comparable measures calculated and presented in accordance with IFRS. These non-IFRS measures should not be considered superior to, as a substitute for, or as an alternate to, and should be considered in conjunction with the IFRS financial measures presented on the financial statements listed on SEDAR. It is now my pleasure to introduce Mr. Raj Grover, President and CEO of High Tide. Thank you. Mr. Grover, you may now begin.

Raj Grover, President and CEO

Thank you, Krystal, and good morning, everyone. Welcome to High Tide Inc.’s financial results conference call for the first quarter ended January 31, 2021. I’ll start this call by providing an overview of our results and other key developments in the first quarter. Rahim will discuss the financials in depth and after that, we’d be pleased to answer any questions you may have. Today's call marks the start of a new era. High Tide's first reported results with the inclusion of META, and it was record-setting across all key metrics. Our Q1 results reaffirmed our acquisition strategy and expertise. I'd like to say a big thank you to the team, the team we already had and the new additions to the High Tide family, which worked together to put up these incredible results. I'm really excited about these numbers, so let's get into them. We had already provided some disclosure regarding our top line to the market, declaring our expectations that it would be between $37 million and $38 million in revenue. Today, we're reporting that we were just ahead of the high end of our own estimate at $38.3 million, once again the highest level of revenue ever recorded by a Canadian cannabis retailer and up 179% over last year. Adding META and other stores was a huge part of this growth, but even the business that existed a year ago still saw double-digit growth year-over-year. Gross profit increased to $14.8 million, up 208% over the same quarter last year. For context, we earned more in gross profit in the January 2021 quarter than we generated in revenue during the January 2020 quarter. As a percentage of revenue, gross profit margin was 39% during this year's quarter, up from 35% in the prior year's quarter. Adjusted EBITDA for Q1 2021 was $4.6 million, compared to a negative $822,000 in the same quarter of last fiscal year. This was once again, our strongest quarter and the best tangible proof that our acquisition of META is paying off. While META had negative EBITDA when we acquired it and it will take some time to bring the operations of their stores fully up to Canna Cabana levels, we're already on the right track. Our EBITDA went from $3.6 million in Q4 2020, the last quarter before acquiring META to $4.6 million in Q1 2021 with its addition. The day the acquisition closed in November, we disclosed to the street that we had already achieved 60% of the anticipated synergies from the META transaction. Today, we're pleased to report that 71% of our target has been achieved. While any one quarter can be impacted by a variety of factors and uncertainty, particularly in this ever-changing COVID environment, there's a very clear trend in our performance. In what seems like a lifetime ago, we were the first cannabis retailer to report positive EBITDA. Now if we add up the results of the last four quarters, we generated positive EBITDA of $13.4 million, which is the exact inverse of the preceding four quarters where EBITDA was negative $13.6 million. I think that snapshot illustrates how far we've come over the past two years. So where do we go from here? The short answer is more solid execution. No matter what the macro backdrop brings, we will keep doing everything we can in terms of blocking, tackling and moving the ball forward. Those who know my backstory will well remember that I started this company almost a dozen years ago with $48,000 of my own money. When you do that, you need to have a keen focus on profitability. Now that High Tide is a public company, we've kept our eye on the ball regarding profitability and shareholder returns, and I've never sold a share. Looking ahead, Q2 will be the first quarter which will include the acquisition of Smoke Cartel, which closed last week. As I discussed on the call last month, this is a great acquisition for High Tide. It adds revenue today, which is strategic, EBITDA generating and mostly in the U.S. With Smoke Cartel and Grasscity, we now own both the largest and the second largest e-commerce platforms for consumption accessories in the world, with a combined total of 33 million site visits in 2020, which sets us up to quickly begin cannabis e-commerce sales when federal legalization occurs in the U.S., while still generating healthy revenue in the U.S. today. Acquiring Smoke Cartel was also key, as it allowed us to get Sean Geng to join our team. Sean was the founder and CTO of Smoke Cartel and is now the CTO of High Tide. Sean is currently doing an in-depth overview of all our IT needs and opportunities. The most obvious of which is to leverage the proprietary drop-shipping technology he built at Smoke Cartel to improve the operations at grasscity.com, cbdcity.com and Canna Cabana. We also made another recent addition to our executive team. Last month, we announced that Aman Sood was promoted internally to our Chief Operating Officer. Aman had come from the META side of our business having served as Senior Director of IT and Retail Operations and his work has been outstanding. Aman was responsible for leading and building the management of 25 NewLeaf Cannabis locations and his addition and promotion is just one more example of the intangible synergies from the acquisition of META Growth. On the capital markets front, you'll note that on March 22, we filed the 40-F Form registration statement with the SEC regarding our application to list on the NASDAQ. That filing and now the release of our financials highlighting the performance of the combined company were big milestones we have now achieved regarding a potential NASDAQ listing, which we expect will expand our shareholder base, enhance shareholder value and accelerate our M&A initiatives in Canada, Europe and the United States. Speaking of M&A initiatives, as we have mentioned in recent weeks, we're aggressively on the hunt for more accretive acquisitions on the back of META and Smoke Cartel. Given our geographic and product diversified ecosystem, we're looking at a variety of potential acquisitions, including accessory wholesalers, e-commerce businesses, device manufacturers and U.S. CBD businesses. We already do all of those things, so the addressable market of deals that make sense is so much wider for us. We continue to be in discussions with many parties, but M&A takes time. The onus is on us to be thoughtful regarding the volume of firms that have approached us wanting to join High Tide. Our approach is to make sure we keep a great batting average of past acquisitions and only acquire firms that are a strategic fit, synergistic with our existing ecosystem, immediately accretive to our results, and ensure we don't overpay just to get a deal done, but add good value to our shareholders. Turning our attention to our core revenue driver. We're now up to 80 stores across Canada after organically opening eight in the month of March alone, which was a record for us. We're now at 53 open stores in Alberta and 15 in Ontario. Ontario is the main focus for us to put up new stores. We're encouraged by the AGCO's recent decision to increase the pace at which new stores can be licensed from 20 to 30 a week. Since the announcement, we've opened two stores in Ontario and London and Burlington with more locations scheduled to open in April. We continue to feel good about our prospects of being at the cap of 30 stores by September 30, 2021, when the cap is lifted to 75. The competitive landscape continues to evolve with the addition of more stores in certain provinces. While we will have our share of stores progress from being in the queue to being open and increase our revenue streams, more stores will nevertheless add to the competition overall. I believe that our growing and experienced team is more than up to that challenge. To prove this, I'll point to our performance in Alberta during Q1. The Alberta market averaged 549 open stores during the three months ended January 2021. This was up 44% versus the prior year, yet our stores that were open during that time were not only able to hold their own, but our consolidated same-store sales actually increased 14% year-over-year. We're extremely proud of that number. But to be clear, this is not a forward-looking statement. Specifically, the number of stores open in Ontario today is more than 10 times what it was a year ago, and we're not totally immune to the laws of economics. While there's still a month to go and we have already had to deal with a few fits and starts related to COVID, we are confident that our excellent team, our experience, and our scale will allow us to continue to outperform the market going forward. Our industry-leading Canna Cabana concept revolves around the convenience of a one-stop-shop experience for our customers that includes an unparalleled selection of consumption accessories at unbeatable prices and features educated and well-informed bartenders, coupled with our industry-leading Cabana Club loyalty program, where we provide our loyal customers a cash discount on every purchase. These features have led to over 50% of our daily transactions arising from our Cabana Club members. We're taking further steps to strengthen our position against our competitors by creating our own retail value brand, which we will launch shortly in target markets where appropriate. More details will be announced in due course. In the meantime, we continue to strengthen our unique concept, which is very well received, as evidenced by the strength of our repeat customer numbers. We're also leveraging an aggressive accessory strategy that is being implemented across locations right now to further fortify stores. Investors are banking on High Tide’s management team. This is the team that just reported record-setting revenue and EBITDA by our company to date. During the quarter, we did the following in addition to just running our business. We closed the acquisition of META, effectively doubling our size and realized 71% of targeted synergies. We announced the acquisition of Smoke Cartel, adding to our U.S. presence and technical capabilities. We pursued a NASDAQ listing and dealt with COVID lockdowns. This team has kept executing for shareholders. This team has $33 million in the bank, a great track record for delivering, a diversified presence relating to our accessories and U.S. business we can leverage. I'm confident we will continue to maintain our market-leading position, regardless of short-term competitive dynamics. With that, I will now turn the call over to Rahim Kanji, our CFO to discuss our financial results.

Rahim Kanji, CFO

Thank you, Raj, and good morning and welcome, everyone. This was a breakthrough quarter for High Tide, and I'm incredibly pleased with these results. In the first quarter ended January 31, 2021, the company recorded consolidated revenue of $38.3 million, representing an increase of 179% year-over-year and 54% sequentially. Revenue from our Retail segment includes our brick-and-mortar cannabis stores in Canada, primarily under our Canna Cabana banner, as well as Grasscity, the online retailer of consumption accessories, which has been operating for over 20 years, and CBDcity, the online retailer of CBD in the U.S. that we launched less than a year ago. Retail revenue was $36.8 million in the first fiscal quarter of 2021, having more than tripled year-over-year. The primary driver of this increase was the META acquisition, as well as other stores we built organically. Revenue from our Wholesale segment was $1.6 million in the first fiscal quarter of 2021. Even though we currently face production logistical challenges, particularly regarding product coming from overseas, I know that Wholesale revenue was still up 13% year-over-year. Our consolidated gross profit was $14.8 million in the fiscal quarter of 2021, or 39% of revenue versus 35% generated in the fiscal first quarter of 2020. So, revenues were up and gross margin percentage was up. But what I'm arguably most proud of is our cost control, while we have been growing with a keen focus on profitability. While revenue was up 179% year-over-year, our OpEx, excluding depreciation was only up 90%. For another way, our operating expenses excluding depreciation represented 28% of revenue this quarter, down significantly from 41% of revenue in the prior year's quarter. These savings for shareholders are the tangible benefits we read when we increase our scale as a company. Going down to the bottom line, the company generated $4.6 million in adjusted EBITDA, which was our strongest quarter ever. Our EBITDA margin percentage for the quarter was 12%, consistent with the 10% to 15% range we have previously communicated to the market. While we are very proud of that margin, we do know that the percentage may take modestly lower in future quarters, as we keep increasing the top line, particularly given increasing competition as well as the uncertain landscape of what seems like rolling on and off lockdowns. One item I would like to address head-on is our net loss of $16.8 million for the quarter. The single largest driver taking our record EBITDA of $4.6 million into the negative net income territory is a non-cash accounting charge, specifically a revaluation of derivative liabilities of $10.5 million. This primarily relates to warrants issued to Windsor Capital in 2019, which has a cashless exercise option. The feature creates a warrant liability on our books, which is directly driven by our share price. As the price of our shares tripled during the quarter, this liability significantly increased, causing a $10.5 million charge on our income statement. As the CFO, I'm not happy about how it looks, but given its non-cash nature, and frankly the main cause that drove this item, I'll take it. This liability gets revalued every quarter based on our stock price. Critically, the EBITDA we're generating is translating into cash. Our cash flow from operations before working capital was a very impressive $3.5 million this quarter, which continues to put us in a very strong position to pay down our already greatly reduced debt level. Speaking of that, our balance sheet is in fantastic shape. Cash levels are healthy, and there are no material near-term debt maturities, which concern me. As of today, we have $33 million of cash in the bank. Looking at our debt levels, all of the remaining $24 million of convertible debt we have is in the money and 44% of it isn't even due until 2025. Our non-convertible debt totals only $16.8 million and $13.2 million of it isn't due until the end of 2024 or in 2025. In closing, I want to take this opportunity to once again thank our amazing team who helped us generate the most profitable quarter. Despite the ongoing challenges relating to the pandemic and increased competition in Canada, we continue to diligently execute our business plan, which includes controlling costs, growing the top line, and generating value for our shareholders. With that, I will now turn the call over to the operator to open the lines for the Q&A.

Operator, Operator

Our first question comes from David Kideckel with ATB Capital Markets.

Frederico Gomes, Analyst

Hi, good morning, guys. This is actually Frederico chiming in for Dave. Congrats on the quarter and thanks for taking my questions. I just wanted to touch first on same-store sales. So, you guys, obviously, had a good quarter and 14% same-store sales growth compared to last year, really strong. So, I'm just wondering if you continue to see this kind of double-digit organic growth in some of your other stores? And what are your expectations for that going forward into 2021?

Raj Grover, President and CEO

Yes. Good morning, Frederico. So, it's too early to tell for this quarter, but COVID lockdowns, competition and we even had tough weather in January, which did impact us a little bit, but our team continues to execute, despite the macro picture and we believe will continue to outperform the market throughout 2021. We're on the ball regarding the changing market conditions and are taking aggressive steps right now to ensure that despite the lockdowns and despite excessive competition, we can maintain our leadership position. And one of these steps, Frederico, includes leveraging our accessories portfolio more in our retail stores. But the one thing I want to point out here, Frederico, remember, we still have 50% of our daily transactions being conducted by Cabana Club members. So, as a retailer, you've got to love that kind of loyalty and we see this continuing throughout 2021.

Frederico Gomes, Analyst

Thank you, Raj. That information is very helpful. Regarding Grasscity, you've seen significant growth in visitor numbers and a 15% increase in your customer base compared to last year. I'm curious if this growth has been influenced by COVID, with more people shopping online. What kind of growth do you anticipate moving forward? Also, could you connect this to your expectations for Smoke Cartel? Thank you.

Raj Grover, President and CEO

Yes, absolutely. Grasscity and Smoke Cartel are excellent additions to our portfolio. They are exciting businesses that generate revenue and support our strategy for when federal legalization occurs. We already have two of the most popular e-commerce platforms globally. You're correct in noting that COVID had a positive impact. When we acquired Grasscity, they were selling about 3% of accessories from well-known brands. Now, approximately 70% of their sales come from our own products. We've made significant changes to advance this business from its previous state over the last 18 to 19 years. Prior to our acquisition in December 2018, fulfillment was based in Amsterdam; now, we operate out of Las Vegas because 80% of our customers are in the United States. We’ve completely revamped the business model, enhanced fulfillment, and incorporated our products, which have contributed to increased margins and attracted more customers. For Smoke Cartel, we're advancing this further by utilizing innovative drop-shipping technology developed by Sean, which I look forward to implementing across all of High Tide's ecosystem, including grasscity.com, cbdcity.com, and our Canna Cabana website. Both Grasscity and Smoke Cartel are performing well. Even though we have just acquired Smoke Cartel, it is doing very well on its own. Overall, I'm pleased with the business's progress. While COVID has benefited our e-commerce efforts, our vertical integration has positioned us favorably for future federal legalization.

Frederico Gomes, Analyst

Thanks guys. That was really helpful. Congrats on the quarter again. I hop back in a queue.

Operator, Operator

Our next question comes from Andrew Semple with Echelon Capital.

Andrew Semple, Analyst

Morning, and congrats on strong financial results.

Raj Grover, President and CEO

Thank you, Andrew.

Andrew Semple, Analyst

No problem. First question here, as you just said, you recently closed the acquisition of Smoke Cartel. Could you maybe elaborate on some of the integration milestones that may do that business, kind of, what are the operational goals to more broadly implement their proprietary drop-shipping technology, more broadly across your e-commerce platform?

Raj Grover, President and CEO

Sure, Andrew. As I mentioned to Federico, we believe Smoke Cartel is an excellent business that we recently acquired. Although it has only been a week since the acquisition was finalized, we are already seeing positive results. The numbers for Smoke Cartel are continuously improving, and each day seems to be better than the last. This success can be largely attributed to their proprietary drop-shipping technology. Our integration efforts between Smoke Cartel and High Tide mainly focus on leveraging this drop-shipping technology. We intend to deploy it on Grasscity and CBDcity as well. For instance, Grasscity currently offers around 6,000 to 7,000 SKUs on its platform. With this new technology, we could potentially expand that number to 15,000 or even 20,000 SKUs, significantly broadening our reach to a larger customer base. We can replicate this process on CBDcity and Grasscity. We are actively working on the integration, and while it will take a couple of months to implement on both platforms, progress is being made. This aspect of the business excites Sean and me the most, and we are engaged in discussions daily as we work towards this goal. Expect to see this implementation throughout this quarter and into the next.

Andrew Semple, Analyst

Great. That's very helpful. And then my next question here, just on the recent pace of retail store openings in Canada, that's clearly accelerated over the past month. I just want to get your thoughts on, what we could expect in terms of the pace of retail store openings going forward? I guess, barring any kind of lockdowns that may slow things up?

Raj Grover, President and CEO

March was a record quarter for us, as we opened eight stores organically. We will certainly see more stores opening in April, although I don't expect to match the eight stores again this month. However, we will have additional stores coming up in April, so stay tuned for that. The accelerated pace planned by AGCO should also assist since they have increased the number of stores from 20 to 30, speeding things up. This should enable us to construct and operate another 15 locations currently in queue by the end of September to reach our maximum of 30. I'm feeling quite confident about that. We also believe we can reach triple digits by the end of this calendar year, including locations in Alberta, Saskatchewan, Manitoba, and Ontario. That said, this is based on the current situation, but we did hear from media reports that there might be more lockdown and shutdown measures coming in Ontario due to a rise in cases and ICU admissions. We'll have to see how that develops.

Andrew Semple, Analyst

That's very helpful. Congrats again on the results. I'll hop back in queue.

Operator, Operator

Our next question comes from John Chu with Desjardins Capital Markets.

John Chu, Analyst

Hi, good morning. Can you provide more details on how much the pandemic, particularly the store lockdown and curbside pickup, has affected sales? I know you had an impressive quarter, especially with the typically weak January included. Do you have any idea of how much more sales could have occurred without the lockdown? Also, have you noticed whether the lockdown affected the sales of higher-margin products? We've thought that some premium products might not sell well online or through curbside pickup because consumers prefer to talk to a budtender and see the product in person. I'm curious if this has impacted your margins as well. Thanks.

Raj Grover, President and CEO

Good morning, John. This past quarter was challenging due to lockdowns, especially in Ontario, where we are trying to grow quickly. We were limited to click and collect and delivery for some time. Although restrictions have eased, we are still operating at only 25% retail capacity, which led to an immediate drop in sales. We know the illicit market tends to increase during such conditions. Despite the challenges posed by the pandemic and having to shift to click and collect and delivery, we still had a remarkable quarter. The lockdowns did not impact us in Q1 as severely as they could have, but it's certain we could have performed better without them. I remain optimistic that once the pandemic subsides, we will see better sales figures, reflecting the potential of our stores compared to the reduced numbers we have now, although last quarter's results were not as disappointing despite the significant challenges. Concerning your question about whether customers are purchasing premium products at click and collect locations, the absence of budtenders to recommend products definitely impacts our sales; the excitement of making informed choices is lost, which limits the customer's purchasing decisions and overall basket size. There is definitely an opportunity to improve basket size and margin in this area. I hope the pandemic will be short-lived, perhaps another quarter or two, after which we should experience the benefits of a full return to normal operations.

John Chu, Analyst

Okay. That's very helpful. Thank you.

Operator, Operator

Our next question comes from Shaan Mir with Canaccord Genuity.

Shaan Mir, Analyst

Good morning everyone, and congratulations on the quarter. My first – my first question here is just to touch on your outlook a bit, specifically as it relates to the store openings in the Ontario market. So it's been mentioned a few times that you're going to reach the 30-store limit by September 30. But I just wanted to get an understanding for the concentration of those new store openings, particularly what are your views of opening new locations in Toronto. Anecdotally, it seems that there's a store at pretty much every corner now. And we've heard from other operators that it's becoming increasingly difficult to locate attractive locations in the city. So just wanted to get an understanding of where those new store openings will be from a geographical concentration perspective and maybe you could use signed leases as a proxy for where those focus regions are?

Raj Grover, President and CEO

Sure. Hi, Shaan. You're correct that Toronto is becoming very crowded. Regardless of which area of Toronto you examine, there seems to be an overwhelming number of stores opening. Our strategy is focused on a unique approach for our Ontario locations, and while I won't disclose all the details here, I can confirm that we are eager to explore opportunities in the Greater Toronto Area and beyond, rather than just opening more stores in Toronto and engaging in price wars that are not beneficial. As I mentioned, our strategy is distinct. If it were a private discussion, I might share more details, but I prefer not to do that in this setting. However, we are definitely considering locations outside of Toronto.

Shaan Mir, Analyst

For sure, maybe we can hop on a call later then. On my next question, I just wanted to touch on or get a sense for your Canadian stores performance, particularly as it relates to the 2.0 product breadth. I guess, based on feedback that you're getting, what product categories are High Tide looking to ramp most aggressively and where's kind of the consumer interest today? And then on the flip end, is there any product within the 2.0 set that isn't performing on pace with the rest?

Raj Grover, President and CEO

Yes, Shaan. The 2.0 category presents an interesting opportunity for higher margins due to its value-added products. Currently, vapes account for about 30% of the overall category, with vapes specifically making up approximately 17%. About five to six months ago, we were at around 11% to 12%. The vape segment continues to grow, which aligns with our expectations based on trends in the American markets, especially in mature ones like Colorado and Washington. We are seeing rising consumer interest in vapes. Edibles represent around 5% of our business, and while I believe this could improve, it's still early, and the 10-milligram THC limit on edibles is a barrier for many potential customers. Therefore, it mainly attracts a specific consumer group. Concentrates currently account for about 2%, which I anticipate could increase to around 5%. Drinks are at just 1%, which aligns with trends where drinks only represent about 1.5% to 2% in mature American markets. Lastly, topicals are below 0.5%. In terms of consumer interest, vapes are the leading category with approximately 17% of the total share.

Shaan Mir, Analyst

Thanks for the color, Raj. That's very helpful. I'll pass it along now.

Operator, Operator

Our next question comes from Roger Grover with Small Capital Investment Fund.

Unidentified Analyst, Analyst

Good morning, Raj. Congratulations to you and the team on very, very good quarter here. A couple of questions for you. You've managed to retire, you actually managed to renegotiate a number of favorable terms on lowering your debt payments, you renegotiated specialty terms on the maturity dates, you've retired some debt regulations on that. Tying that in a little bit here going forward, your increase in EBITDA, while you've been aggressively growing, can you maybe add a little bit of color on that going forward on what we can expect? We can continue to see that?

Raj Grover, President and CEO

Rahim, do you want to take this?

Rahim Kanji, CFO

Yeah, sure. Thanks. Thanks, Robert. I'm very – as I mentioned, very happy with our current state of our balance sheet, which is very, very strong in terms of us generating operating cash flows and having great partners, debt partners that have allowed us to extend maturities and reduce interest rates. Our operations, we've been vertically integrated and have had a diversified ecosystem for over a decade, and efficient management of our businesses has been our biggest strength. We have proven time and time again constantly improving our EBITDA numbers, as we have our eyes fixed on operational efficiencies. We are in the top tier of Canadian cannabis chains by store count, but we also have built an impressive ecosystem of U.S. e-commerce and accessories manufacturing. We are also at a point now where we can truly realize the benefits of scale. Recall how our operating expenses as a percentage of revenue really declined this quarter, once META's numbers were added to ours.

Unidentified Analyst, Analyst

Okay. And just one follow-up question if I may. Your Canna Cabana membership program, have you disclosed or can you give us a number of that membership program?

Rahim Kanji, CFO

Yes. Yes, sure. Yes, we did disclose that number in MD&A and actually I'm very proud to say that we're pretty much almost close to the 100,000 mark as of today right now. And what's really interesting in that number is that over 50% of our daily transactions are done by club members which is a very proud metric to have. The majority of our signups are in-store signups, so when the members come to make a purchase, if they're not a member, immediately for the benefits they receive, they join as a member. So we're very proud of that milestone that we've achieved as of today.

Unidentified Analyst, Analyst

Great. Thank you, gentlemen. Nice quarter, great quarter.

Raj Grover, President and CEO

Thank you.

Operator, Operator

Our next question comes from Aaron Grey with Alliance Global.

Aaron Grey, Analyst

Hi. Good morning, and thanks for the question. First one for me is just on the M&A targets that you touched on specifically in the U.S., and you've got some of the e-commerce platforms, but would love to hear your thoughts in terms of how you think about incremental M&A in the U.S., in terms of what types of platforms, and how best you're looking to utilize those potential M&A targets for the company, as you think about U.S. federal regulations evolving and potential becoming permissible or illegal? Thanks.

Raj Grover, President and CEO

Good morning. So, we continue to be very active and are currently evaluating many opportunities. And given how diverse we already are, there are a lot of different verticals that make sense to us, like e-commerce, wholesale, accessories brands, we can look at so many things, U.S. CBD. But M&A takes time before you reach a stage where it's announcable to the market. But rest assured, we're out there combing for opportunities right now and moving them through the funnel, if that makes sense. But we have a clear line of sight on potential deals, which could fit our ecosystem perfectly and be immediately accretive, but I want to make sure we're taking the time and we're not getting overly excited because so many groups have reached out to us and making sure we get the bang for our buck when we're doing M&A and the fit is a perfect fit for our ecosystem. So, yes, we're active and looking at U.S. companies right now.

Aaron Grey, Analyst

Okay, great. Thanks. Appreciate that. And then, kind of, going back to your own potential branding strategy within Canada, you talked about formats a little bit before, but would love to get your opinion in terms of like were you looking to price relative to the other brands in the marketplace as you continue to evolve and roll out your own brands. Obviously, there's been a lot of pricing pressure within the market within flower as well as vape. So, would love to get your opinion on that and how you think about your own pricing strategy for brands? Thanks.

Raj Grover, President and CEO

We are very proud of our unique cannabis shop ecosystem, which stands out in Canada and is something I haven't encountered in the United States. While anyone can engage in a price war or lower prices, this only leads to market adjustments and ultimately, survival of the fittest. Our approach is to create a distinctive ecosystem that offers our Cabana Club members access to the largest selection of cannabis and 2.0 products, as well as accessories. Accessories are essential for consuming cannabis, whether it’s rolling papers, water pipes, or vaporizers. They are integral to our identity, and our stores provide an engaging experience with plenty to explore. Compared to neighboring stores with minimal displays, Canna Cabana offers much more. We believe that if we continue to develop our stores as we are doing now, we will maintain customer loyalty. However, we are indeed facing price compression in the market. We are actively addressing this, especially in competitive regions where others are reducing prices aggressively. We have a strategy in place for accessories, and this gives us an advantage. Despite the price compression we are experiencing, our accessories strategy keeps our ecosystem more balanced than most competitors. We are optimistic moving forward, but it's true that price compression is present in the market.

Aaron Grey, Analyst

Okay, great. Thanks for that color.

Operator, Operator

Our next question is a follow-up from Andrew Semple with Echelon Capital.

Andrew Semple, Analyst

Hi there. Thanks for taking my question again. Rahim, I just wanted to go back to something you mentioned in prepared remarks. Now, there might be some factors holding back the EBITDA margin term returning to the prior levels. I just want to dig into that dynamic there. I was wondering if that pressure that you're seeing might be on the gross margin side or whether it's more on the operating cost side, as you continue to scale the business and invest in growth?

Rahim Kanji, CFO

Yes. Thanks, really good question. So, just how Raj mentioned about the price compression that we're seeing in the market and as we mentioned that we have our own strategy with the one-stop shop experience and accessories. But in those areas where we are facing extreme price pressures, of course, we're going to fight fire with fire. And that is going to result in a short-term impact to our gross margins. So, as those markets become more competitive, we have to match where the markets are, and that will have an impact on our margins. But I'm hoping that's the short-term margin hit versus the long-term impact. And at the same time on our OpEx expenses as we mentioned, our OpEx percentage as a revenue has significantly declined from the quarter over the last year quarter, and we will continue that trend. However, with our growth and M&A strategy that we have in place, we might see some increase to our OpEx in the short-term as we acquire future acquisitions and integrate them into our ecosystem.

Andrew Semple, Analyst

That's good color. Thanks for taking my questions today.

Operator, Operator

Our next question is a follow-up question from John Chu with Desjardins Capital Markets.

John Chu, Analyst

Hi. I have a quick follow-up regarding the inventory levels. We've heard that some provincial wholesalers, particularly in Ontario, have been destocking for some time and haven't been engaging in repurchase programs. I'm curious if this is impacting your retail stores, specifically whether inventory levels are getting low or if popular brands are becoming a concern moving forward. Thank you.

Rahim Kanji, CFO

Thank you for the question. I want to commend our operations and buying teams for their discipline and strategic approach to inventory management. They are focused on purchasing the inventory that our consumers want and that is in high demand, while also ensuring that our inventory levels are appropriate and not excessive. We keep a close watch on this, and currently, our team has done an excellent job of managing inventory levels and maintaining a healthy turnover rate. As a result, we are not burdened with inventory that is subject to price drops or has too much supply. So far, this situation has not impacted us, and I appreciate the efforts of our buying team.

John Chu, Analyst

Okay. Thank you.

Operator, Operator

And I'm not showing any further questions at this time. I’d like to turn the call back over to High Tide’s CEO, Raj Grover for any closing remarks.

Raj Grover, President and CEO

Thank you, operator. In conclusion, I'd like to thank all those on the line for their time and their interest in High Tide and our growing an increasingly profitable family. With that, I will ask the operator to close the line. Have a great day everyone.

Operator, Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.