Operator: We have a question now from from Canaccord Genuity. Yvonne, please go ahead.
Unidentified Analyst: Hi, good morning. This is Yvonne 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 from all through the rest of the year. Is there any other initiatives apart from the elimination of additional store openings to kind of further safeguard your position?
Raj Grover: Good morning, , and thank you for your question. Yes, there’s 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 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 companywide 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. And 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 to tighten our operations further and yield a lot more efficiencies than we are currently realizing, which will be 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.
Unidentified Analyst: All right. I appreciate the color. Thank you so much.
Operator: We have a question now from Andrew Partheniou from Stifel. Andrew, please go ahead.
Andrew Partheniou: 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?
Raj Grover: Sure. Good morning, Andrew. Thank you for your question. This quarter, we generated $6.6 million from our Cabanalytics data sales. It was an increase of about 3% I think over the last quarter. It’s a really good question and very timely question, Andrew, because we are seeing a lot destruction in the landscape where a lot of licensed producers are unable to stay in business. The CCAA proceedings are rampant all around us. And data is a critical point for all of these growers to act upon, you know, it guides their manufacturing priorities. It tells them real time information on what’s selling in our stores, which is the largest network in the country. So it’s very difficult for them to ignore our data program. However, I understand the pain is real in the market.
And when they can’t pay their — when they can’t take care of their payroll that they’re not going to have funds to subscribe to our program. So we’re already seeing big slowdown in our data program. We don’t think that we will be growing at this pace. In fact, we may experience some negative growth in data sales, which is totally okay. On our side, we have now the opportunity to raise margins. I think we played the perfect game starting exactly how we started as a discount club model, and considering where we are and dictating terms in the country in terms of sales volumes, we have 151 stores open right now, but the amount of volume of cannabis sales that we generate in our stores is equivalent to around 350 to 375 stores. So we now have the opportunity to start raising our margins and the country is looking upon us to do so as a major retail player.
So we’re focused on that approach more. I really hope it’s my biggest hope that the industry improves fast especially on the growing side. The growers are feeling a lot of pain. And they are our biggest customers. So we are starting to see a bit of a slowdown in our data sales. And I can’t predict exactly where this is going to go, but you’ll definitely see a further slowdown, but which will be offset it by the margins increase we’ll be able to do in our retail store settings.
Andrew Partheniou: Thanks for that. And maybe going off which 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?
Raj Grover: Sure. So Andrew, our gross margins have remained not only stable, but on the brick-and-mortar level, which is 84% — our core business is bricks-and-mortar at that level, gross margins have actually ticked higher when we launched our discount club model, overall on the brick-and-mortar side, we were doing about 16%. Now we’re hitting over 20% gross margins on the brick-and-mortar level. Where we lost some margin is actually our CBD businesses, where we’ve had to drop some margin to get competitive back in the market and be able to continue to generate revenue out of those business units which we know will improve over time. But our brick-and-mortar business, which is a core part of our business, margins have actually been ticking steadily higher every single quarter and we anticipate that to continue happening.
Like I said, we are the clear market leaders in Canada and we have the ability to now drive margins higher. We are not going to do that overnight. We are very careful in how we increase our margin and want to make sure our customer remains interested and happy about what they are paying for in our stores as we are the lowest price guaranteed concept in the country. So keeping to that approach, we’ve added other initiatives like you just mentioned white-label programs and ELITE membership fees and Fastendr should help with SG&A and salaries and wages. So on the white-label program, we generate on a white-label SKUs, which includes Cabana Cannabis Co, which includes our NuLeaf Naturals SKUs that we introduced in Manitoba, Saskatchewan and Ontario, we generate about 5% to 7% percent additional gross margin on these SKUs. Currently, we have about, I believe, 10 SKUs in the market where we include vapes, include gummies, includes pre rolls, we are introducing more throughout the year.
And we wish that this rollout would be a bit more expedited, but it’s just the different regulatory nature of each of the provinces where we have some other hurdles to go really fast on white-label. So white-label would be a slow and steady increase, but it definitely helps with our margins. And then you look at ELITE membership fees, it’s ELITE currently even at $30 a year is netting us north of 70% gross margins in that program, which is fantastic. And ELITE will continue to grow, so that will be a major contribution towards our margins. And as Fastendr, Fastendr was not operating in our stores for about 4 to 5 months and over the last 60 days, we have a new operating system that we adopted and it’s doing extremely well in our stores, our are loving it, our customers are loving it.
So fast eventual usage as it goes up on Fastendr, we won’t be have to as a revenue goes up we would not need to increase our payroll line at the same pace that we have been in the past to keep up with our sales and Fastendr is going to help us achieve that. So between Fastendr, ELITE, white-label, we are looking pretty good to start increasing our margins, getting it to a more on a healthier side.
