Andrew Partheniou: Thanks for that. And I’ll get back in the queue.
Operator: We have a question from Andrew Semple from Echelon Capital Markets. Please go ahead.
Andrew Semple: 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 difficulty 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 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?
Raj Grover: 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 comp 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 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, 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 mine their wallet over the next quarter, which is our current quarter that we are 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, 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 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 direction from our payment processor on which way they are going to proceed with? 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.
Andrew Semple: 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?
Raj Grover: Yes, Andrew. So currently, like I said, currently the focus is entirely on free cash flow 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 first 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 8x, 9x, 10x, 12x. Now we are trading 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 are in — we will be again eventually in the future in hyper growth mode again when Germany opens up, when United States open 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 bit of 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.
Andrew Semple: Understood, and that’s sensible. Congrats again on the first quarter results and I’ll get back in the queue. Thank you.
Operator: We now have a question from Frederico Gomes from ATB Capital Markets. Please go ahead.
Frederico Gomes: 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.
