Ty Collin: Raj, for my first one, I just wanted you to maybe expand on your comments earlier in the call about M&A, that you are not seeing many attractive opportunities out there. Is that due to where sellers’ valuation expectations are at or are you guys kind of just being very choosy on the real estate piece, and maybe we should be thinking about M&A as being a smaller part of the growth story going forward compared to what it’s been in the past?
Raj Grover: So Ty, it’s mostly related to the quality of the retail portfolios that are out there, right? Like we did mention that, we are 3.4 times our peer average in Ontario, we’re 2.2 times our peer average in Alberta. So we have high standards. Our average stores do a lot more and we don’t generally consider stores that are doing less than $1.8 million or $2 million annual run rate. So it doesn’t make sense for us to look at B-graded portfolios. And there is a ton of that that is what I meant by marginal players still existing and a lot of the noise that still exists that won’t be around for too long. And we are not on a horse to act on any of those opportunities. In fact, we don’t need to, Ty. And because of our existing landlord relationships in the country, we are tied up with some of the largest landlords that have prioritized their real estate over to us, because of our financial covenant and because of our solid execution that we can get good real estate at will.
And there is no better growth than organic growth for any company. So we spent about a $250,000 or $300,000 to build the store, we add another $100,000 in working capital and we got a great store to go. We don’t have to even pay a million dollars for a store that’s doing somewhat to our expectations. So really the reason is finding the right deals. I don’t think we are that far apart from expectations of what people want, although the multiples have come down. We are not even offering 3.5 times at this point when we can put up stores for $350,000. Although we are nice guys and we always check if there is competitors that are doing well, maybe there is an opportunity for them to take an exit and next join the wave with us, join the High Tide family.
And if not, we are patient to just wait for some really good high quality real estate in these areas and then we get our opportunity we go in. So that is really the reason behind it, not really that the valuations are too high in Canada.
Ty Collin: And then for my follow-up, obviously, you touched on the news out of Ontario with increase in the store cap. Obviously, very important moment for you guys and for the industry. I’m just wondering if we could call out what are some of the next regulatory changes that you are looking forward to and some that we might hope to see this year?
Raj Grover: Sp the biggest one was this Ontario change, Ty. This change alone is going to keep High Tide very, very busy over the next two to three years. And I have learned from our GR team, especially from Omar that, Raj, it’s all about small incremental wins. And I’m coming to understand that fully now. And there is a lot of positive changes that have happened. You are going to hear about some more coming right here in Alberta that will be announced shortly. And thanks to the leadership and the government here in Alberta and AGLC taking the lead in the country with really making some proactive and common sense changes. So there’s a whole bunch of small changes that are happening, especially in relation to white label that we’ve been asking the government for quite some time.
It’s the norm in every single industry and why aren’t we allowed to do white label in Alberta. There was a consultation about it and we feel that that change will go through. There’s also an existing consultation about prohibited relationships here in Alberta between producers and retailers again, which is the norm in any industry. Producers have a ton of cannabis in their vaults that they should be allowed to, they should be given all kinds of momentum to be able to move that cannabis. And it’s the same thing to fight the illicit market as well and keep that money in the legal fold. I think the government is listening and there’s a ton of positive initiatives that we see are brewing across the provinces. There’s too many to mention but we’re keeping a close eye, but stay tuned on what comes out of Alberta in the near term.
Operator: [Operator Instructions] We now turn to Andrew Semple with Echelon Wealth Partners.
Andrew Semple: Just want to ask on the increase in the Ontario store cap and more of a strategic question. That increase does open up the possibility of a larger scale, maybe platform sized acquisition that would be larger in magnitude than what we’ve seen in recent years. Is this something you would consider or do you think you’re getting better value doing it more on a tuck-in and more numerous with smaller acquisitions?
Raj Grover: So Andrew, my philosophy is, don’t fix something that is not broken, right. I mean we have become really well known in terms of our tuck-in acquisitions. We’ve been doing it over the last five years with a lot of success and we’ve been building a ton of nice organic real estate in super high quality locations. So that strategy is really working for us, Andrew. And I was just mentioning just a few minutes ago that there’s not a lot of good portfolios out there for us to consider. I would love to do a 20 or a 30, or a 40 store deal. But they need to make sense when you’re buying 30 stores and then you have to shut down eight out of them, it just doesn’t make sense. And there’s also a lot of redundancy, Andrew. We’re the country’s largest chain, if non-franchise chain, at 163 stores.
So you can imagine, we are present in quite a few markets. And we have to wait our turn on high quality real estate. Otherwise, we’re just going to add redundancy to our portfolio. But we have our eyes open. If a good opportunity comes through at a good valuation, we’ll do it. We need to make sure that it’s a strategic and accretive acquisition for our shareholders. So we’re definitely open to it. But tuck-in acquisitions is our specialty, keep building organic stores, keep tuck-in enough fuel and you end up the year with 20, 30 stores, that’s how we do it.
Andrew Semple: And then Raj, early on the call you’re touching on the gross margin outlook on brick and retail for 2024. I just maybe want to flush out that discussion a little bit. What do you expect to be the trend for brick and mortar retail margins in this year? Do you think that can continue to expand just at a slower pace or do you think that current margin levels are what we should expect for 2024?
