Q&A with CEO Raj Grover

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In the hyper-competitive cannabis retail industry in Canada, stores are looking for ways to differentiate and build a loyal customer base.

High Tide, based in Calgary, Alberta, believes it has found an answer, at least in part.

The chain, one of the largest in Canada with 104 stores, recently announced its move to a “Discount club” model.

The idea is to provide products to members at a discounted price.

“We are building a loyalty model of club membership and hope to transform it into a community across North America and then into a global community in the end,” CEO Raj Grover said in an interview with MJBizDaily.

High Tide said its Cabana Club already has 270,000 members in Canada.

In the interview, Grover also welcomed Alberta’s plan to allow e-commerce sales for privately owned cannabis stores, following the lead of Ontario Other British Columbia.

“The economy around delivery isn’t great, but at least we’re breaking the connection between the illicit market and consumers, who have been used to buying from the illicit market,” he said.

“Eventually those people (who shop online) will also buy in brick-and-mortar stores.”

MJBizDaily spoke with Grover about topics including the looming possibility of store closures in 2022 and opportunities in Canada and abroad.

High tide is traded as HITI on Nasdaq exchange and the TSX Venture Exchange.

A recent BMO Capital Markets report warned of retail closures in 2022 due to oversaturation of stores in some areas. As the CEO of one of the largest retailers in Canada, what do you think?

I think (analyst) Tamy (Chen) is making a good point, and I have to agree with her.

We know there are nearly 300 stores in Toronto alone now. There are so many groupings happening in so many places.

I see it’s coming. It will be unfortunate. The policies weren’t very well thought out, especially Ontario.

High tide is somewhat differentiated and protected due to our diverse ecosystem.

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We have been running a pilot project since April in Manitoba, Alberta and Ontario. The results were consistent: 70% of Canadian cannabis users are strictly concerned about the price.

If so, there will be many independents and small businesses that will not be able to withstand the competition we all face today.

The illicit market still remains strong, providing consumers with (up to) 200 milligrams of THC in edibles – compared to us (in the legal market) we are dealing with 10 milligrams of THC in edibles.

If you see some US markets, edibles account for 10% -15% of sales. In Canada, they account for around 3% -5% of sales and I don’t see that change anytime soon.

So these problems, in addition to the clustering of stores, have worsened, I think the market will rebalance itself in 2022.

In October, High Tide announced the transition of its 100+ stores to a “discount club” model. How is this different from a “value” strategy pursued by some of your competitors?

Now that we’ve become a discount club reseller, that doesn’t mean we’re just providing value offers to consumers.

We’re actually providing them with a full premium selection, but at the most discounted prices you can get in Canada.

We produce 75% of the 5,000 accessories we carry in our catalog. We are now supplying these accessories at a huge and discounted delta to our customers.

These are high-end accessories.

It’s not just a cheap selection. It is the complete catalog extended at discounted prices.

We are also providing a curated selection of premium cannabis products.

We continue to build other High Tide in-house brands. We are building a club-like community of members that is somewhat inspired by Costco.

It is a similar model, which will give us the opportunity to include a membership fee at some point, subject to all regulatory approvals and potentially providing cash back and other initiatives to our members.

What regulatory issues are pending with the club?

It’s less than the membership fee that’s a problem for the Cabana Club; More benefits, money back and other initiatives we want to give back to our members.

So we’re trying to find a balanced approach on when to introduce it (for a fee).

We can act on the membership fee today, but I’m in no hurry. It’s a little down the road.

The major licensed producers have lost significant market shares in 2020 Other 2021despite spending billions of dollars buying competitors. Can you share your perspective, as a retailer, why consumers seem to prefer products from smaller companies?

I can see this unfolding in front of me. There is a lot of consolidation going on in the Canadian market on the producer and retailer side.

Mergers and acquisitions continue, but you are right, they are unable to breach even 20%.

The main reason we see as a reseller is because of the artisanal producers.

The younger kids are on their way, doing a great job and gaining significant market share.

The smaller kids, artisanal producers, are doing a great job focusing on the product itself, and for them it shows in the sales.

Older players are unable to take advantage of it, although they continue to do mergers and acquisitions.

They are buying companies, but not necessarily artisanal producers that the consumer cares about today.

Canadian LPs have spent billions of dollars on overseas mergers and acquisitions with little to prove. High Tide is also active in M&A overseas. Can you tell me how your approach is different, if it is?

We are selecting companies that fit very well into our ecosystem and are paying decent multiples.

My latest acquisition, Benedetta CBD, we paid four times the EBITDA.

These acquisitions instantly boost High Tide.

We are in our comfort zone. We are not exaggerating. We are not growers or producers yet.

When we get to the United States, there is a possibility of vertical integration in some states, we will certainly look into it.

But if you look at my last five acquisitions, they have all been aimed at consumer e-commerce platforms. This is the way of the future.

None of these agreements were Canadian agreements. They were all in the US, and now my first in the UK

And there’s more where it comes from.

Is only the purchase of certain companies part of that discipline?

Part of the discipline is that the company has to adapt really well to our ecosystem.

Now that we bought CBD blessed, can we produce blessed? and FabCBD (Another acquisition) products in another manufacturing facility together to save dollars? Yes we can.

Can we bring these brands to Canada through partnerships with licensed manufacturers and sell our brands in 103 stores and beyond in Canada? Yes we can.

They must be profitable. We are not interested in breakthrough stories.

Matt Lamers can be reached at [email protected].

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