Fire & Flower Holdings Corp.

Thank you very much, and thank you for joining me today for our second quarter 2021 conference call. I'm Trevor Fencott, President and CEO of Fire & Flower.

And joining me today is Judy Adam, our CFO, and Nadia Vattovaz, our COO. Earlier today, our company published its operational and financial results for the second quarter ended July 31, 2021, and the results are available on the company's website and on SEDAR.

Prior to beginning our call, I’ll direct listeners to the cautionary statement regarding forward- looking information published on the news release for the second quarter, as well as the company's filings on SEDAR. Similar to previous earnings conference calls, we'll be providing commentary on our fiscal second quarter 2021 financial results, along with an operational update on our tech-enabled retail business model, and the steps we've taken to advance key industry partnerships and secure strategic acquisitions through our newly implemented expanded digital strategy.

We focused this quarter on strategically leveraging our proprietary data-driven retail platform, Hifyre, to drive near and long term financial growth for Fire & Flower, while helping to transform the cannabis retail experience for the industry at large. We’ll then conclude with a moderated question-and-answer period from equity research analysts that cover Fire & Flower.

So, first, I'd like to provide an overview of our financial highlights for the second quarter of 2021, as these results demonstrate the strength and continued success of our data-driven retail operations. Our vertically integrated operations, I'll start with financial highlights, composed of our retail, wholesale, and digital business segments, continued to drive our total revenue performance, resulting in second quarter revenues increasing 51% year-over-year to $43.3 million.

Once again, we've delivered another quarter of positive adjusted EBITDA, making this our fifth consecutive quarter, reaching $3.1 million in the second quarter, an increase of 176% compared to Q2 2020. Key to our overall growth is the milestone performance of our digital business, driven by our Hifyre digital retail and analytics platform.

In the second quarter, this business segment generated $3.7 million, representing an increase of 293% from the previous year comparable period. Before diving deeper into the numbers, which Judy will do in a bit, I'd like to review our operational accomplishments in the second quarter, and discuss how we're successfully scaling our unique tech-enabled cannabis retail platform to reach a new level of growth for Fire & Flower, and build our leadership position in new markets we strategically enter.

So, again here, for our operational highlights, today, we operate 93 stores, sorry, with multiple banner brands, including Friendly Stranger, Hotbox, Happy Dayz, and Fire & Flower. All of these are powered by our Hifyre digital retail and analytics platform.

While our retail sales have been impacted this quarter by pricing pressure due to an unprecedented number of licenses being issued in Ontario, where we’ve focused much of our retail expansion in Canada, we view this as a temporary industry disruption. Despite our retail sales being slightly down this quarter-over-quarter, we're more energized than ever by the opportunities we've secured this quarter in expanding our digital footprint to acquire an even stronger dataset of customer cannabis purchasing behaviors.

As you are aware, we are a technology-first cannabis retailer, and our competitive edge lies in our ability to own and drive value from the customer relationships that we continue to build through our data and analytics technology that's employed in every store we own, and now, every store we enter, either through acquisition or partnership. Our retail strategy, unlike any of our competitors, and as we continue to deploy our digital technology platform across the expanding cannabis retail industry, we're building greater opportunities to generate high margin revenue growth, and we're more powerfully demonstrating our true competitive edge to drive our leadership position.

Our growth this quarter is a direct result of more and more leading cannabis players recognizing the unmatched value of our proprietary data-driven technology, and are looking to Fire & Flower as an essential partner for growing their operations. Our longstanding partners have always been key to our growth.

Our strategic partner, Alimentation Couche-Tard, owners of Circle K, continued to support our expansion initiatives and exercise their A3 warrants in Q2, increasing their position to 22.4%, as we jointly work to advance our co-location pilot program within their Circle K stores. This program, which enables us to open Fire & Flower stores co-located with Couche-Tard’s Circle K stores using their existing real estate, presents an opportunity as we aim to expand across Canada.

In this quarter, we've also worked with our partner, American Acres, to drive expansion opportunities across the US, targeting key markets like California, Arizona, and Nevada. Through our licensing agreement, American Acres has licensed our Fire & Flower brand, store operating system, and Hifyre technology platform.

We recently announced our entry into the California market with the opening of our first Fire & Flower brand store in Palm Springs, California. In addition, American Acres has officially changed its name to Fire & Flower US Holdings, firmly establishing our US entry strategy, and laying the foundation for new Fire & Flower branded US store openings.

As part of our licensing agreement, Fire & Flower has an option to acquire American Acres, once regulations permit. We believe that we have a unique opportunity to expand in the US by continuing to leverage our Hifyre technology, as we incorporate our platform into each acquired store to strategically advance our overall data-driven retail offering.

Finally, in the second quarter, we entered into a strategic supply agreement with Humble & Fume, to offer an expanded online catalog of Humble’s newest products, including a wide assortment of the most popular cannabis accessories in the world. With the addition of over 5,000 new SKUs, we have further deepened our relationship with our customers by expanding the Spark Perks program to the cannabis accessories consumer segment, driving even stronger digital engagement with a broader customer base.

Another key facet of this partnership is that it requires little capital investment from our end, as we are able to extend our existing Hifyre digital retail platform to this high demand line of cannabis accessories, and further enhance the e-commerce purchasing experience for our customers. So, I'd like to talk a bit about our expanded digital strategy and Hifyre Spark members.

We spent significant time building the most comprehensive and insightful cannabis digital retail and analytics platform. And as you can see by our recent results, the strategy is really starting to blossom.

Our early investments in the collective work of our leading engineers and data scientists in building our Hifyre platform, is now driving a number of new growth opportunities that focus on commercializing our proprietary technology. With very little capital investment at this stage, we are rapidly building and monetizing the most valuable asset in the cannabis market, customer engagement.

As our Hifyre platform has proven to provide the cannabis industry with the strongest understanding of consumer preferences and behavior, market dynamics to advance the cannabis operations in this very competitive market. With that said, we've successfully accomplished the rollout of our expanded digital strategy.

As part of our business strategy, Hifyre is creating white labeled online dispensaries fulfilled by the Fire & Flower retail network that can be expanded to other cannabis dispensaries and delivery channels in both Canada and the US. Users of these websites are then enrolled into Fire & Flower’s proprietary Spark Perks membership loyalty program, which now has over 310,000 subscribers.

Through the continued execution of the digital strategy, we believe we will drive a much larger Spark Perks member base that presents exponential value to our business. As I continue to emphasize the most valuable piece of our business, and underlying impetus of each of our growth initiatives, is the continued advancement and extension of our retail technology platform into new cannabis markets to capture the most valuable piece of the cannabis value chain, owning the customer relationship.

Fire & Flower has always placed technology first in developing our multi-banner cannabis retail network. Our Hifyre platform seamlessly connects our customers to achieve the greatest value from each of our stores, and presents the unique opportunity to easily integrate this powerful infrastructure into other cannabis operations.

We've secured two very important acquisitions in the past month that present another great opportunity to drive our Fire & Flower brand expansion in the US, and most importantly, demonstrate our success as a tech-enabled retailer. So, recent acquisitions focused on our expanded digital strategy.

I want to talk about that for a moment. As we entered the third quarter of 2021, we announced the acquisition of Wikileaf Technologies, an online cannabis platform that's proven to generate significant user traffic through engaging content and domain name strength.

This acquisition officially launched our expanded digital strategy, as we will be transforming the Wikileaf website into a virtual online dispensary for cannabis and accessory products, utilizing the same e-commerce proprietary technology platform that powers our Fire & Flower retail network. With this acquisition, we launched a larger dedicated plan to create new branded online dispensaries, white labeling cannabis websites enrolling users into Fire & Flower’s proprietary Spark Perks membership program.

Not only does this digital strategy offer high margin revenue through our Hifyre platform, it is very asset-light and highly scalable, as we expand across North America. Following this acquisition, we announced the acquisition of PotGuide, one of the world's largest cannabis websites and content platforms.

Coming right on the cusp of our acquisition of Wikileaf, the significant opportunity demonstrates the strong growth opportunities that are being created by our newly implemented expanded digital strategy. Even further, this acquisition will provide Hifyre with a US base for technology and operations in Denver, Colorado.

Once again, the goal here is that we will be able to leverage a significant amount of user traffic by white-labeling our dispensary e-commerce software to convert traffic into purchases. PotGuide and Wikileaf together bring an existing subscriber base of approximately 225,000 cannabis consumers into our Spark Perks ecosystem, further strengthening our understanding of cannabis consumer preferences across North America to enhance our overall cannabis retail offering as we expand.

Our wholesale division, because we are a vertically integrated business in this sense, also supports our continued growth in the face of industry-wide challenges. Our wholesale division operating in Saskatchewan Open Fields Distribution, has maintained and remains a steady source of recurring revenue.

We continue to source cannabis products directly from licensed producers in this province to distribute these products to our retail stores and other third party retailers. This business division has proven successful and supports our overall continued revenue growth.

And finally, in this, I'd like to provide a NASDAQ update. We continue to progress towards listing on NASDAQ Exchange, and expect this to be done by the end of this year.

While this has been a longer process than we would have liked, it's an exciting one, as it presents a great opportunity for Fire & Flower to drive increased visibility of our rapidly expanding business. Now that our Hifyre tech platform is generating greater interest from the cannabis industry, and investors are increasingly recognizing our position as a tech-enabled retailer, we believe our listing on the NASDAQ is well suited for our position as a publicly traded company.

I'd now like to turn the call over to Judy, to discuss our financials, and provide a more detailed overview of the progress each of our key businesses made in the first quarter - sorry, second quarter of 2021. Judy?

Thank you, Trevor, and good morning, everyone. I'm happy to provide a financial overview of Fire & Flower and our operations as released to the markets earlier this morning.

To begin, I'll remind everyone that Fire & Flower follows a retail calendar, with every quarter consisting of 13 weeks. Today, I will be speaking to the second quarter ending July 31st, 2021.

We continue to report quarterly positive adjusted EBITDA, with $3.1 million for the second quarter of 2021, representing an increase of 176% compared to positive adjusted EBITDA of $1.1 million in the second quarter of 2020. Our adjusted EBITDA performance continues to be driven by steady revenue growth from all three business segments, continued monetization of our Hifyre digital retail and analytics platform, and our ability to introduce new cannabis products that specifically meet our target demographics in each of our markets.

Total revenue for the second quarter of 2021 increased 51.4% to $43.3 million, compared to $28.6 million in the second quarter of 2020. Fire & Flower’s total revenue is derived from three primary business segments, the retail segment, which we had 91 stores as of July 31st, 2021, across Alberta, Saskatchewan, Manitoba, Ontario, British Columbia, and the Yukon Territory.

Our wholesale distribution segment, Open Fields Distribution that sells cannabis and cannabis related accessories to both Fire & Flower stores, as well as to external accounts in Saskatchewan. And finally, our digital platform segment, operating through the Hifyre digital retail and analytics platform, proprietary to Fire & Flower.

It produces revenue from external clients of the Hifyre IC data and analytics platform, as well as industry-leading targeted digital advertising. Of the total revenue of $43.3 million for the second quarter 2021, retail operations generated $31.8 million, Open Fields Distribution generated $7.8 million, and $3.7 million came from our Hifyre digital platform.

Retail revenues of $31.8 million for the 13 weeks ended July 31st, 2021, increased by 36.3% from $23.4 million in the comparable period of 2020. The increase in retail revenue is the result of Fire & Flower’s expanded retail networks of 91 stores at the end of Q2, 2021, compared to 49 stores at the end of Q2, 2020.

Seven new locations opened in the current quarter, which included two in Ontario, two in British Columbia, two in Manitoba, and one in Saskatchewan. Traditional formats, such as Flower, particularly in pre-roll and large format value options, and cannabis 2.0 products, continue to see topline growth.

On same-store sales basis, comparing the 48 stores with operations throughout the 13 weeks of Q2, 2021, and Q2 2020, sales decreased by 14% year-over-year. This decrease in same-store sales is attributable to the surge in newly licensed retail cannabis stores in Ontario, increasing 48% from 665 at May 1st, 2021, to 981 at July 31st, 2021, as well as increased competition and aggressive pricing strategy by deep discount retailers.

Wholesale distribution revenue of $7.8 million for second quarter 2021, increased 81.3% from revenue of $4.3 million in the second quarter of 2020. Our wholesale distribution segment operates through our Open Fields business, which purchases cannabis products directly from licensed producer and distributes them directly to our retail stores and other third party independent licensed retailers in Saskatchewan.

Open Fields also purchases cannabis accessories and related ancillary products from Canadian-based and global suppliers, and distributes them to Fire & Flower retail stores and third party independent retailers in Canada. Revenue in this segment increased, as the Saskatchewan market continues to open up, and more retailers are sourcing inventory from Open Fields and growth of cannabis 2.0 products.

Digital platform revenue increased 293% to $3.7 million in the second quarter of 2021, from $0.9 million in the second quarter 2020, as the company continues to monetize the Hifyre digital retail and analytics platform. The year-over-year increase reflects growing monthly recurring revenues in data sales, both in Canada and the US, plus continued maturation of our Hifyre reach ad network, and the initial kickoff of branded digital dispensary partnerships.

Total gross profit for the company for the second quarter 2021, was $6.2 million or 37.3% of revenue, compared to total gross profit of $10 million or 34.8% of revenue for the same period of the previous year ended August 1st, 2020. All business segments individually contributed to the increase in gross profit dollars.

Expansion in gross profit percentage, reflects a shift in mix for the larger portion of gross profit coming from the high margin Hifyre business in the current period, compared to the prior year. Total adjusted EBIDA for the company for the second quarter 2021 was $3.1 million, compared to a loss of $1.1 million in the same period of the previous year ended August 1st, 2020.

All business segments individually delivered positive adjusted EBIDA in the current quarter, with Hifyre leading the way with $2.2 million in adjusted EBITDA. The expansion in gross profit percentage and continued growth in adjusted EBITDA, reflects the benefits of being a tech-enabled retailer with a diversified segment portfolio, and is a clear testament to our ability to outperform in a highly competitive market.

The company reported net income of $19.5 million or earnings per share of $0.06 for the second quarter 2021, compared to a net loss of $42.1 million or net loss per share of $0.13 in the comparable period of 2020. We have a strong balance sheet, and as of July 31st, 2021, the company had cash and cash equivalent of $29.3 million, and total debt of $3.8 million.

Thank you. And I'll turn it back to Trevor and look forward to questions from the participants on the call.

Thank you so much, Judy. As we move forward to the second half of the year, we continue to build out our asset-light model to generate even stronger financial results in the quarters ahead.

We'll continue to monetize our Hifyre technology platform and build this technology into our expanding retail network to operate a cannabis retail platform unlike any of our competitors. We look forward to advancing this business strategy that's proven itself advance lead the cannabis industry.

I'd now like to turn the call over to the operator for questions. So, over to you, Daisy.

Hi. Good morning.

Thanks for taking my call. Just on the gross margins in the quarter, it showed a nice expansion.

I think you calculated around 250 bps despite the increased competition in the market. I'm just wondering how sustainable these gross margins are.

I think actually, Justin, I'm going to kick that over to - we have Nadia on the call. Nadia would probably be the best one to speak to that.

Good morning, Justin. Thanks for your question.

So, if you're talking about margin on a consolidated basis, certainly the margin mix with the really strong performance of the digital platform this quarter, has really contributed to an increase in that gross margin, and we expect that to continue. On the retail side, we did see sort of a tale of different provinces.

So, Ontario, as it grows, continues to look really strong. Certainly, in Alberta, we're seeing the price compression from the deep discount competition.

And I think that this is - we're evolving like we did a couple of years ago when the Alberta competition really was increasing. And we'll see probably some shakeout in terms of margin, but there's also opportunities like private label to increase margin.

So, I anticipate that there will be pressures on gross margin, and that there'll be opportunities, Justin, on gross margin. But what I'm really excited about is the digital platform, because we know that the margin on that business is really strong.

And as we continue to grow those sales, particularly in the sales mix, that will continue to keep our margins up.

Understood.

And Justin, that's always been our strategy. We started with the end in mind.

We knew it was going to be hyper competitive, which is why we invested in this in 2018 before it was competitive. So now, we're starting to see the dividends paid by our digital tech.

Absolutely. And on that digital tech, I think I calculated a run rate of about $15 million in annual sales and showed some nice expansion in the quarter.

And that was prior to the PotGuide and Wikileaf. I'm just wondering if there's any broad goals for where this revenue can trend to.

And also just on the PotGuide and Wikileaf, it sounds like there may be some investments required to upgrade that - those platforms to the Hifyre standard, and if there's an amount attributed for that expected investment.

Judy, do you want to handle that one?

Sure. Yes.

We’re really excited about the Wikileaf and PotGuide acquisitions, as we already have a significant base of monthly and annual recurring revenue subscriptions coming out of existing Hifyre products. You’ll see that we've been more than doubling year-over-year quarterly revenue.

And as we add new revenue channels and products to the digital platform, this will give us an opportunity to produce more high margin revenue stream. So, so far this year, Hifyre has delivered significant year-over-year growth and yes, we expect us to see the same trends play out for the remainder of the year.

Justin, maybe what I'd add to that in terms of color as well is, I always like to talk about Hifyre is not our IT department. People often sort of confuse it with that.

You got a lot of SG&A. what is this?

Well, it's an R&D arm of the company. It develops and commercializes technology.

So, it's not even just that one - there's one revenue stream associated with a digital product. Like we keep creating new digital products and services and revenue streams as the market matures.

It's a dynamic kind of living thing that's creating new revenue streams. So, it's not even - Wikileaf and PotGuide are just the latest instantiation of our tech R&D.

So, I think that's important to kind of factor in when you look at how it could grow, because remember, last year this time, people were asking questions of, well, how many data and analytics platform subscriptions can you sell? Well, we’ve proven that actually we’ve developed an ad network, and now we've developed a customer acquisition channel.

So, that's how I would look at it.

Yes. And you’re certainly diversifying.

Yes.

Yes. And I would just add, again, these are all high margin revenue streams and highly scalable, especially as we expand across North America.

Great. And if I could just fit in one more question.

In Ontario, the store cap lifting this month from 30 to 75 per operator, what would be the strategy for Fire & Flower in either buying or building or co-locating, assuming the strategy is still to maximize that store cap?

So, maybe I'll start with this one, and Nadia, and Judy, can jump in and add some color. But I mean, obviously, Ontario is going to be an important - we always knew it was going to be an important market in Canada.

It’s a 14 million person province. So, it's important.

Having said that, we've taken a real sort of careful look at our real estate portfolio. We have a shared service agreement with Circle K Couche-Tard.

So, we planned our real estate portfolio well in advance. So, as we’re kind of looking to maximize the cap, I think it's more important that we go into the right locations, rather than we sort of run and sprint to just open stores.

That's a very early stage game play, and I think it leads to potentially capital misallocation. So, for us, we want to make sure that - we obviously want to max out our cap, but we want to do it in a very planful way.

The right location is always going to be the right location. So, I don't know if there's any other color, Judy, or Nadia, you want to add to that.

Well said, Trevor.

Okay. I’ve learned the word planful from Nadia.

Okay. I appreciate the additional color.

Thank you for taking my questions.

Hi. Good morning, guys.

Just to stay on the Hifyre topic, very strong digital sales growth this quarter. I just wonder if you could maybe just provide more color on what's driving that growth.

Are you getting more customers, or is it about upselling existing customers? And is that coming mostly from Canada or from the US?

Thanks.

Yes. So, return to kind of the idea of layered revenue streams.

So, if you look at kind of our last year's results, I believe it was sort of 6.2, 6.3 million in overall digital revenue. The bulk of that was recurring data and analytics subscription revenue, but just a touch of it was the beginning of our ad network revenue coming in.

And so, we continued to kind of layer that on and that continues to grow. And now, we’re bringing on sort of different customer acquisition and monetization channels.

So, I would expect it to be almost like a layer cake. You're adding different sort of revenue streams on top of different revenue streams.

So, the mix isn't going to be completely homogenous anymore as we diversify the product. So, with Wikileaf and PotGuide, you have this tremendous opportunity to bring in all these customers in a customer acquisition funnel or channel, and then we can push them out to different branded e-commerce websites or into stores, and we'll monetize it all through our sort of tech chain.

So, I mean, short answer is that there won't be any one dominant sort of revenue stream as time progresses, which is good thing for us. That means that we've got a diversified revenue stream.

We are definitely, definitely adding customers, and we’ve seen the growth in our Spark Perks membership. And as I said, with 225,000 combined users or members of Wikileaf and PotGuide, you can see pretty clearly that you start to aggregate that, you can start to monetize that, and that hasn't even started yet.

So, I mean, hopefully that provides some color on kind of where the revenue is coming and the growth will be coming from. The other thing is, the opportunities that we're starting to push down the pipe on that one, including the branded websites that again is just starting.

This is something that is sort of like measured in weeks, not quarters. So, we're excited that we're just at the beginning of that process.

I appreciate that, Trevor. that's very helpful.

And maybe if you could comment on pipeline for further M&A on the digital side. Are you looking at different companies to view their tech stack further?

Just, how is the pipeline looking there?

Yes. I mean, that's a great question because with the PotGuide and Wikileaf acquisition, we are the only company that we're aware of actually that has a fully vertical, fully integrated, complete vertical stack from customer acquisition to customer management, to digital modalities, like e-commerce, things like delivery.

So, all the way from the beginning to the end, we have this complete vertical stack. So, it's sort of completed our tech stack, so to speak.

And we're the only one that have these capabilities at the moment. Although it's relatively slim, it's complete.

So, I would expect us to be looking at ways to increase things like customer acquisition channels, customer count, because that's ultimately what's going to drive value. We will always be looking for valuable acquisitions in this space.

There's a lot of sort of smaller tech offerings that are out there that we will continue to evaluate. And we're always sort of interested in growth, but it's got to be appropriate growth.

We're not interested in overpriced acquisitions. We're not interested in things that are duplicative.

It has to really pass a pretty rigorous internal test before we would proceed with things, but we are looking for growth.

Thank you. I appreciate that, Trevor.

I’ll hop back in the queue. Thanks.

Hello. Good morning.

First question from me is just on the revenues, the retail part of the business. Obviously, retail revenues may face some pressures with COVID19 lockdowns during this quarter.

Could you maybe provide some insight as to whether and to what magnitude we should be expecting those retail sales per store to recover in into Q3 as we move past some of the lockdowns we experienced in the prior quarter?

Sure. So, maybe I'll start that one off.

I'm sure that you're going to get color from all three of us on this one, because it's something that is very topical for us. But at a high level, the metaphor is, we're kind of in this trifecta or perfect storm of three different sort of competing factors.

You’ve got COVID, which continues to sort of weigh on the industry. And the regulatory uncertainty, things like buildouts are still sold out in some cases.

You still have reduced foot traffic. It hasn't returned to pre-COVID levels.

We’re in a fourth wave. There’s all that sort of stuff.

You've also got licensing expansion, which again, that’s a nearly 50% expansion in one quarter in the major - our major market, is nothing to sneeze at. So, that's going to happen.

But again, these are nothing - these are things that we faced in Alberta before. And then I think you've got the third pressure pillar of predatorial price wars happening with deep discount retailers.

So, you've got these three things. All of these three things have an end to them.

Do I think it's Q3? Well, I think that that's unlikely.

These things are going to resolve themselves over time because of course you can't on the deep discount front. There has to be a sustainable business model underneath it.

You can disrupt for a little while, but eventually economic sense has to prevail. You have to operate a business that makes money.

On the COVID side, of course, COVID, knock on wood, COVID has to end at some sort of juncture, but we've been hearing predictions of when that's going to happen for over a year now. And then, of course, on the licensing frontier, you - quite naturally, like this is just a normal part of the business cycle.

We saw this in Alberta where there was a mass licensing. I think the record at the time was 20 licensed a week.

And it expanded. It’s got a lot of kind of mom and pops in the queue that, unfortunately, even though there isn't really a lot of room for single players anymore in the market, they have to kind of launch to market because they've signed a lease.

And so, they're coming, come - no matter what, they're going to launch. And then, you’ve got the overcrowding and then a pairing back as businesses, unfortunately, can't compete.

So, all these things resolve themselves. I doubt they resolve themselves in a quarter, but they eventually do.

So, I’d pass it off to my colleagues to see if there's another perspective they want to - or some color they want to add.

Trevor, I think you're on a roll today. You don't leave me anything else to say.

Okay. Yes.

I'll be more (indiscernible) next time. We'll start with Nadia.

Yes. That was very helpful, Trevor.

Thank you. just on the - one of the points you brought up, I did want to explore your team's value segment of the markets, which, as you guys know and as I'm sure you see in your Hifyre data, is coming on quite strong.

Could you maybe speak to whether Fire & Flower has a strategy or a plan to unveil a strategy on how the company plans to address the value segment of the market and potentially looking at more aggressive pricing strategies within your retail portfolio?

So, this one, I am going to hand to Nadia, because she's obviously very close to this, but I would just point out one thing before, which is there's a difference - it's important to understand the difference between a value strategy, which is giving the consumer what they want at the price they want. And it's a certain type of consumer, which we're very plugged into, because of course, we're a data-driven retailer.

A value strategy is different than category discounting, which is sort of just a blanket discount strategy. That's market disruption.

And it is a competitive strategy for a while, but again, just blanket discounting to disrupt the market, is not a value strategy. So, it's an important kind of distinction that I think people need to keep in mind.

And then with that, I'll leave it to Nadia who will explain how we look at it.

Thank you. Good morning, Andrew.

So, this is exciting in retail because we are now seeing the emergence of the various types of consumers and how they like to shop and in what brand. So, we, in fact, in the middle of the quarter, Andrew, launched a value proposition to our customers.

And we know that there is a value segment of our customer base that shops in our store and they need to have compelling product and the appropriate assortment priced in the way that is compelling to them, and it was highly effective. And so, we will continue to expand that within our current stores so that those customers are always compelled to come to us, and then we can also offer them other choices while they're in shop, with our (indiscernible).

There is a - within our portfolio, a few of our stores, particularly in the Happy Dayz locations that are more of a value-based offering, and those are also highly successful stores. I think it's fair to say that we will explore that in a meaningful way in the quarters to come for sure.

Great. That's helpful.

Thank you, Nadia. And one last question, if I may.

I did want to ask on Hifyre. There was another great step-up this quarter in terms of commercializing the hard work that goes into that ecosystem.

How should we be thinking about digital revenues in the back half of the year? If we look back to Q4 of last year, we did see a bump around the holiday period.

Would you expect that to reoccur in this upcoming holiday period? And then more generally, how do you think the pace of that business is building towards the second half?

So, maybe I'll start that one as well and pass it to Judy. But I think that it still goes back to that kind of layered product assortment, or layered revenue stream assortment this year versus last year.

So, last year, as I said, most of that 6.3 or 6.2 was comprised of digital analytics and data package sort of subscription, recurring subscription revenue, and that some of that is to do with subscription timing, right, sort of renewals and that kind of thing. So, that's part of that business.

I would say the difference this year is we have our digital advertising network. We've got these other sort of revenue streams sort of layering on top of that.

So, it's going to be, as I said, a lot less homogenous, a lot more layered and kind of nuanced, but that's just to keep having these sort of growth drivers layered on top to continue having it grow. So, in terms of lumpy, we have other different streams that are layered on top of it.

But, Judy, do you have any other color you want to add to that kind of general framework?

Yes. No.

yes. The only thing I'd add is, as Trevor said, in Q4 last year, we really just started to launch that - the Hifyre reach ad network.

So, we're seeing maturation in that now. And we continue to see a growing monthly recurring revenue stream and data sales, both from Canada and US.

So, things have started to really kind of steady out. And we're also seeing an initial kickoff of revenues coming from the branded digital dispensary partnerships.

So, when you look at the front half performance with a doubling of revenues year-over-year, I mean, we really expect that trend to kind of continue into the back half.

That's very helpful. Thank you, Trevor, and Judy, and I'll hop back into queue.

Congrats again on the quarter.

Good morning, and thank you for the questions. The first one for me, Trevor, you kind of spoke to potential other acquisitions down the line on the technology side, always looking for more acquisitions in the space.

So, would love to get your thoughts in terms of where you feel you guys are right now with the recent Wikileaf and PotGuide acquisition, and just how you're seeing the overall landscape. You talked a little about valuations are still a little bit frothy.

We’ve seen some other competitors on that side of technology continue to announce other acquisitions. So, could you maybe just give some color in terms of what you're seeing out there in terms of the prices and maybe the pipeline?

Do you think that's more of a near term dynamic in terms of more acquisitions, or you're kind of focused on integrating some of the recent acquisitions you've had today and maybe incremental acquisitions down the line? Thank you.

Yes. I mean, that's a great question because, again, it comes down to the idea that we've - our first acquisition was Hifyre back in 2018.

And so, think of it as a team of like 25, 26 data scientists and engineers that are building things for us. And so, it will - as you know, in business, it's always sort of, it's often cheaper to build things yourself, if you started the right way and you build it to be scalable and extensible.

If you're buying something, unless it's distressed or massively undervalued, you sort of you’re taking on some of their development costs in that purchase price. So, we really take a keen focus on what do we need to build, or what can we expand, and what can we do ourselves, because that is very cost effective, and what do we need to go out to augment, and what gets us farther faster on that front?

So, we started off with a very robust, I'm going to call it like a technical spine or the building blocks being very, very solid. So, when we add things like Wikileaf is a easy add for us because we have that bend strength to integrate it.

So, we're going to focus obviously on PotGuide integration, and Wikileaf integration and commercialization in the kind of obviously immediate term. I would say that on the technical landscape, and yes, we agree that valuations are extremely frothy out there on the tech side, we are hopeful that people, investors will start to recognize that we actually are the only ones with a complete vertical tech stack in the cannabis industry.

I think a lot of the acquisitions in the outside tech industry, are going to be focused on actually creating a vertical stack for themselves, right? There's missing pieces.

So, analogs to all the pieces of our technical stack, whether it's customer acquisition, or customer management loyalty, or e-commerce, or all the things that we already have in our stack, I think that that's probably where the M&A outside will look at as they try to fill in missing pieces of their technology. With us, we have a complete technology.

The technology is complete. It's the only complete vertical certainly that we're aware of the cannabis thing.

So, for us, it's a little different when we look at acquisitions. It is, what's going to get us further, faster, and what's going to leverage our existing engineering and technology base?

This is all stuff that we've largely built, right? So, and hopefully that explains a little bit of how we look at acquisitions.

It's not simply sort of a going out in an M&A frenzy. I don't think that's sort of for anyone, but measured, planful kind of what gets us farther faster, are things that we would look at.

That's really helpful color. Thanks for that.

And my second question will kind of be a follow-on to that. Number one, just could you provide some more color in terms of how - you guys currently have the vertical tech platform, and you mentioned kind of some of your competitors maybe looking to go out and become similar.

What do you see as maybe the difficulty in you already having it on a legacy basis and already having the expertise, versus them trying to go out and acquire it? Maybe the difficulties in terms of being able to integrate that.

And then secondly, just in terms of what area the technological supply chain you believe would be most valuable maybe today that gets you further, faster, as you mentioned before, just to maybe think about. And more clearly might - within that pipeline in terms of the different verticals of the supply chain for technology might be looking.

Thanks.

Sure. Yes.

There's a lot in there, but I can unpack it. I think that the - for us, the most valuable part of the chain is owning the customer relationship, because it's the job of a retailer.

Like that's our job. If you can't own the customer relationship, then in some way you've lost it.

And each time you have a piece of technology from the outside, a third party technology that you are integrating into your operations, you've lost control in varying degrees to that relationship. So, if you're using third party e-commerce as a retailer, you've lost control over that customer relationship.

If you're using third party loyalty - customer loyalty services, then you've definitely lost the relationship with that customer. If you're using third party delivery, all these set of things matter.

And so, for us, it's driven on the fundamental premise of own the customer relationship. That's what you have to do.

And I would sort of say the difference between what we're doing and what I think the general technology environment in cannabis outside is doing is, we are based in a retail environment. And that was by design.

So, what we do and the way that we develop our technology is, we are a retailer. So, the use cases, the technology development protocols, what we need to develop comes from ourself.

We are beta testing on ourself. So, we are able to have a feedback loop between what is advantageous at retail, to what we should develop and deploy almost instantaneously.

It's a very, very small feedback loops as opposed to a third party software provider, which is, well, we'll get to it when it suits our development process or our staffing resources. A great example was when COVID hit, to be quite honest, we didn't have in our development pipeline fast - Spark Perks fast lane, like the kind of click and collect functionality.

And so, we very, very quickly, of course, adapted that. We built it, and it was done and deployed, things like early on with Spark Perks, being able to message - if you recall, in Canada, there was a lot of product disruption in the beginning.

So, there wasn't - product availability was a big issue. So, we, of course, accelerated with Spark Perks, the ability to notify our Spark Perks members that, hey, your product is in.

You're not going to come to a store and be met with that product. We’ll notify you.

You can come pick it up. The factor will reserve it for you, hold it for you.

So, that I think is a kind of key difference between what we're doing using the retail platform as a necessary part of that development feedback loop versus what's happening on the outside. Does that make sense?

No, it does. And that was really helpful to provide that detail.

So, appreciate that helpful color, and I'll go ahead and jump back in the queue.

Well, thank you very much for joining us today. We look forward to speaking with you again next quarter and please watch the press release.

Lots of stuff going on. Thank you very much,