Meta Growth Corp. (TSXV: META) is a cannabis product retailer, which offers recreational cannabis products in Canada. The Company operates through its wide network of stores under the name of Meta Cannabis Co., Meta Cannabis Supply Co. and NewLeaf Cannabis.

Major Operational Highlights:

• META has introduced enhanced e-commerce solutions MetaXpress Pickup™ and NewLeaf Express Pickup™, as a result of which the Company witnessed consistent demand in its retail sales segments, amidst a slowdown scenario due to COVID 19.
• The Group is focusing on improving its sales by membership and perks programs which offers several discounts and exclusive offers to the customers.
• In order to enhance the profitability, the Management is focused on disinvestment of its two non-core assets and indulging into lowering its staff’s strength along with salary reductions.

Q2FY20 Financial Highlights: META released its quarterly numbers wherein the company’s revenue declined ~16% to CAD 13.6 million from CAD 16.20 million in the previous corresponding period. Gross profit decreased to CAD 9.51 million as compared to CAD 10.97 million, primarily attributable to lower sales, partially offset by a decline in the cost of sales. The Group reported a slightly lower net loss of CAD 5.543 million, as compared to CAD 5.643 million in the previous corresponding period. The Company posted a cash balance of CAD 15.7 million, significantly higher than CAD 8.9 million in the previous quarter.

Q2FY20 Financial Snapshot (Source: Company Reports)

Stock Recommendation: The stock of META soared ~33% in the last one month and currently trading at CAD 0.12 with a market capitalization of CAD 28.4 million. The stock has corrected ~82% in last one year and ~63% so far this year. The group’s second quarter result failed to impress as the revenue and gross profit declined significantly. The group operates in market where the competition is fierce, and the group has not opened any new stores in Alberta during the quarter. The group is planning to open stores in other provinces and granted Cannabis Retail Operator License in Ontario but making inroads to the new markets are always challenging. The group seems to have a decent liquidity and added an unsecured loan drawdown facility of CAD 11 million, to support its near-term operations, but rising debt poses a concern. The group has ~31 million as outstanding debt (term loan and debenture) at the end of Q2FY20. The group is strengthening its online channel which is likely to drive revenue in the near term. The stock is trading at lower EV/Sales multiple of 0.2x on TTM basis as compared to the industry (Pharmaceuticals) median of 4.9x. We believe the lower multiple is justified given the group’s dismal performance. Hence, we prefer to remain on the sideline and recommend a ‘Watch’ stance on the stock at the closing market price of CAD 0.12, as on May 22, 2020.

META Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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