Buy Meta Growth for cannabis retail exposure, says Echelon Wealth

Expect cannabis retailer Meta Growth (Meta Growth Stock Quote, Chart, News TSXV:META) to flourish in the opened-up retail market in Ontario and across the country in 2020, says Echelon Wealth Partners analyst Matthew Pallotta, who initiated coverage of META on Monday with a “Speculative Buy” rating and $0.30 per share target price, which at press time translated into a projected one-year return of 140 per cent.

Toronto-based Meta Growth has operations across Canada with dispensaries under its NewLeaf Cannabis and Meta Cannabis Co. banners, along with an e-commerce platform in permitted jurisdictions. The company also has a legacy medical cannabis clinics business which offers patient education and management services.

Founded in 2014, the company began trading on the Venture Exchange by an RTO in September 2017. Meta’s network of 33 dispensaries across Alberta, Manitoba and Saskatchewan is the second-largest among pure-play retailers and the company is licensed to operate a total of 40 locations across the country.

Meta had a recent financing round which puts its cash position at more than $20 million in funds available for investment, putting it behind only Fire & Flower and Alcanna in terms of access to liquidity in the retail cannabis space.

Pallotta says Meta is clearly focusing on the opportunity opening up in Ontario, where in January the province started accepting applications for almost 800 new stores, but expansion by Meta seems to have flown under the investment radar so far, according to Pallotta.

“The Company’s current valuation looks to be discounting the potential upside of the Ontario retail opportunity and appears to reflect sentiment more focused on the risks and uncertainty in the licensing process and its potential impact on cash burn, as well as the potential for further deterioration of store economics due to competition in Alberta,” wrote Pallotta in his coverage launch.

“Certainly, these are legitimate risks that we must remain cognizant of, some of which are admittedly out of the Company’s control. However, for those investors with a constructive view of the prospects for cannabis retailers, Meta is positioned to be amongst a handful of the top candidates to establish a successful national presence over the long term,” Pallotta said.

The analyst sees a number of potential catalysts coming up for META, including April of this year when Ontario starts issuing new retail licenses, further StatsCan retail trade data on the Western provinces, furthering licensing of BC dispensaries and announcements from the company on white-label plans and additional licensing and consulting services agreements.

The Ontario licensing could be good or bad for META, warns Pallotta, depending on how successful META’s stores are in the province, while the same negative sentiment could result from further poor numbers from StatsCan on the West, in particular Alberta.

Pallotta thinks META will generate fiscal 2020 revenue and adjusted EBITDA of $63.5 million and negative $9.3 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $107.5 million and $0.3 million, respectively. META finished 2019 down 37.7 per cent while so far in 2020 the stock is down 62 per cent.