Pot sales at this Canadian retailer dropped as legal spending rises

Yahoo Finance Canada
An employee holds a display of dried marijuana at the Fire and Flower store as the first legal cannabis stores open in the province of Ontario, in Ottawa, Ontario, Canada, April 1, 2019. REUTERS/Chris Wattie
An employee holds a display of dried marijuana at the Fire and Flower store as the first legal cannabis stores open in the province of Ontario, in Ottawa, Ontario, Canada, April 1, 2019. REUTERS/Chris Wattie

Sales at Canadian cannabis retail chain Meta Growth (META.V) slipped during the company’s latest quarter despite rising spending at legal pot shops. 

Meta Growth currently has 33 corporately-owned cannabis stores. The company booked $15.8 million in sales in the three months ended Nov. 30, compared to $17.1 million in the previous period, according to quarterly results released after the closing bell on Wednesday. 

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The 7.4 per cent quarterly decline came as the Ontario-based retailer opened three new stores during its fiscal first quarter. The sales stumble is the company’s first since recreational cannabis became legal for sale on Oct. 17, 2018. 

Chief executive officer Mark Goliger said the drop in revenue was primarily the result of greater competition in the Alberta market.

“When you go back to the early days of the Alberta rollout, Meta had 14 of the 70 stores that were licensed before Alberta initiated the moratorium (freeze) on new licences. This allowed Meta to generate revenue in a less competitive market,” he told Yahoo Finance Canada in a statement on Thursday.

The Alberta government suspended issuance of new cannabis store licences for six months beginning in November 2018. The suspension was fully lifted last May.

“At the end of August 2019 there were 270 competitors. On December 2, 2019 there were 355. That means that there were 85 new competitors between the quarters, a growth of 31 per cent,” Goliger said.

As a result, he said supply for high-demand items like pre-rolls was more thinly distributed. He added that pricing pressure and decisions to mark down slower-selling inventory, like oils, also factored into weakness in the latest quarter.

“Licenced producers were dropping their prices to the control board, who in turn dropped its prices to the retailer. Retailers dropped our prices to the customer, but for the most part kept the same gross margin. The result was lower revenue per transaction,” Goliger said.

Meta Growth now plans to prioritize opening new stores in Ontario.

The company’s chief cannabis chain rivals, Fire & Flower (FAF.TO) and High Tide (HITI.CN), saw their revenue increase 66 per cent and 26 per cent, respectively, in their most recent quarters. 

Meanwhile, retail trade data from Statistics Canada show spending at legal cannabis stores increased more than 26 per cent between July and November of last year. Sales in November topped $135 million, according to the federal agency. 

According to StatCan, legal cannabis spending in Alberta in November 2019 was stronger than all other provinces with the exception of Ontario, a province with about 10 million more residents.

Analysts have been bullish on retail-focused pot stocks heading into 2020, expressing optimism for greater store density in underserved Ontario, and higher margins from new vape and edible products. 

Earlier this month, AltaCorp Capital analyst David Kideckel predicted better profitability for retailers compared to licenced producers. Analysts at Stifel recently named Fire & Flower their top cannabis pick in a lengthy 2020 outlook research note. 

Ontario Premier Doug Ford said the province will soon have more cannabis stores than the entire country combined in a television interview with BNN Bloomberg on Thursday. Ontario currently has 28 legal pot stores open, compared with 402 in Alberta. Ford did not give a timeline for his projection. 



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