- Brent-WTI moved lower even though the price of oil climbed
- The risk is on the upside in the spread
- BNO and USO are the ETFs that reflect the short-term price action in the two benchmarks
What is going on?
For many that follow us and know our investment strategy in the cannabis sector post legalization has been heavily focused on holding our largest positions within the large cap cannabis stocks. We feel that these companies carry the least amount of risk as opposed to so many of the small cap stocks that have sold off immensely. The large cap stocks have seen their fair share of shakeups and volatility but we still feel that investing in large caps, especially when the market pulls back like it has, is going to be the key to maximizing returns within the cannabis sector. With many cannabis stocks feeling the growing pains of any new industry, experiencing wild price swings, there are so many stocks right now sitting close to their yearly lows. Knowing when to start buying these stocks is crucial to success with it comes to investing and even more so, knowing how to determine if you are buying a great company at a good price or a value trap.
Aphria should not be forgotten
One company that comes to mind is Aphria. This stock has seen its fair share of volatility due to a short seller attack over their latin american assets this year that shaved off over 50% of their market cap within days only to bounce right back up after the dust settled. We saw the stock go on to more than triple off of its lows after the attack and has now been steadily declining after hitting $14 per share in April. At current levels the company still has a market cap of over 2 billion dollars (cad) and a 52 week high of $22 (cad).
Aphria is not to be forgotten for many reasons and it starts with the canadian cannabis market. The company has supply agreements with all of the canadian provinces and the yukon territories. After digesting Aphria’s latest earnings report we were very pleased to see that the company grew revenues over 600% year over year and over 200% from the previous quarter. We highly value increasing revenue numbers as a key driver to success in the short term, and as the company matures, then we will focus on the bottom line more closely including profitability. Compared to its counterparts and other large cap cannabis stocks, aphria lost just over $100,000 last quarter which is very minimal compared to a company like canopy which lost over $300,000,000, yes 300 Million. We feel that aphria is very close to profitability, and despite the lackluster numbers coming out of the canadian cannabis market, aphria has a secret weapon that will propel them back up to new highs in the coming months.
Aphria’s Secret Weapon
Aphria is already thinking like an industry leader, setting up operations globally in latin america, south africa and more importantly europe. Aphria has put a lot of emphasis on germany which is most likely going to be the largest cannabis market outside of north america. The company is one of three companies to hold a german cannabis license, the other two being aurora and ICC International Cannabis/Wayland. This is a huge advantage next to over cannabis companies in our opinion as the market in europe grows, aphria will have first mover advantage compared to other companies. On top of this Aphria acquired CC Pharma which serves over 13,000 pharmacies across germany.
Despite the shake up in the stock earlier this year, the company still holds licenses in Jamaica, Colombia and Argentina, which we feel will be a high growth sector as well. These markets have a long way to go, but should prove to be more and more profitable as the global push for legalization continues and the world opens up to cannabis.
The opportunity lies ahead
At current levels we feel that aphria is not only undervalued compared to some of its competitors, but we feel that you are getting a lot of bang for your buck if you are betting on international expansion. We really like that the company is growing revenues at such a fast pace, while minimizing losses, as we feel that is going to be crucial over the next few years. What we would like to see from the company is a solid mix of diversified revenue coming from the canadian market and international market to reinforce aphria as a play on international growth. Aphria is on the top of our watchlist and should probably be on yours as well.(Disclosure : We do not own Aphria) ________________________________________________________________________________________________
- A nine-month extension to production cuts
- Russia’s profile rises
- Output policy now depends on a triad of the leading producers