What Aphria’s Earnings Report Could Mean for Its Stock

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January 15, 2020 1:19pm ETF BASIC NEWS

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Yesterday Aphria (APHA) announced weaker-than-expected fiscal Q2 results that caused the stock to dip, but didn’t exactly send shockwaves across the cannabis sector.

By now, many investors have become hardened to the reality that publicly-traded cannabis companies may continue to fall short of their revenue targets for the unforeseen future.   

The Canadian pot company reported losses that were in tune with expectations, but revenue that missed expectations. Nonetheless, Aphria still delivered an optimistic full-year sales outlook.

For the quarter, Aphria’s net losses amounted to C$8.2 million ($6.3 million), or 3 cents per share. Comparatively, the company profited C$54.8 million, or 22 cents per share, during the same period a year ago.

Net revenue increased from C$21.7 million to C$120.6 million ($92.2 million) — more than 5-fold. Kilograms sold rallied 18% to 7,062. Meanwhile, the production cost of dried cannabis dropped 22% to C$1.11 per gram.

“We are continuing to expand our capabilities internationally with solid progress during the quarter in Germany and South America and look to monetize non-core assets. We are confident in our market position and our ability to generate sustainable profit growth,” said CEO Irwin Simon.

For fiscal 2020, APHA anticipates revenue from C$575 million to C$625 million – a significant reduction from previous outlooks. The prior forecast was $650 million to $700 million.

During the company’s conference call, the company cited a delay in store openings in Ontario (the most populated province), where the sector is still waiting on upwards of 40 store openings.

Aphria also noted “more muted initial purchases” of Rec 2.0 products (the vapes, beverages and edibles that recently became legal). The temporary vape ban in Alberta tempered APHA’s forecast, as the province gathers more data on vape products.

Additionally, the costs of sourcing cannabis from third-party suppliers to meet demand for its branded cannabis products did not help. The extra supply and costs resulted from a licensing delay for the company’s enormous Aphria Diamond facility. Nonetheless, the facility is said to be “100% planted,” with the first full crop rotation due early next month.

As Aphria took in supply from outside, the company’s own inventory ballooned to $152.2 million during the quarter, up nearly 35% from the previous quarter. As brick-and-mortar cannabis retailers remain few and far between throughout Canada, concerns continue to grow about the cannabis oversupply.

Outside the Canadian market

Aphria also communicated apprehension toward pursuing the United States’ hemp-derived CBD market, where the FDA’s stance still seems ambiguous. “Were not going to go out there and jump into an unknown situation,” said Simon.

And overseas, growth has stalled for CC Pharma, the German pharmaceutical distributor that Aphria bought last year. “Recent changes in the German government’s medical reimbursement model,” are said to be the culprit.

On a positive note, the company expects to begin “supplying Germany’s first domestically grown medical cannabis in early calendar 2020.” Aphria completed the German tender process and acquired five lots (the maximum allowed) to grow all three strains of marijuana approved by German authorities.

Aphria stock has gained 25% during the past three months, and company shares have increased approximately 4.4% since the beginning of the year, compared to the S&P 500’s gain of 1.8%.

Aphria Inc. (APHA) was trading at $5.38 per share on Wednesday afternoon, up $0.39 (+7.82%). Year-to-date, APHA has declined N/A%, versus a 23.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Eric Bowler

eric-bowlerEric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.

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