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Is Aphria Inc. the Best Marijuana Stock?

Aphria Inc. (TSXV:APH) is the second-largest marijuana producer that’s going to give its peer Canopy Growth Corp. (TSX:WEED) a real run for its money in 2017. Aphria plans to expand its production capacity by leaps and bounds over the next few years. The management team is focused on operational efficiency and hopes to be a major player once cannabis is legalized across Canada.

There’s been a huge surge in demand for marijuana, which will only continue to increase once the drug is legalized. The amount of medical marijuana prescriptions has skyrocketed over the past year, and Canopy hasn’t been able to keep up with the demand.

Huge growth prospects

Aphria is building a one-million-square-foot cultivation facility that is expected to be operational in the spring of 2019. The massive facility will have the capacity to produce over 70,000 kilograms of dried marijuana per year. That’s a ridiculous amount of capacity, but, more importantly, the company is determined to drive the average cost per gram of marijuana to the floor.

The gigantic project will be rolled out in four phases, which will incrementally add more capacity as time progresses. Phase two was recently approved and is set to add annual production capacity of 6,000 kilograms of dried marijuana per year once complete.

Focused on lowering production costs

Right now, Aphria is one of the lowest-cost marijuana producers. The company looks to be well positioned to drive margins with its gigantic project, which I believe will be a huge long-term driver of the stock over the next few years. Incredibly, Aphria generates $2.2 million of free cash flow, while Canopy is operating in the negatives.

Aphria CEO Vic Neufeld is an experienced leader who knows the medicinal benefits of supplements very well, as he ran a vitamin company called Jamieson Laboratories for 21 years. While he’s big on the medical benefits of marijuana, he has also made it very clear that he wants to aggressively expand to capture the recreational marijuana space as well, since this will be a huge chunk of the market once the drug becomes legal.

The bottom line

Fundamentally, Aphria looks like one of the best marijuana stocks right now, especially after the banned pesticide incident with Canopy’s recent acquisition, Mettrum, which resulted in the destruction of $1 million worth of marijuana. Sure, the incident was Mettrum’s fault, but as the acquirer, Canopy should have ensured proper operations before finalizing the acquisition.

Aphria’s management team also values operational efficiency and maintaining healthy fundamentals in addition to capacity growth. I believe this is a very important trait that will lead to operational excellence many years down the road. If you’re looking for a marijuana stock to buy, then Aphria Inc. may be your best bet.

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Fool contributor Joey Frenette has no position in any stocks mentioned.

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