Aphria Inc. (TSX:APH) is the newest weed company to graduate to the TSX. The stock has been faring better than its peers, Canopy Growth Corp. and Aurora Cannabis Inc. over the past few months, as marijuana stocks take a breather after the impressive run earlier this year.
There’s no question that Canadian marijuana stocks are the place to be if you want incredible growth, but keep in mind that there’s no margin of safety with any marijuana stock right now. All marijuana stocks have been on a ridiculous run, and you have to understand that there’s a high level of risk associated with an investment right now.
But if you’ve got a high risk tolerance, and you’ve got some extra cash in your speculative wallet, then it might be time to consider getting in on the green rush.
Many pundits believe that marijuana stocks could double from current levels once marijuana becomes legalized across Canada. I believe that Aphria could be one of the biggest beneficiaries of legalized weed, and there could be astronomical upside for investors who can stomach the volatility.
Well positioned to be a dominant player in the weed space
A gigantic one-million-square-foot growth facility is under construction and expected to be up and running in spring 2019. The facility will produce a whopping 70,000 kilograms of dried marijuana per year and will be rolled out in four phases. Phase two of the project is underway and estimated to increase the company’s growth capacity by 6,000 kilograms of product per year upon completion.
The management team is also focusing on operational efficiency to bring down the costs of producing a single gram of marijuana. I believe the experienced management team at Aphria will be capable of driving down long-term costs by investing in operational-efficiency initiatives.
You’ve got to spend money to make money, and the company is generating ample amounts of free cash flow right now to support such initiatives. Aphria is currently one of the lowest-cost producers of weed right now, and I believe the company’s margins are set to improve by leaps and bounds over the long term.
Takeaway
Aphria is thinking about operational efficiency in the early stages of the game, and I think this is an important trait that will make the company a top performer as the marijuana industry continues to grow. Legalization is on the horizon, and there could be a ridiculous amount of upside for producers like Aphria over the next few years. If you’re looking to get in on the green rush, then Aphria should definitely be on your radar at this point.
Stay smart. Stay hungry. Stay Foolish.
