Why Aphria Inc. Is Down More Than 10% Today

Recent news has caused Aphria Inc. (TSX:APH) to tumble. Here’s why that might make the stock a great buy.

Aphria Inc. (TSX:APH) has seen its shares fall off a cliff in trading on Tuesday as multiple news items sent the stock reeling. I’ll take a close look at what has caused the shares to tumble and if it might be a good time for opportunistic investors to buy on the dip.

Aphria announced an $80 million bought deal

The company announced that it would seek to raise $80 million by issuing over 11 million shares at a price of $7.25 through Clarus Securities Inc. There is a further option to purchase an additional 1.6 million in shares, which would mean proceeds for Aphria could total more than $92 million.

Why this is good for Aphria

Aphria will benefit from the offering simply because it will be able to raise money for infrastructure and expansion without having to use its cash or raise costly debt. Aphria’s debt-to-equity ratio as of its most recent quarter was just 0.11, and another $92 million would have almost quadrupled its debt and raise that ratio to 0.43. Although that would still not be a lot of debt on its books, in a rising-rate environment and with potentially more cash needed down the road to fund the new and growing industry, it’s understandable why Aphria did not want to go down that route just yet.

Why this is bad for shareholders

When a company issues additional shares, this effectively dilutes the existing shareholders; their ownership will now be a smaller portion of the company. However, this is not new territory for Aphria. In just one year, its shares grew from 90 million outstanding to 139 million — an increase of 54%. Adding nearly 13 million shares will represent just a 9% increase to the shares outstanding today.

TSX threatens to delist marijuana stocks not in compliance with U.S. laws

On Monday, the TSX released a notice stating that marijuana companies that are not following U.S. laws are not in compliance with the exchange’s listing requirements and could be delisted. Although marijuana is legal in many U.S. states, it is still illegal at the federal level, and that is what will take precedence. Aphria, which, earlier this year, announced an investment in Florida, could be at the forefront of this issue. However, the release was not very definitive and still leaves a lot of uncertainty about if Aphria will be impacted.

What does all this mean for investors?

The threats from the TSX might be intimidating, but news of Aphria investing south of the border is not new, and so I find it unlikely that this has suddenly become a problem for the exchange. However, it is an important issue that needs to be clarified, and other companies, like Canopy Growth Corp., are certainly looking at what (if any) impact this might have on their future expansions. Lawyers for Aphria have undoubtedly been combing over the laws to see what is and is not allowed in this emerging market, and at this point, there’s no reason to see any imminent danger to the company.

The bought deal is likely weighing on investors more, and although that may dilute current shareholders, it doesn’t make the stock any worse of an investment today, and that’s why it could be a great buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any stocks mentioned.

More on Investing

A person builds a rock tower on a beach.
Dividend Stocks

CPP Pension: Boost Your Payouts by $5,232 per Year

You can raise your after-tax CPP by making RRSP contributions. Alimentation Couche-Tard (TSX:ATD) is a good RRSP stock.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

1 Stock That’s Just as Hot as Tesla Stock  (Without All the Hype)

Sure, Tesla stock (NASDAQ:TSLA) has the headlines, but this other stock has far more growth, with even more on the…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

Here are three no-brainer stocks that are suitable for anyone getting started on their investing journey.

Read more »

thinking
Bank Stocks

Could Royal Bank Stock Reach $200?

Growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results could help its stock maintain strong upward…

Read more »

A plant grows from coins.
Investing

3 Growth Stocks to Buy With $3,000 for the Next 3 Years

These growth stocks have the potential to deliver above-average returns and compound investors’ wealth.

Read more »

Young woman sat at laptop by a window
Investing

Here’s Why I Think Restaurant Brands Is 1 of the Best Bets on the TSX Today 

Here's why Restaurant Brands (TSX:QSR) could be one of the best stocks to buy for long-term upside in this current…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

This 5% Dividend Stock Pays Cash Every Month

This monthly dividend stock offers cash every month, but also returns that continue to climb higher from being in a…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

3 Top Dividend Stocks That Keep Raising Their Payouts

These three TSX stocks are ideal buy as they consistently raise their payouts, depicting their healthy financials.

Read more »