Shares of Aphria Inc. (TSX:APH) were down 2.55% in late morning trading on August 13. Aphria stock has plunged 45% in 2018 so far. Canadian cannabis stocks have experienced weakness since a broad sell-off on the TSX back in late January and early February. The news that recreational legalization would take effect in October caused prices to spike, but this was only temporary.
Aphria has struggled with a controversy swirling around its acquisition of the smaller medical cannabis firm Nuuvera. In late May, Aphria CEO Vic Neufeld claimed that this was conjured up by a short-seller in order to generate profits. The Globe and Mail published reports on Neufeld and other Aphria executives who failed to disclose holdings in Nuuvera. Neufeld and the other top shareholders claim that they were not required to disclose their holdings.
Aphria released its fourth-quarter and full-year results on August 1, which saw a fair bit of disappointment from reporters and analysts.
Revenue in the fourth quarter rose to $12 million compared to $5.7 million in the prior year. For the full year, revenue climbed to $36.9 million over $20.4 million in the fiscal year 2017. Aphria’s results were negatively impacted by its decision to discontinue wholesale sales to other licensed producers. This was done to boost inventories in preparation for the recreational legalization roll out. Some are anticipating overwhelming demand for many of the smaller producers, while larger companies like Canopy Growth Corp. have been ahead of the game in this regard.
Adjusted gross profit rose to $9.4 million from $4.9 million in the prior year, while for the full-year it increased to $27.9 million compared to $15.8 million in FY2017. Aphria did achieve its cash costs to produce dried cannabis per gram to $0.95, which was down $0.01 quarter over quarter. The company has consistently performed better than its competitors in this regard. However, all-in costs actually rose to $1.60 from $1.56 in Q3 fiscal 2018. This can be explained by Aphria’s investment in ramping up operations before the rollout.
Like other top producers, Aphria has made a concerted effort to move into international markets. It reported that its international operations increased in the United States, Australia, and in European markets like Germany, Malta, Italy, and the United Kingdom. Aphria has also made huge progress in its expansion into Latin America. This development has also carried steep operational costs. Adjusted EBITDA for Aphria International slipped to a loss of $2.8 million in the quarter.
Net income at Aphria was powered by fair value adjustments associated with biological assets and unrealized gains on its investment portfolio. Like other producers, Aphria will be tested when recreational legalization hits in October 2018. In a recent interview, CEO Vic Neufeld has projected that Aphria will achieve $50 million in revenue minimum by the end of fiscal 2019 and 60% EBITDA.
Can Aphria get back over $20 before the end of this year? It is extremely unlikely with the current volatility in the cannabis market. The chaos during the rollout could exacerbate the general anxiety surrounding the industry. Still, the stock has slipped below double-digits again in August and represents an enticing speculative buy considering its top position in Canada’s young cannabis industry.
