Aphria had a great quarter, but there’s more to it than meets the eye…

Could Aphria Inc. (NYSE: APHA) be the company to finally turn the cannabis market around once and for all?

We’ll have to wait and see, but it recently made a very good case as a “savior” of the industry.

Aphria reported its Q4 earnings last week, and the company absolutely exceeded all expectations.

Last quarter, the big cannabis companies in Canada showed a decline in revenues – not what you want to see from a market expected to grow to $5 billion or so from its current run-rate of less than $1 billion.

Aphria turned that around this quarter, with an amazing 85% increase in its Canadian cannabis revenue.

That’s 85% sequentially and not year-over-year. The company also turned EBITDA positive, albeit after adjustments and with help from a pharmaceutical distribution business that the company owns in Europe.

And management is optimistic looking forward.

There’s no question that this quarter was a big win for Aphria, which has a well-deserved 5-rating in the NICILytics database.

But what’s not being said about the lessons from Aphria’s earnings speaks volumes about where we are headed…

Investing Lessons

From this earnings report, it’s clear that the Canadian producers were not ready for legalization last October. The blame for the ongoing cannabis shortage in Canada has been directed at a lot of targets: producers, regulators, and retailers.

Each probably deserves some blame, and in particular, the huge delays in Ontario retail stores hurt the industry.

But it’s clear now that the producers may have been a little too confident in how much marijuana they could produce.

As companies like Aphria get better at growing cannabis, they will get better at meeting demand.

Aphria shipped more than double the amount of cannabis this quarter than it did just three months ago, and CEO Irwin Simon attributed the success to changes the company has recently made in how it produces cannabis.

Canada 2.0

December will bring about “Canada 2.0.”

That’s when Canada is currently scheduled to roll out vapes and edibles. In an interview after the call, CEO Simon claimed that there was already a $1 billion market for vapes in Canada, but that it was just currently an illicit market.

He described that illicit market as his biggest competitor.

So, with the introduction of those products by the legal producers, combined with the companies that are getting growing right, there should be significant sales increases in December and in the first quarter of next year.

One landmark event changed the hemp CBD market forever. Sales in this sector are predicted to jump over 3,000% in the next 36 months alone. Find more details here.

Cannabis Stock Prices Are Ready to Climb

This market wants to go up.

I wrote to our Cannabis Investor’s Report members last week that the rally I predicted turned out to be a short-lived experience because of a scandal at a Canadian producer, an FDA letter to an American CBD producer, and even because of the firing of Bruce Linton by Canopy Growth Corp. (NYSE: CGC).

These events pose a real challenge to cannabis investors, but Aphria’s results remind us all why we are invested in cannabis.

No one else grows revenue 85% in a single quarter.

When cannabis stocks recover, it will happen very quickly.

Aphria’s move of more than 30% following the earnings beat is impressive, but other rallies have been equally fast. The market increased by 80% in a month after Constellation Brands (NYSE: STZ) invested in Canopy.

Moving to New Exchanges

The big exposure of companies on major exchanges is proving to be very important.

I’ve written a lot about how getting listed to a more well-known exchange benefits a company, but what I haven’t written about is the benefits that these uplisted companies bring to the entire sector. The fact that big institutional money prefers larger exchanges means that companies with listings there get more attention than equally large companies on smaller exchanges.

For example, Aphria has three times as many institutional investors as Harvest Health and Recreation (CSE: HARV, OTC: HRVSF), which is about as big as Aphria. It’s just that listing on the CSE and the OTC limits the buying pool.

In addition to having more long-term investors, Aphria’s listing on the NYSE brings in other investors and traders because exchange-listed stocks have pre-market and post-market trading and options available on them. Harvest recently pre-announced earnings that should have had the same effect on the market as Aphria’s announcement, but that spot on the NYSE made Aphria the big winner.

Overall, there’s no question that Aphria’s quarter was big news for itself, for Canadian producers, and perhaps for the entire industry.

I hope my thoughts above can help you read between the lines when you look at other reports going forward. For your reference, I also released this free guide on how to read an earnings report like a pro.

I’m also going to have an important update about the booming Florida cannabis market this week, so make sure to check your inbox.

Greg Miller

Executive Director, National Institute for Cannabis Investors

P.S. The CBD market has exploded virtually overnight. Thanks to news of its application for chronic pain, seizures, anxiety, and more – experts predict the market to grow more than 15 times faster than the overall cannabis industry. They’re even predicting CBD sales to jump 3,622% in the next three years alone. With this kind of growth, investors would be crazy not to consider this market. That’s why we’ve identified two CBD companies with massive profit potential… and you can find all the details here.


Comments

7 responses to “The Important Lessons Behind Aphria’s Earnings”

  1. I so appreciate the education about how cannabis companies roll (pun intended) and how that in turns affects the prospects of buying into their stock. My question is, and I know there is no way to gauge this, but any idea when these large investment surges will hit the cannabis market. I keep reading about USA federalization of cannabis, which starts phase 3. I think I’m asking, will we see this surge before the end of 2019? Early 2020? Thanks.

  2. I read quite a nit about the overall market but have focused lately on the Cannabis and CBD markets. The one observation that seems to be apparent in reading what other investors are saying is they don’t have patience. Everyone wants to make a fortune quickly. Its a marathon, not a sprint to the finish line. The analogy I will use to describe the cannabis market is, you cant have a roaring fire without embers. The kindling has started and will be a blazing fire soon enough. Its only the top of the first inning of an “extra inning game”. Once deregulation starts picking up more steam the floodgates will open. You have to use these cheaper prices now to make fortunes later. Stay the course and use the dips to buy more.

Leave a Reply

Your email address will not be published. Required fields are marked *