APHA: What Does the Future Look Like for Aphria?

Cannabis stocks have seen strong momentum over the past few weeks as investors have grown optimistic about a Biden administration. The Democratic party is seen as much more favorable to the cannabis industry.

The ETFMG Alternative Harvest ETF (MJ) is up 38% since November 4th and finished yesterday’s trading session up 3.9%. Aphria (APHA) is one cannabis stock that has stood above the rest, up 67% over the same time period. It even hit a 52-week high of $8.68 this week.

Whether or not a Democratic President in the United States will directly benefit all of the Canadian licensed producers is another story, and investors could be getting ahead of themselves. But APHA’s gains might be justified as the company just closed on a strategic acquisition that may give it a competitive advantage in accessing the United States cannabis market.

The company announced this week that it closed the accretive, strategic acquisition of SweetWater Brewing Company, which is one of the largest independent craft brewers in the United States. APHA is looking to enter the United States market with this strategic acquisition, and management is optimistic about its revenue potential.

SweetWater has flagship 420 beverage offerings, along with an award-winning lineup of year-round, seasonal, and specialty beers. Its portfolio of brands is closely aligned with a cannabis lifestyle. APHA Chairman and CEO Irwin D Simon had the following remarks regarding the news, “We are excited to take this significant step forward to build upon our existing foundation in cannabis with the acquisition of SweetWater and their complementary cannabis lifestyle brands.”

He also said, “Together, our company will further diversify our product offering, broaden our consumer reach, and enhance loyalty with consumers. We are very pleased to welcome Freddy Bensch to our management team and the entire SweetWater organization to the Aphria family. We look forward to expanding our addressable market and leveraging SweetWater’s existing infrastructure to accelerate Aphria’s entry into the U.S. ahead of federal legalization of cannabis to fuel sustainable profitable growth.”

Shareholders of SweetWater received $250 million in cash and $50 million in APHA stock at closing. APHA financed the cash component of the purchase price through available cash on hand, including the recently raised funds under its At-the-Market equity program. I believe this acquisition could provide APHA the ability to substantially increase revenues in future quarters as the United States cannabis market continues to grow.

According to 14 analysts that cover the stock, 11 rate APHA as a “Strong Buy” and two recommend it as a “Buy.” I believe that a much more developed cannabis market than it was two years ago should provide APHA with the environment to continue growing revenues for quarters to come. Keep your eyes on APHA moving into 2021 as it seems to be one of the best positioned Canadian cannabis companies.

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APHA shares rose $0.01 (+0.12%) in premarket trading Thursday. Year-to-date, APHA has gained 58.62%, versus a 15.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...