This week Aphria (APHA) released a solid 4th quarter earnings report, providing a sigh of relief to many investors and some much needed positive news for the cannabis sector.

Aphria reported a record C$128.6 million in revenue in its earnings release, up nearly 1,000 percent year-over-year, with C$15.8 million in net income.

“It’s a new day at Aphria. Over the last six months, our organization identified immediate priorities to help generate substantial progress near-term and long-term. We built upon existing business fundamentals and capabilities, streamlined processes, strengthened governance, and focused on building brand awareness,” said interim CEO Irwin Simon.

The caveat is that there were no recreational sales in Canada last year until cannabis was legalized in October 2018. Nonetheless, after factoring that in, the company still managed to boost its revenue by 75 percent, some of which came from higher prices.

Additionally, a significant portion of APHA’s revenue resulted from the acquisition of German medical cannabis distributor CC Pharma, which brought in C$99.2 million of that C$128.6 million.

Aphria reported C$18.5 million in recreational sales during the last quarter, up 158 percent over the same reporting period last year. But again, that’s compared to a quarter from before recreational marijuana became legal, so the sizable percentage increase came as no surprise.

Analysts speculate that Aphria would have produced a loss if it weren’t for their acquisition of the German cannabis distributor.

CC Pharma distributes pharmaceutical products (along with medical cannabis) to thousands of pharmacies throughout Germany and Europe. Last May, Aphria announced that Germany had awarded them a fifth lot to cultivate medical cannabis in Germany.

That being said, analysts seem to be enthusiastic about Aphria’s improved operations and high quality.

“We recently spoke to a government contact at the distribution level and a partner of Aphria, where we received very positive feedback. The quality of Aphria’s products was mentioned as one of the best among all (licensed producers) and our contacts also said the company has greatly improved operationally,” said GMP Securities analyst Justin Keywood.

APHA’s adjusted net loss for the fiscal fourth quarter was 2 Canadian cents per share, which exceeded Wall Street’s expectations. Analysts predicted a deeper per-share loss by two-to-five cents, or approximately seven cents Canadian.

More impairment charges?

The news of impairment charges from earlier this year has some analysts concerned that there could be more impairment charges on the horizon for Aphria.

Back in April, Canadian regulators asked Aphria to conduct an “impairment test” — or a procedure measuring possible changes in an asset’s value — related to acquisitions in Latin America and the Caribbean.

APHA later reported it had to book a C$50 million charge as a result. Aphria says the charge came about from a reassessment of the acquired companies’ finances, which showed higher-than-expected costs.

Concerns about future impairment charges not only rattled analysts, but became a target for short sellers earlier this year. Those short-sellers, Quintessential Capital and Hindenburg Research, alleged that the acquired properties had little value, and that Aphria overpaid for them, structuring the deals to benefit those on the inside.

Eventually, Aphria CEO Vic Neufeld and co-founder Cole Cacciavillani stepped down from their executive and directorship roles, although Aphria states their departures had nothing to do with the short-seller allegations.

 Ultimately, a committee determined that the price of the acquisitions was “acceptable,” although it also found “conflicting interests” in the deals.

“With Chair and interim CEO Irwin Simon now at the helm for over six months, we still await further updates as to who will steer the ship over the long term toward the company’s strategic goals,” said Canaccord Genuity analyst Matt Bottomley. 

Based out of Leamington, Ontario (“the greenhouse capital of Canada”), Aphria Inc. has a presence in more than 10 countries across 5 continents.

APHA shares rose $0.03 (+0.44%) in after-hours trading Wednesday. Year-to-date, APHA has gained 20.56%, versus a 16.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Eric Bowler

Eric is an accomplished journalist providing in-depth insights for more than two decades, with a special focus on the cannabis industry. Learn more about Eric’s background, along with links to his most recent articles. More...

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