By now, most growth investors understand that the cannabis industry is exploding. In fact, this emerging market will have a value of nearly $41 Billion in the next 4 years. As with any emerging market, savvy investors will profit by betting on winning companies. Canada-based Aphria, Inc. (APHA) is one of the biggest names in the cannabis industry. Like most other cannabis stocks, Aphria has yet to demonstrate consistent profits and is a relatively risky investment – or so we thought when we published our recommendation back in November. This cannabis stock has soared over 200% since then. Many investors favor Aphria – but is this cannabis stock still a buy?
Aphria is a low-cost greenhouse cultivator of high-quality medical and adult use cannabis in Canada. They’ve traditionally done significant exporting to global medical cannabis markets. They are also involved in distribution and cannabis business development operations. But is this cannabis stock a buy? Let’s take a deep dive into the fundamentals to see if this is a cannabis stock to add to your portfolio.
Aphria, Inc.
HQ: Leamington, ON, Canada
Founded: 2013
Symbol: APHA (NYSE), APHA (TSX)
Aphria Focus: Neutral
Aphria is a cultivator and supplier of medical marijuana in Canada. They’ve traditionally distinguished themselves as a low cost cultivator. Recently, they’ve announced a reverse merger with Tilray, which will make them the largest cannabis company in the world as measured by sales. This has driven their stock price crazy (down first, then way up).
Aphria Company Size: Strong
Market Cap: US $3.84 billion
Enterprise Value: US $4.12 billion
# of employees: 1000
Market Penetration: Strong
Secondary: USA, Germany, Brazil, UK (10 countries so far)
Company Operations: Neutral
Cultivation:
Current production: Over 255,000 kg annually (plus Tilray’s over 100,000 kg annually)
Future capacity: 2,400,000 sq ft of capacity in Canada
Distribution:
Direct sales: yes, online through its online store or phones. Also wholesale shipping of MMJ plant cuttings and dried buds to other licensed producers.
Integration/Diversification:
Vertically integrated: Yes
Horizontally diversified: No
Company Financials: Strong
Revenue (ttm): $602 million
Outstanding shares (diluted): 317 million
Aphria Management: Strong
CEO: Irwin Simon
CFO: Carl Merton
COO: Jim Meiers
CSO: Denise Faltischek
Mr. Simon will become the CEO and Chairman of the post-merged Aphria/Tilray. The board of directors will also be expanded.
Aphria Branding: Strong
Aphria’s current product packaging for medical cannabis is plain and simple, typical for the medical field. Solei Sungrown Cannabis is for the novice user. RIFF is a culture-based brand. Good Supply is the regular user brand and Broken Coast is the premium brand.
Tilray has a cannabis brand called CANACA™, celebrating Canadian roots and pride as the country becomes the world’s first G7 nation to federally legalize cannabis for adult-use.
Tilray signed an agreement with Sandoz Canada, a division of Novartis, to create and sell co-branded and co-developed non-combustible medical cannabis products. They also recently were selected as a supplier in France.
Company Valuation: Neutral
Current share price: US $12.18
52 week high/low: $1.95-14.01
Price to Sales: 7.18
EV/Revenue: 6.84
Price/book: 2.61
Company Financing: Neutral
Aphria has cash and cash equivalents of $187 million CAD. They’ve reported liabilities at $863 million CAD as of Q2 2021. Their net loss for the three months ending Nov. 30 2020 was $120 million CAD.
Risks: Neutral
The risks of investing in any cannabis company are currently high given the market. Given the recent financial state of the company and the market volatility all things oil and flu related, risks are very high today.
Bottom Line: Is Aphria Cannabis Stock Still a Buy?
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Cannin Stock Recommendation: Strong
Aphria is a vertically integrated Canadian cannabis company growing most of their crops in energy efficient greenhouses. They have a presence in 10 countries, on 5 continents and they are one of the founders of the Canadian market. Also, one of the largest cannabis companies in the world.
Now they are the king of the cannabis world. In late 2020, they announced a reverse merger with Tilray. Aphria’s shareholders will own 62% of Tilray stock and they will pay a 23% premium to do so. The combined company should have revenue around $685 million!
The deal should be good for Aphria, and great for Tilray. Tilray’s losses in 2020 should be on the mend with some senior notes converted to class 2 common stock. The combined company should also be able to shed expenses with duplicate management teams. Aphria gets access to US markets (where Tilray is listed) and the clinical trials that are all in process.
Aphria’s stock was down on this news but since 2021 has increased over 70% and their price to sales is at 7 and price to book is 2.6. These are reasonable. The expected revenue and cost savings should yield a clear road to profitability as long as management makes no missteps.
We expect short term losses in the stock price (see our technical analysis this week) but long term gains in 2021 once the merger is done. Given the strong revenue, international presence, and overall status, we give the stock a Strong rating for the long term.
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