Aphria, Inc.

APHA (NYSE), APHA-T(TSX)

Should you invest in Aphria, Inc. APHA (NYSE), APHA-T(TSX)? Recommendation: See Below

Aphria, Inc. engages in the production and supply of medical marijuana. The company was founded by Cole Cacciavillani and John Cervini on June 22, 2011 and is headquartered in Leamington, Canada.

Fundamentals

Overview:
Symbol: APHA (NYSE), APHA-T (TSX)
HQ: Leamington, Ontario, Canada
Facilities: Ontario and now British Columbia (from the purchase of Broken Coast and Cannan Growers)
Facilities include Aphria One, Aphria Diamond, Broken Coast. It also has international operations.
CEO: Irwin David Simon

Focus: Strong
Primary: Low-cost greenhouse production of high-quality medical and adult-use market cannabis in Canada. Significant exporting to global medical cannabis markets. Distributions and cannabis business development operations.

Secondary: Support services including medical consultations, group therapies, and rehabilitation to veteran and first responders.

Size: Strong
Market Cap: $669 million
Enterprise Value: $609 million
Size within the cannabis industry: 5th of 200+
Size within cultivators: 3rd of roughly 40
# of employees: > 1,000

Markets: Strong
Primary: Canada, US, and Australia
Secondary: In 2018, increased international operations to include Germany, Italy, Malta, Lesotho, Colombia, Argentina, United Kingdom, and Uruguay. Jamaica and Brazil coming in the fall. Israel also.

Subsidiaries: Broken Coast, Aphria Diamond (51%), Latam Holdings, many more!

Operations: Strong
Cultivation:
Current production: Over 255,000 kg annually
Future capacity: 2,400,000 sqft 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. Operates in 10 countries.

Should you invest in Aphria, Inc. APHA (NYSE), APHA-T(TSX)? Recommendation: See Below

Integration/Diversification
Vertically integrated: Yes
Horizontally diversified: No

Financials: Neutral
EPS:
 0.29
Shares Outstanding (diluted): 242.7 million
Third Quarter 2019 Revenue: $120.6 million
Third Quarter 2018 Revenue: $21.7 million
Cash: $497,000

Management: Strong
CEO: Irwin D. Simon
CFO: Carl Merton
COO: Jim Meiers


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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.

Valuation: Neutral
Price to Sales: 9.14
Price to Book:
 1.31
Stock Price:
 $2.59
52 week high-low:
 $1.95 to $10.17
Enterprise value/Revenue: 2.02

Financings: Weak
Not a lot of cash to go around here, and it is one of their weaknesses. Around 0.5 a million to play with and try and survive 2020’s waves.

Risks: High
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 relations, risks are very high today.

Recommendation: Neutral to 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. They are one of the founders of the Canadian market and one of the largest cannabis companies in the world.

Interestingly, their fundamentals don’t look too bad. Why then has its stock lost 54% of its value in 2020? Well, oil and the COVID-19 pandemic certainly are playing their part. But a lot of it has to do with external variables. One interesting outcome of all this social distancing is that cannabis sales are up. Way up. Aphria is certainly taking advantage of the situation, as they should.

Their shares are up after recent Bank of America analyses but the larger question at hand is what will happen after the coronavirus scare is done with? We think the stock will rebound.

The company has reported three consecutive quarters of positive revenue. They do have a lot of debt, like many of their competitors, but they also have low productions costs, $1.11 per gram (down from $1.43 just three months prior), energy-efficient greenhouses, and lots of distribution (Distribution agreements with Great North Distributors (Canada)).

The stock has an attractive Price to Book, a slightly high but acceptable price to sales ratio of 9.14, and financial projections for 2020 of revenue around $600 million and EBITDA of around $40 million. Their stock price now is certainly not priced for that much revenue. So if we are able to get through the market fear, as well as the health crisis itself, the end of 2020 just may be rosy for Aphria. Until then, hold on.

Should you invest in Aphria, Inc. APHA (NYSE), APHA-T(TSX)? 


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