Aphria: value or value trap?
On the surface, Aphria would appear to check a lot of the boxes that pot stock investors look for. The company is currently expected to slot in as Canada's third-largest grower, with 255,000 kilograms in peak annual yield.
The company's organically constructed Aphria One campus, and its partnership with Double Diamond Farms that led to vegetable-growing greenhouse retrofits, are expected to generate 110,000 and 140,000 kilos, respectively, when fully operational. The remaining 5,000 kilos will come from Aphria's acquisition of Broken Coast Cannabis, completed last year. In terms of output, few companies are as "inexpensive" as Aphria. Putting profitability aside for the moment, since legal weed is such a new industry, investors can purchase Aphria's 255,000 kilos of peak output for a market cap of $2.3 billion. By comparison, Canopy Growth is lugging around a $15 billion market cap for just over 500,000 kilos in peak annual production, while Cronos Group sports a $3.4 billion market cap for only 120,000 kilos of forecasted peak output. As a company with top-tier production, the expectation is that Aphria would have no trouble securing lucrative long-term supply deals, as well as attracting brand-name partners in the food, beverage, tobacco, or pharmaceutical space. Also, with about 10% of the company's production devoted to alternative cannabis products, such as cannabis-infused beverages, brand-name food and beverage companies would seem to have added incentive to team up with Aphria.
What's next for Aphria? According to Simon, Aphria's next step will be to top CA$1 billion in revenue in fiscal 2020. Of course, doing so is going to require some help from Health Canada. It's not that Aphria isn't ready to seize the day in the cannabis industry. Rather, the company is being held back, like many of its peers, by regulatory red tape. Through March 15, Health Canada had approved 159 cultivation, processing, distribution, and sales licenses. However, the agency overseeing the legal weed industry had almost 840 applications (mostly for cultivation) in backlog as of January 2019, according to Marijuana Business Daily. Aphria's current annual run rate of 35,000 kilos is well below its peak annual output of 255,000 kilos because the company's hands are tied as it waits for additional cultivation and sales licensing from Health Canada. Another challenge is going to be reassuring investors that the company's corporate governance has improved. Having Simon at the helm is definitely a step in the right direction. But it may take a couple of quarterly reports and time to erase the bad memories associated with Quintessential's and Hindenburg's short-side report. For the time being, Aphria is worth closely monitoring. But given its supply side and investor trust issues, that's about as far as I'd suggest investors go at this point. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Hain Celestial. The Motley Fool recommends Anheuser-Busch InBev NV and Constellation Brands. The Motley Fool has a disclosure policy.
https://www.fool.com/investing/2019/04/01/this-popular-pot-stock-doesnt-need-a-partner-or-bu.aspx
The company's organically constructed Aphria One campus, and its partnership with Double Diamond Farms that led to vegetable-growing greenhouse retrofits, are expected to generate 110,000 and 140,000 kilos, respectively, when fully operational. The remaining 5,000 kilos will come from Aphria's acquisition of Broken Coast Cannabis, completed last year. In terms of output, few companies are as "inexpensive" as Aphria. Putting profitability aside for the moment, since legal weed is such a new industry, investors can purchase Aphria's 255,000 kilos of peak output for a market cap of $2.3 billion. By comparison, Canopy Growth is lugging around a $15 billion market cap for just over 500,000 kilos in peak annual production, while Cronos Group sports a $3.4 billion market cap for only 120,000 kilos of forecasted peak output. As a company with top-tier production, the expectation is that Aphria would have no trouble securing lucrative long-term supply deals, as well as attracting brand-name partners in the food, beverage, tobacco, or pharmaceutical space. Also, with about 10% of the company's production devoted to alternative cannabis products, such as cannabis-infused beverages, brand-name food and beverage companies would seem to have added incentive to team up with Aphria.
What's next for Aphria? According to Simon, Aphria's next step will be to top CA$1 billion in revenue in fiscal 2020. Of course, doing so is going to require some help from Health Canada. It's not that Aphria isn't ready to seize the day in the cannabis industry. Rather, the company is being held back, like many of its peers, by regulatory red tape. Through March 15, Health Canada had approved 159 cultivation, processing, distribution, and sales licenses. However, the agency overseeing the legal weed industry had almost 840 applications (mostly for cultivation) in backlog as of January 2019, according to Marijuana Business Daily. Aphria's current annual run rate of 35,000 kilos is well below its peak annual output of 255,000 kilos because the company's hands are tied as it waits for additional cultivation and sales licensing from Health Canada. Another challenge is going to be reassuring investors that the company's corporate governance has improved. Having Simon at the helm is definitely a step in the right direction. But it may take a couple of quarterly reports and time to erase the bad memories associated with Quintessential's and Hindenburg's short-side report. For the time being, Aphria is worth closely monitoring. But given its supply side and investor trust issues, that's about as far as I'd suggest investors go at this point. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Hain Celestial. The Motley Fool recommends Anheuser-Busch InBev NV and Constellation Brands. The Motley Fool has a disclosure policy.
https://www.fool.com/investing/2019/04/01/this-popular-pot-stock-doesnt-need-a-partner-or-bu.aspx
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