Aphria’s Q4 Profit: What’s Next?

Aphria’s Q4 Profit: What’s Next?
Aphria’s Q4 Profit: What’s Next?

Canadian cannabis company, Aphria Inc (US:APHA / CAN:APHA) just reported a major turnaround on its revenues and bottom-line – resulting in a profitable Q4 that has delighted the market and investors.

Shares in Aprhia are up 36% on the day (as of this writing). Shareholders of Aphria will spend much of their time over the next few days basking in this news.

Cannabis investors, more generally, will be looking ahead. What’s next for APHA?

Let’s start by looking at the current good news. Of Aphria’s CAD$128.6 million in Q4 revenues, $99.2 million came from (subsidiary) CC Pharma and other distribution companies. This is mostly international operations.

For this reason, cannabis bears immediately questioned whether Aphria’s revenue momentum is sustainable.
 
However, analysts are split on whether Aphria’s turnaround is sustainable. Challenges remain, including an ongoing ramp-up of production facilities, lumpy pot orders, marketing constraints and guidance for the current fiscal year that’s reliant on second-half performance. [emphasis mine]

Why are pot orders “lumpy” for the Canadian cannabis industry? While the mainstream media refuses to even ask that question, The Seed Investor has answered it – several times. It’s because of woeful ineptitude and reluctance by Canadian provinces to open up the legal industry, via cannabis retail stores.

As TSI has recently noted, this is finally changing. The Canadian cannabis industry has “turned the corner”.

Three consecutive months of double-digit growth in cannabis retail sales have been recorded (up until the end of June). This is because Canada’s provinces are finally achieving a critical mass of retail cannabis outlets.

Ontario, the big laggard among Canadian provinces, now has opened 22 cannabis stores – starting only in April. This coincides exactly with the three months of double-digit gains in retail sales.

Ontario recently announced plans to award an additional 50 cannabis store licenses. That will more than triple the number of Ontario’s cannabis retail outlets.

Canada’s cannabis retail leader – Alberta – is in the process of opening 100’s of additional cannabis stores.

Cannabis investors should have a considerable amount of confidence in Aphria’s second-half guidance. The strong surge in Canadian cannabis retail sales should not merely continue, it should accelerate.

If skeptical cannabis analysts were paying attention to what is taking place in Canada’s cannabis industry, they would realize this. But most of them seem to be too busy dancing on CannTrust’s grave.

Short-sellers have been piling on the cannabis industry in recent weeks. These vultures, plus weak investor sentiment have taken Canadian cannabis stocks back to their previous low in December 2018.



Would the short-sellers have been as bold in July (or cannabis investor sentiment as weak) if the mainstream media had been focusing on the strong surge in Canadian cannabis retail sales instead of their Caligula-like orgy of negative reporting on CannTrust?

Unlikely.

The Seed Investor recently pointed to these reasons in expecting a significant turnaround in Canadian cannabis stocks this fall.
 
Today, Canadian cannabis valuations sit in an obvious trough. This is despite the outstanding fundamentals for near-term revenue growth as Canada’s legal cannabis industry finally hits its stride.

Where will Canadian (and U.S.) marijuana stocks go this fall, once investors get serious about their investing again after Labor Day?

No one has a crystal ball. However, investors positioning themselves in these undervalued cannabis stocks today have many reasons to expect a very Merry Christmas.

Obviously, these words apply to Aphria as well.

Some mainstream sources have chosen to characterize the strong earnings by Aphria as a “surprise”. The Seed Investor looks at this as an indication of things to come in the Canadian cannabis industry.

Cannabis short-sellers beware! You may be about to get your noses bloodied (again).