Net revenue was up 457% year-over-year, to CAD$120.6 million. However, this represented a drop from CAD$126.1 million in the previous quarter. It also missed market expectations of CAD$130.4 million in revenue.
Aphria’s CEO, Irwin Simon explained the slightly soft quarter.
“We [didn’t control] what the store count was going to be in Ontario. We thought a lot more stores would be open. We could not control that Alberta, Newfoundland and Quebec have not allowed vapes to go into those markets.”
Canadian cannabis sales were generally flat toward the end of 2019, due to weakness in Eastern Canada provinces. This means that most Canadian LP’s will be reporting similar weakness in the current quarter.
This is also affecting Aphria’s full-year guidance for 2020. Revenue guidance for 2020 has been lowered to CAD$575 to $625 million from CAD$650 to $700 million. Aphria cited not only the temporary ban on vaping products in Alberta but also slowing growth in its German cannabis operations.
Revenue from Canadian cannabis operations were up on the quarter from CAD$30.8 million to $33.7 million. This is despite sales volumes actually declining from 5,969 kilograms to 5,567 kilograms. The remainder of Aphria’s revenues (CAD$86.4 million) were attributed to APHA’s German pharmaceutical division.
Aphria continues to have a strong balance sheet. The company is currently sitting on CAD$497.7 million in cash. Roughly CAD$50 million is already committed to building out APHA’s Colombian subsidiary – as Latin America opens up for legal cannabis.
Another CAD$45 million will go into expanding its footprint in Germany. And CAD$60 million is needed for existing commitments in APHA’s Canadian operations.
This leaves Aphria with CAD$300+ million. The company’s CFO, Carl Merton, hinted that some of this cash would go into “future strategic initiatives”, including distressed Canadian assets – as some smaller companies are consolidated.
The Seed Investor sees the potential for Canadian cannabis companies to start to surprise to the upside as Cannabis 2.0 gains momentum in 2020. The key is a critical mass of retail cannabis stores.
Alberta continues to roll out stores almost daily. British Columbia has addressed its own cannabis store licensing delays. Now Ontario is moving forward on a new licensing framework that could multiply its stores by a factor of 10 in 2020.
This leaves Quebec as the one major problem province for legal cannabis. As product lines expand in Phase 2 of cannabis legalization in Canada, revenue growth should quickly revert back to a robust pace.
For Aphria in particular, its growing footprint international footprint offers additional blue sky potential. With many Canadian cannabis companies having already bounced from 2019 lows, investors may see Aphria’s Q2 weakness as a window for entry.