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What to Expect From Aphria on April 15

Dan Caplinger, The Motley Fool

Marijuana stocks have never been hotter, and cannabis investors are looking beyond the companies with which they're most familiar to embrace the second wave of companies making their appearance on U.S. stock exchanges. Aphria (NYSE: APHA) started trading in the U.S. last November, just after the Canadian legalization of recreational cannabis became effective, and investors have looked closely to see whether Aphria's results would live up to the promise that its top executives see in the company.

Aphria recently told investors that it plans to release its fiscal third-quarter financial report on Monday, April 15. That'll give those following the marijuana industry another data point to assess how recent events are affecting Aphria and by extension some other key players in the cannabis space.

Stats on Aphria

Metric

Current Stat

EPS estimate

(CA$0.05)

Last quarter's EPS

CA$0.22

Revenue estimate

CA$85.2 million

Change from last quarter's revenue

293%

Data source: S&P Global Market Intelligence. CA$ = Canadian dollars. CA$1 = $0.75.

How Aphria got where it is now

Aphria has had an eventful few months in its short history as a U.S.-listed marijuana stock. In January, the company gave a strong report for its fiscal second quarter, with net income climbing to 21.7 million Canadian dollars, up 63% from the fiscal first quarter. Net income soared as Aphria realized substantial gains from the sale of various investment positions, and even on a normalized basis accounting for those divestitures, the cannabis company performed well on the top and bottom line.

However, Aphria also faced some challenges. Internal costs showed up both in reduced adjusted gross margin figures and on the expense side of the income statement, with the company citing higher packaging costs and increased expenses related to its expansion efforts as pushing average cost per gram up 35% for its dried cannabis products and 42% overall.

Aphria logo of a stylized A with blue, green, and navy, and name.

Image source: Aphria.

Even more potentially disruptive were big moves in the C-suite. CEO Vic Neufeld and co-founder Cole Cacciavillani gave up their executive roles at Aphria, in response to controversy over allegations that short-selling investors made against the insiders about its acquisition of LATAM Holdings. Even though an internal investigation subsequently found that the acquisition wasn't improper, interim CEO Irwin Simon has remained at the helm.

What Aphria's done lately

Since then, Aphria has been making smart strategic moves. In late February, the cannabis company signed a licensing agreement with Manna Molecular Science to develop transdermal patches with cannabis extracts. Aphria hopes that the patch products will help those who want to take advantage of any health benefits of using cannabis but don't want to smoke marijuana or ingest cannabis-derived oils through softgels, and Manna has substantial experience in the field. With the opportunity to offer a value-added product line, Aphria could have a path to differentiate itself from its many marijuana rivals.

More recently, Aphria has also taken steps to spotlight its international aspirations. Earlier this month, it introduced the CannRelief line of cosmetics and nutraceuticals for the German market, using its distribution access to more than 13,000 pharmacies across Germany. As more jurisdictions across the European Union look to legalize cannabis, there should be more opportunities for Aphria to capitalize on similar releases.

Some investors wonder why Aphria hasn't made more aggressive moves toward enlisting a larger partner in the consumer goods space. That strategy has worked well for some of Aphria's competitors, but at least for now, the interim CEO doesn't believe that it's a necessary one to follow. Even as Canadian cannabis companies start looking southward at the opportunity to enter the U.S. market through the recent federal legalization of hemp products, Aphria expects it can use its existing relationships to build a thriving business worldwide.

Investors expect greatness from Aphria

Aphria shares are up 65% so far in 2019, and marijuana investors will therefore want to see encouraging signs that the cannabis company is just getting started with its fastest phase of growth. Aphria has some historical baggage it needs to overcome, but if it can generate the business success that investors are hungry to see, then its shares could add to their recent gains after the April 15 report.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.