|Bid||7.50 x 3000|
|Ask||7.55 x 1800|
|Day's Range||7.55 - 8.04|
|52 Week Range||3.75 - 16.86|
|Beta (3Y Monthly)||4.16|
|PE Ratio (TTM)||25.59|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||N/A|
LEAMINGTON, ON, April 18, 2019 /PRNewswire/ - Aphria Inc. ("Aphria" or the "Company") (TSX: APHA and NYSE: APHA) today announced that its German subsidiary Aphria Deutschland GmbH ("Aphria Germany") has secured the previously announced license for the domestic cultivation of medical cannabis from the German Federal Institute for Drugs and Medical Devices ("BfArM"), following the conclusion of a mandatory 10-day standstill period for public contracts. Aphria was granted a cultivation license for four of the nine total lots awarded by BfArM and is awaiting the completion of the tender process for the four remaining lots under review, one of which was provisionally awarded to Aphria Germany.
Canopy Growth will probably purchase the rights to buy Acreage Holdings to tap the growing potential of the U.S. marijuana market. This should bolster the ETF MJ.
April may bring spring showers, but it still feels like winter for marijuana stock investors. This month has rained almost entirely bad news down on the cannabis sector, and investors haven't spared Cronos Group (NASDAQ:CRON) from the selling deluge.Source: Shutterstock Aphria's (NASDAQ:APHA) dour earnings report further damaged the mood, casting a wide shadow over other industry players. Companies like Tilray (NASDAQ:TLRY) and Canopy Growth (NYSE:CGC) saw their share prices wilt as people began to adjust their outlook for this earnings season downward. And there was the latest short seller target as well, with Village Farms (NASDAQ:VFF) losing as much as 15% of its value following a negative report from Citron.On Wednesday, all signs pointed to even more trouble for CRON stock in particular. That's because BofA/Merrill Lynch launched coverage of several leading marijuana stocks. It gave favorable coverage to two, while slapping CRON stock with an underperform rating. Normally, you'd expect CRON stock to slump on the news. Instead, shares dipped a bit and then rallied, actually closing the day in the green. It could be a positive sign for the company going forward that it could rebound following bad news.InvestorPlace - Stock Market News, Stock Advice & Trading Tips Worried About Valuation for CRON StockBofA's report was hardly all that negative on Cronos as a company. They like its prospects, but the share price is a hang-up. They wrote: "We initiate coverage of Cronos, a Canada based cannabis company, with an Underperform rating and […] $13 price objective". * 10 S&P 500 Stocks to Weather the Earnings Storm They arrived at this price target in large part on an enterprise value to sales metric. They plugged in their 2020 estimate for sales and slapped a 23x multiple on said figure, which worked out to a $13 price target.As I said, BofA isn't down on the company. Their analysts added that, "Cronos is a compelling fundamental value in our view, but we are unable to get comfortable with the valuation." That's fair. The marijuana stocks are all highly valued and require some faith in the overall cannabis story to get behind.On the other hand, it's not like BofA views the whole sector as overvalued. At the same time that it panned Cronos on valuation, it gave a buy rating to Aurora Cannabis (NYSE:ACB) suggesting that it will be one of the "few truly global" companies in pot. Interestingly, even using just a 17x EV/sales multiple, they got to an $11 price target for ACB stock. BofA was even more optimistic for Canopy Growth, suggesting it is worth 24x EV/sales, which gets to a price objective of $52. So, for as fundamentally bullish as BofA may be on Cronos, they like some of its competition a whole lot more. Need A Better Earnings ReportCRON stock owners come into this earnings season with an extra dose of trepidation. That's because, arguably, Cronos delivered the single worst earnings report of all the marijuana majors during the last quarterly earnings report cycle. Given that APHA stock is now down 25% in recent days following its clunker of an earnings release, the market is saying companies need to shape up or their share prices will get leveled.Turning back to Cronos, its last report showed some flaws in the business model. Remember that Citron Research had previously blasted Cronos for having tiny distribution deals compared to rivals. Cronos' last earnings showed minimal recreational marijuana revenues. While overall revenues grew sharply, it appears that Cronos is still reliant on medicinal for the time being. Anyone who was thinking Cronos would see business results soar on Canada's legalization has been disappointed -- at least for the time being.Cronos also appears to be suffering from the same margin compression that has hit its rivals. Over the past three quarters, its gross margin has fallen from 63% to 55% and now just 45% during the most recent one. As the flood of marijuana supply comes online, they will have to demonstrate that they can keep their profit margins up. Otherwise, it could be rough days ahead for CRON stock. CRON Stock: Don't Forget About AltriaThat said, the bears risk claiming victory too early here. Sure, CRON stock has slumped from a high of $25 to $16 now. The marijuana sector as a whole is in a bit of a slump. But we're arguably still in the early innings of the marijuana stocks story playing out.Some folks have said that Canada's legalization was the top for the sector, and that it's all downhill from here. But I think we'll see a different path. Yes, a lot of marijuana companies are going to go out of business. There are way too many companies fighting over what is still a small and new market at the moment. There will be consolidation. Businesses will fail.This is great news for the sector leaders, however. As there are more mergers and acquisitions, the leaders will become more and more powerful. Cronos, along with Canopy, are set to be those industry leaders. By virtue of having the biggest backers and access to cheap and plentiful capital, Canopy and Cronos have the best chance of taking leadership in the marijuana industry. Sure, Cronos has a lot to fix based on its recent earnings reports. But with Altria's (NYSE:MO) help, there's no reason to count out CRON stock yet.At the time of this writing, Ian Bezek owned MO stock. You can reach him on Twitter at @irbezek. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 5 Dividend Stocks Perfect for Retirees * 7 Reasons the Stock Market Rally Isn't Over Yet * 10 S&P 500 Stocks to Weather the Earnings Storm Compare Brokers The post Cronos Stock Shrugs Off Negative Analyst Report appeared first on InvestorPlace.
Cannabis stocks were mixed on Wednesday, with Aphria Inc. falling after it announced plans to issue up to $300 million of convertible debt.
LEAMINGTON, ON, April 17, 2019 /PRNewswire/ - Aphria Inc. ("Aphria" or the "Company") (TSX: APHA and NYSE: APHA) today announced the pricing of US$300 million aggregate principal amount of 5.25% convertible senior notes due 2024 (the "notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act of 1933, as amended (the "Act"), and outside the United States to non-U.S. persons in compliance with Regulation S under the Act. Aphria also granted the initial purchasers of the notes an option, exercisable within a 30-day period, to purchase up to an additional US$50 million aggregate principal amount of notes. The sale of the notes to the initial purchasers is expected to settle on April 23, 2019, subject to the satisfaction of customary closing conditions.
Canopy Growth (NYSE CGC), along with most other cannabis firms, continues to operate at a loss as it builds out the infrastructure, develops its markets and develops goods that differentiate itself from the competition. Yet so far, pot stock investor seem oblivious to the risks of ongoing losses for the foreseeable future. So before investing in CGC stock, you need to pause for a moment to look at a few metrics. In doing so, investors can confirm that the company is on the right track. With that in mind, how does CGC stock fare for the speculative investor?Source: Shutterstock Operational EfficiencyCanopy Growth's yield potential in Canada is a good indicator of the company's operational efficiency. Much of the profit potential depends on government regulation and the pace at which it approves Canopy's medical products.Problems begin when investors look at the company's efficiency outside of the Canadian region, namely Europe, Australia, and South America. In those places, management does not have a clear estimate on yield over the next 1.5 to 3 years. Denmark has yet to produce supply for Canopy and is not scheduled to do so until later this year.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 Stocks to Buy for Spring Season Growth This is yet another example of investors waiting for production to increase in meaningful quantities. Even if it reaches full utilization on time, investors are hardly assured that revenue from sales will exceed the costs for producing edibles and beverages. Weak Quarterly ResultsInvestors reacted negatively to Canopy Growth after it reported results on Feb 27. CGC stock had previously topped $59.25 but now trades near $42 -- and for good reason. Revenue of $83 million CAD tripled from last year, but Canopy Growth still lost 38 cents CAD a share. It also missed analyst consensus estimates. The company failed to benefit from average selling prices going up.The ongoing losses suggest that the company will have to raise prices even more to offset growing losses. If the product is demand elastic, Canopy may have a hard time selling in higher volume when prices are up.Temporarily non-producing facilities, absorption of the medical excise tax and commitments to sales and marketing and corporate infrastructure spending led to an adjusted EBITDA loss of $75.1 million. However, Canopy Growth is likely to face other one-time charges in the upcoming quarter -- so don't write this off as a one-time issue. Medical PlatformThe medical side of Canopy Growth faced some pressure in the third quarter. To counter the headwinds, Spectrum, its wholly owned subsidiary, needs more education-driven activity to grow awareness of the brand and the medical products. On Apr. 12, Spectrum Cannabis announced a partnership with an endorsement from CARP, a Canadian advocacy association for aging Canadians. It will offer tailored educational initiatives for over 320,000 CARP members.The company continues to believe that its medical opportunity globally over the next three years has a higher growth potential over the recreational market. For this to happen, Canopy therapy would need to face fewer regulatory hurdles than medical marijuana.Canopy is also running a promising study evaluating the efficacy of medical cannabis for treating insomnia. These tests are currently in Phase IIb clinical trials. It received approval from Health Canada in the second quarter of 2019. Thanks to awareness from the client base for cannabis in its role in helping to fall asleep or stay sleep, Canopy only needs to refine the ingredients and run a number of trials to gain approval from regulators. Strong Cash BalanceCanopy Growth has a few bright spots. Shareholders may point to the safety of its cash levels as one of those. By looking at Canopy's $4.9 billion in cash, most of which came from Constellation Brands, Inc. (NYSE: STZ), investors are at least assured that the company will not run out of money any time soon.Canopy's inventory build-up is also another positive development. Management intentionally increased inventory from $102 million at the end of March 2018 to $185 million at the end of December 2018. It is scaling up supply to meet strong market demands. As the legalization of the recreational market and medical customers expect more choice, the company expects sales volumes to increase. * 10 S&P 500 Stocks to Weather the Earnings Storm The Bottom Line on CGC StockThe risks in Canopy Growth is typical with any other stock in this sector: losses outpace revenue. The market is willing to wait for output to increase in 2019 but risks remain. Still, the company has lots of cash so short-term risks are low. Plus, as supply facilities are built, its efficiency will get better through scale.Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Stocks to Buy for Spring Season Growth * This Is How You Beat Back a Bear Market * 7 Dental Stocks to Buy That Will Make You Smile Compare Brokers The post Is CGC Stock on the Right Track? appeared first on InvestorPlace.
Legal cannabis is in its infancy, and the industry is growing rapidly – perhaps too rapidly. The April earnings report by Canadian producer Aphria (NYSE:APHA) highlights the problems – and the potential – of this emerging segment. In the words of Irwin Simon, Apria’s CEO, “There's not too many industries that are evolving and changing as quick as this one. If you come back and look at the size, CAD150 billion in size, so there's a lot of low hanging fruit in sales and opportunities for Aphria.”He has a point. Legalization in Canada was only enacted at the Federal level this past October, and the Canadian market is somewhat isolated due to conflicted legal regimes (State v Federal, medical only v recreational use, legal v illegal) in the US. The result is, that while demand is strong in Canada, supply is tight, and the cannabis companies are facing headwinds due to shortages. In addition, there are added costs involved as they set up operations for their newly legal market. More on that below; for now, we’ll take a look at Apria’s quarterly numbers.The Good NewsRevenue was way up, leaping over 600% from the year-ago quarter to reach C$73.58 million, after a quarterly sales jump of 240%. These totals, and the huge increase they represent, justify Simon’s optimism that the cannabis market can grow to C$150 billion ($113 US). They are definitely powerful indicators for investors to consider.They must also consider, however, Aphria’s net earnings. The company ended Q3 with a net operating loss of C$108.2 million, and an EPS loss of 20 cents. These figures add up to a total of C$181.78 in operating expenses, only partially offset by the strong sales, and somewhat worse than analysts had expected prior to the earnings season.The expectation had been for a 4 cent EPS loss, and revenues of C$83.45. The actual numbers represent substantial negative surprises.On a final positive note, Aphria reported C$107.5 million in cash on hand.The Bad NewsInvestors didn’t like the EPS miss, and the operation loss prompted a retreat from APHA. Shares dropped 15% after the release, from $10.10 to $8.60 in US currency. The stock is currently selling for $8.69 in the US markets and C$11.58 on the Toronto Stock Exchange.Growing Pains Adapting to the Legal MarketAs mentioned above, Canada’s cannabis industry is facing serious issues of supply. Demand is strong; that is not a problem. On the supply side, however, the cannabis production companies have to adjust their operations from a scale sufficient for a small medical supply industry to one capable of meeting demand in a recreational use market for a country of nearly 40 million. It is a daunting task.It is made more so by several factors. First, the grower companies don’t just want to increase capacity to meet Canadian demand. They also want to have some slack, excess capacity which they can activate as other markets open on the international front. Specifically, they don’t want to get caught off-guard should the US decriminalize – or even legalize – cannabis at the Federal level. There is some indication that such a policy could pass through Congress; hemp, a non-psychoactive relative of marijuana, was legalized for cultivation at the end of last year.Second, the cannabis companies want to have enough supply to meet both medical and recreational demand. Specifically, they want to relieve the shortages in the Canadian domestic market.Finally, building out to increase growing capacity entails a tremendous capital expenditure. Land needs to be cultivated, greenhouses need to be built for winter grows, extraction labs need to be expanded to meet medical needs, distribution networks need to be developed… the ancillary services required are wide and varied, and expensive.Meeting those expenses will provide a firm foundation for future growth and profits, but in the immediate present, Aphria is having trouble meeting both expansion and current demand. In Q3, Aphria sold 2,636 kilograms of cannabis products, down by almost 800 kilos for the previous quarter. Building out offers promise going forward, but alleviating the current supply crunch will take time.Aphria CFO Carl Merton alluded to all of this when he said, in the Q3 earnings call, “It is still early in terms of legalization in Canada. And as with every industry in its early stages, we are continuously learning and improving, including refining our methods for cultivation, production, packaging and distribution.”That learning process entails costs. Turning back to CEO Simon, he noted in the earnings call, “Our all-in cost per gram increased from CAD2.60 a gram to CAD3.76 a gram. This temporary increase was driven primarily by an increase in packaging costs from CAD0.97 a gram to CAD1.98 a gram in the quarter. Our increased packaging costs per gram were a result of the demand from the adult-use market and in order to comply with the packaging requirements under the Cannabis Act.”Looking forward, Simon sees the company not just expanding to meet the new scale of operations, but also adjusting to new techniques will streamline the expanded operations: “…we have reevaluated all of the total packaging used in our products... We are also working on packaging automation over the next two quarters and expect labor cost to decrease as that comes on line. Near term, we expect consistent packaging cost as we work through our existing inventory of materials, but expect to gain efficiencies from this automation and other cost savings initiatives in the mid-term.”Analyst ReactionMarket analysts remain upbeat about Aphria. Writing from GMP, Martin Landry gives the stock a solid 'buy' rating, saying, “Management remains confident in reaching its capacity goal of 255 tonnes which, using current average selling prices, translates into potential revenues from its Canadian cannabis operations in excess of $1 billion.” He sets a C$14 price target, suggesting a 20% upside for APHA.Clarus analyst Noel Atkinson is also optimistic about Aphria’s forward outlook. He says in a note after the earnings report, “We had previously assumed a run-rate of ~$865MM by the end of CY2020; we are now in line with management’s target.” Atkinson’s price target, C$22.75, indicates an upside potential of 96%, in line with the impressive room for growth in the cannabis industry.Overall, TipRanks’ data shows an overwhelmingly bullish camp backing this retail titan. The ‘Strong Buy’ stock has amassed 6 ‘buy’ ratings in the last three months, with just one analyst playing it safe with a hold rating. The 12-month average price target stands tall at $15.33, marking nearly 74% in return potential for the stock.To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here. More on APHA: Marijuana Stock Aphria Went Up in Smoke, But Seaport Is Bullish Long Term More recent articles from Smarter Analyst: * Jeff Bezos Is Leading Amazon (AMZN) in the Right Direction * Why Autonomous Could Be a Strong Driver for Nvidia (NVDA) Stock * Microsoft (MSFT) Stock's Big Rally Should Continue * Oppenheimer Still Sees 40% Upside for Tesla (TSLA) Stock
CIBC analysts raised their stock price target on Aphria Inc. to $12 from $10 on Tuesday and said its fiscal third-quarter earnings showed a company with "significant future capacity potential," but that it is still in ramp-up mode. "We continue to believe Aphria's cultivation and automation skills provide a solid competitive advantage, and the company's 10% market share in the recent quarter (our estimate) is notable, but at this stage, we gravitate towards other names in the sector with stronger balance sheets and more defined strategies for the medium term," analysts John Zamparo and Krishna Ruthnum wrote in a note to clients. CIBC rates the stock as neutral. Cannabis revenue of C$16 million were way below their estimate of C$28 million, said the note, and a 20% decline in adult-use pricing incurred to invest in one particular brand "warrants some questioning." The analyst also raised concerns about the Nuuvera acquisition, which has a book value of more than C$500 million and will be reviewed after year-end. "We have no idea whether this asset will be considered impaired, and applaud Aphria for last week's announcement that it has won a license to cultivate cannabis in Germany, but do wonder if the possibility of further asset write-downs exists in the future, which could act as a drag on the stock." Aphria was recently awarded a license to grow medical cannabis for the German market, winning 5 of 13 available lots, each with a minimum annual capacity of 200 kg. Aphria shares were up 1.4% in premarket trade, but have fallen 11.3% in the last 12 months, while the S&P 500 has gained 8.5%.
Canopy Growth's next quarterly update might not be nearly as rosy as its last one. And the situation could be even worse for other marijuana producers.
One industry that is often overlooked but could play a huge role in the cannabis industry is energy. The U.S. cannabis industry is currently eating up more than 1% of all electricity each year. The need to reduce greenhouse emissions created by the weed industry, as well as lower electric load and expenditures, makes the energy sector a clear beneficiary of a budding cannabis industry.
Cannabis stocks rose across the board on Tuesday, as three separate surveys found Americans are increasingly in favor of legalization, demonstrating a major shift in opinion over the last two decades.
LEAMINGTON, ON , April 16, 2019 /CNW/ - Aphria Inc. ("Aphria" or the "Company") (TSX: APHA and NYSE: APHA), a leading global cannabis company, today announced that it proposes to offer pursuant to a private placement US$300 million aggregate principal amount of convertible senior notes due 2024 (the "notes"), subject to market conditions and other factors. Aphria also intends to grant to the initial purchasers of the notes an option, exercisable within 30-day period, to purchase up to an additional US$45 million aggregate principal amount of notes. The notes are to be offered and sold to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act of 1933, as amended (the "Act"), and outside the United States to non-U.S. persons in compliance with Regulation S under the Act.
Medical marijuana stock Aphria (APHA) caught fire on Monday -- in a bad way.Reporting earnings early Monday morning, Leamington, Ontario-based Aphria closed the day down nearly 15% despite having grown its sale 240% sequentially in its fiscal third quarter 2019 -- and 617% year over year!How in heaven's name could that be bad news?Basically, the answer is that despite growing sales, Aphria failed abysmally at the primary purpose of all for-profit enterprises: Earning profit.In Q3, Aphria reaped $73.6 million in sales, and kept $13.4 million of that as gross profit. The real problems appeared farther down the income statement, however.As sales sextupled, "general and administrative" expenses octupled to $22.4 million. Share-based compensation expenses, marketing costs, R&D, amortization -- all of these expense items rose rapidly in Q3, culminating in a massive $58 million charge to earnings for the "impairment" of assets that left Aphria with operating costs of $106.6 million, wiping out every last penny of the company's gross profit, and saddling Aphria with an $89.3 million operating loss for the quarter. By the time Aphria reached its bottom line, net losses had ballooned further to $108.2 million -- $0.43 per diluted share, and a reversal of last year's $0.08 per share profit.Now obviously, the worst line item of all in the above was the $58 million impairment. Aphria addressed this item specifically in its report, explaining that "the Ontario Securities Commission requested ... that the Company perform an impairment test on its LATAM assets subsequent to the filing of the 2019 second quarter financial statements." Aphria dutifully complied with this request, and after doing so, "determined that a $50 million non-cash impairment charge to the carrying value of" its assets in Colombia, Argentina, Jamaica, and Brazil was required, based on "new financial information received from" its financial advisors.So what did these advisors discover?Basically, these advisors told Aphria that its Latin America and the Caribbean assets -- acquired in a July 2018 deal to purchase "LATAM Holdings" from Scythian Biosciences -- were earning "lower gross margins and EBITDA margins" than had been earlier believed. As a result, these assets are less valuable than previously believed.Aphria had paid "approximately $195 million" to acquire these assets, but as it turns out, it overpaid -- then exacerbated the mistake by making a further $30 million in additional investments in these operations. Consequently, Aphria had to write down the value of what it bought.Obviously, this is a disappointment, but before you dismiss this as a case of Aphria making "one bad call," and basically being a good company despite its unforced error, consider: $58 million is a big number, but it was still barely half of Aphria's total net loss for the quarter. Even had Aphria not overpaid for LATAM Holdings, the company would still have ended up losing a lot of money in Q3.Now, Aphria management deserves credit for fessing up to this fact. In plain black and white, management admitted that even "excluding the aforementioned non-cash impairment charges" related to LATAM Holdings, its "adjusted net loss was $50.2 million , or $0.20 per share" for the quarter. That being said, a loss is still a loss -- and Aphria's post-earnings sell-off was the correct response to this loss.Seaport analyst Brett Hundley commented, "In our view, Monday's move in the stock is more a function of APHA's $50MM impairment charge on its LATAM assets rather than anything else. To be sure, many industry participants are wrestling with near-term growing pains inside Canada, and Aphria is no different. But the write-down on LATAM is akin to reopening old wounds, even if such impairment is the result of recent company actions to set the Colombian business up better for the long-term. Management simply must move forward and clear all related corporate governance hurdles before this stock will likely achieve any type of multiple, in our view. Alongside the impairment charge, the company announced that it has entered into a series of transactions that will effectively lead to the expiration of Green Growth Brand's (GGBXF) unsolicited bid for the company, coupled with Aphria ultimately realizing a relatively complicated payment of $89MM. The latter is obviously a net plus, but we think some shareholders may have been disappointed to see a takeout offer removed. We think that APHA is better off on its own, for now.""We think that a refreshed corporate governance profile together with its global asset base will set the company up well for the future. We think strategic partners will be part of the equation," Hundley concluded.Hundley reiterates a Buy rating on APHA stock, while lowering the price target to $16.00 (from $18.00), which implies nearly 86% upside from current levels.To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here. More on APHA: Aphria: The Problem with the Cannabis Stock Market More recent articles from Smarter Analyst: * Jeff Bezos Is Leading Amazon (AMZN) in the Right Direction * Why Autonomous Could Be a Strong Driver for Nvidia (NVDA) Stock * Microsoft (MSFT) Stock's Big Rally Should Continue * Oppenheimer Still Sees 40% Upside for Tesla (TSLA) Stock
Poor earnings from cannabis producer Aphria (NYSE:APHA) let loose a foul smell across the marijuana sector to start the week. Investors lit up Aphria stock for a 15% loss on Monday. The rest of the major pot players suffered significant losses in sympathy. Canopy Growth (NYSE:CGC) couldn't buck the trend. CGC stock fell 3.6% on Monday, extending its downward momentum.Source: Shutterstock On the one hand, it's tempting to dismiss Aphria's results as not being a big deal. Aphria is a scandal-plagued company whose former management quit. Short sellers attacked the company for allegedly mistreating shareholders.Aphria's results included a big writedown on one the controversial assets, suggesting that the short sellers were correct about wrongdoing there. That said, even excluding potential questionable dealings, Aphria's results straight up stunk.InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 AI Stocks to Watch with Strong Long-Term Narratives Aphria's quarterly loss came in at at -C$0.20. That was far worse than the four cent loss that analysts had expected. Additionally, Aphria printed just C$74 million in revenues against expectations of C$83 million. To put it bluntly, this was an awful start to earnings season for the marijuana companies. What's it mean for CGC stock? Aphria Stock and Investor ExpectationsUp until last October, marijuana companies could largely get by with just selling investors a promising story. Few market participants cared about how much money the pot players were losing. The losses didn't matter, since people assumed that windfall profits would come once legalization arrived on a national level in Canada.Aphria initially showed signs that this could come true, as they became the first to deliver a quarterly profit a few months ago. But this quarter showed a big setback. The profits vanished, turning back into large losses (even before the accounting write-down on their LatAm business).The average price per gram sold continues to drop and gross margin plummeted. Some of this is due to changing distribution strategies, but a lot appears to be tied to simply too much marijuana production compared to demand.When marijuana wasn't legal yet, investors didn't have to worry about revenues, profit margins, cash burn, and the like. The future held so much potential. Now, however, the numbers get more and more troubling with each passing set of quarterly results. Canopy's earnings don't come out for another month yet. But with Aphria's numbers looking so dour, people will be on the defensive in CGC stock. Canopy Growth and Aphria StockOn the other hand, it's not all bad news for CGC stock either. Marijuana is a Wild West right now. Dozens of companies are rushing into the arena, trying to grab their share of the fortunes that are being made. Unfortunately, like in the gold rush of 1849, most people that try to make money will end up losing. The marijuana industry will have to consolidate; there isn't room for dozens of firms to be profitable.Canopy has a huge leg up here, as it is one of the few weed players with a major backer. Canopy was the first to score a major corporate endorsement, getting Constellation (NYSE:STZ) to invest heavily in the firm. Since then, Cronos (NASDAQ:CRON) scored a similar major backing from Altria (NYSE:MO).That should give those two firms a major advantage moving forward. Smaller and unaligned marijuana firms are suffering major losses and cash burn. They'll have to keep raising capital from the markets on increasingly unfriendly terms.Meanwhile, the select few which have major sponsorship will be able to operate more efficiently and consolidate the industry as weaker players drop out. Aphria, with its scandals and shifting management team could be one of the victims of this consolidation wave, giving more of the market to Canopy. Aphria Stock Was Bound to TumbleThere's another sign of the strong getting stronger while weaker players like Aphria stumble. That would be the stock indexes. Last Friday, S&P announced that CGC stock will be joining the prestigious S&P/TSX 60 stock index. This index tracks the 60 largest firms in Canada, and is one of the major players that passive ETFs and mutual funds follow.Remarkably, Canopy, even as such a new operation, has already managed to outpace one of Canada's leading precious metals firms, Goldcorp (NYSE:GG). Canopy surpassed Goldcorp in market cap, leading to CGC stock taking GG's place in the index.When this change is put into effect later this week, it should lead to a surge of buying for CGC stock as passive funds are mechanically forced to exchange their Goldcorp stock for Canopy. Smaller firms like Tilray (NASDAQ:TLRY) and Aphria won't benefit from this sort of index buying, as their market caps are simply too diminutive to get picked up by major stock indexes. The Bottom Line on Aphria StockAphria kicked off earnings season with some dreadful numbers. And let's face facts, they won't be the only ones. The shine is coming off a lot of these pot stocks now that legalization is here and yet the losses keep piling up.At the time of this writing, Ian Bezek owned MO stock. You can reach him on Twitter at @irbezek. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Internet Stocks to Watch * 7 AI Stocks to Watch with Strong Long-Term Narratives * 10 Dow Jones Stocks Holding the Blue Chip Index Back Compare Brokers The post Aphria Stock Might Be the First Victim as Pot Stocks Face Reality appeared first on InvestorPlace.
Could the reasons behind Aphria's dismal Q3 results bite Aurora Cannabis, Canopy Growth, and others in their next quarterly updates?
STOCKSTOWATCHTODAY BLOG Three numbers to start your day: 3.8% is how far shares of (GS) fell Monday —after the bank reported first-quarter earnings. The bank’s profits were better than what Wall Street analysts had expected.
Before the open today, Aphria (APHA) reported FQ3 results that showed substantial revenue growth, but the Canadian cannabis maker generated a massive quarterly loss. The results through February 28 provided some further insight into the adult-use recreational market in Canada, but the reckless spending by the major corporations continues a troubling pattern.Troubling LosesAphria is down nearly 15% on the day to below $9 on results that missed analyst estimates by a wide margin. Analysts expected revenues closer to C$84 million and the company only generated revenues of C$74 million.Investors must carefully view the 617% YoY revenue gain as the majority of the revenue increase came from distribution deals from the acquired CC Pharma. For this reason, gross margins plunged to only 18% as distribution revenues are only targeted in the 10% to 15% range.The revenues from internally produced cannabis were a meager C$18 million. The prior quarter generated revenues of C$22 million with limited revenues from distribution.A gross profit of only C$17 million with general and administration expenses of C$22 million places the company in a disappointing position considering the competitive nature of the cannabis market. This doesn’t even count sales and marketing and research and development expenses that add up as well.The adjusted EBITDA loss reached C$14.4 million as the company again shifted from positive EBITDA last year to huge losses this year. The EBITDA loss even expanded from C$9.5 million loss in the prior quarter.Questionable GrowthWhile the revenues told a misleading story, the kilograms equivalents sold should alarm investors. Aphria only sold 2,637 kg in the quarter compared to 3,409 kg in the prior quarter.The average selling price increased to C$8.03 per gram from C$7.51 per gram, primarily driven by higher cannabis oil sales. The average price for adult-use cannabis fell to C$5.14 from C$6.32.The company blamed the shift to smaller package sizes for the price hit, but the market in general has felt more pressure on wholesale prices. As more legal supply comes online and the cannabis market continues competing with illegal supplies, adult-use wholesale supplies are likely facing more pricing pressure. One only has to imagine the prices, if Aphria had additional supplies.The pricing pressure concerns are a prime reason that larger losses are problematic in this current market climate. Investors have to wonder if companies like Aphria are correctly positioned for a competitive pricing environment with potentially blind expectations that current market prices multiplied by future supplies will automatically lead them to over C$1 billion in annual sales.Aphria is one of the major players that lacks much in the way of production capacity currently. The company only recently got approval for 115,000 kilograms of production while the Aphria Diamond facility is needed to push the company towards annual capacity in excess of 250,000 kg.TakeawayThe key investor takeaway is that Aphria has had too many questions about corporate governance to make an investment. The quarterly results aren’t that impressive with cannabis sales down as the company focus shifted to distribution.Signing on Walter Robb, former co-CEO of Whole Foods Market, as a director is a first step in improving governance concerns, but the company needs to improve results before the investment story actually improves.To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here. Disclosure: The author has no position in APHA stock. More recent articles from Smarter Analyst: * Jeff Bezos Is Leading Amazon (AMZN) in the Right Direction * Why Autonomous Could Be a Strong Driver for Nvidia (NVDA) Stock * Microsoft (MSFT) Stock's Big Rally Should Continue * Oppenheimer Still Sees 40% Upside for Tesla (TSLA) Stock