Move over Canopy: Aphria (APH.V) is throwing elbows

Since there’s been a Canadian medical marijuana sector, Canopy Growth Corporation (nee: Tweed/Bedrocan) has been the big stomping gorilla of the sector. Armed to the teeth with Canadian investor dollars, and flush with first mover US weed investors who are seemingly in for the long haul, Canopy has grown by tossing money at problems, shouldering aside smaller players, bringing in others, playing closely with government and generally being a beast.

Others have come and done their own thing – Organigram (OGI.V), Mettrum (MT.V), Aurora (ACB.V), Supreme (SL.C) being among the grown-ups. But only one has shoved through the morass and announced itself as a true contender to the big dog.

Aphria (APH.V) is in the midst of a big expansion program, largely financed by a good looking mortgage ($3.8m at 3.95% interest over 5 years), and has a boatload of land to build into without any problem.

They’ve raised good money to help do that, but also been using money to make select investments in other companies in the industry. I mentioned recently that the company made an investment into Cannabis Royalties, which is private at the moment but perhaps not for much longer.

But the reason I actually went ahead and bought some Aphria stock, after months of quietly watching it climb, is as follows:

Cash. Money.

Revenue: $2.7m in Q4 (ended May 31), with $8.4m for the year.

Gross profit: $2.1m for the quarter, and $5.9m for the year.

Adjusted Gross Margin: 74.5%, up from 59.3% a year earlier

Net income: $1.3m in the quarter, which is not just the second quarter of profitability, but a SUBSTANTIAL JUMP in profit

Patient registrations are up 15% from 4000 in Q3 to 4675 in Q4, which is over expectations, and the company says they actually had to pull the brakes on patient intake as they waited for approval to get their expansion going.

Kilos sold are up slightly, but cash cost to produce a gram is just $1.15, which is $0.52 less than the previous quarter. All-in costs are $2.07 per gram, which is also down from Q3. Those are wow numbers.

But the big number to notice is in working capital. Aphria is sitting on a war chest of $20.5 million right now, just as the business nears recreational approval, increasing oils uptake, and what I’d call the upcoming ‘great culling’ of M&A activity.

In competition with Aphria, Canopy is not failing. They too are watching their stock increase steadily, as are their other numbers. Canopy’s patient numbers are big (12k was the last I saw) and just today they’ve announced they’re moving up to the TSX big board. That’s a big step, and a definite legitimacy bump.

But they also managed a $4.7m loss on $5m revenue in that same Q4, or $0.05 per share. The company says a lot of that was marketing and overhead as it prepares for recreational, but critics suggest a lot of those patients Canopy boasts of aren’t regular buyers.

As Aurora fights legal battles while claiming big patient increases, Supreme continues to gear up production in its monster Ontario facility, and Mettrum enjoys a nice upward shift of late, it’s clear the sector is on an upward march. But Aphria, for mine, is beating the sector and positioned for really big things, especially if they start busting open that wallet.

Watch this space.

— Chris Parry

http://www.twitter.com/chrisparry

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