Just 48 hrs after I posted my ‘can we get some freaking adults into this weed space‘ screed, Aphria (APHA.T) has responded with a quarterly profit.
Let’s be clear: I had nothing to do with that, other than maybe sensing a sector change in thinking that the Aphria folks have embraced, where the balance sheet is important and actually making money and profit and returning something to your investors for their risk money is seen as the object of the exercise.
The biggest shock isn’t that someone has managed it. The biggest shock is that it was APHRIA, who were not long ago going through something similar to what CannTrust is going through now: a public relations nightmare, and a CEO headed overboard.
Here are the details, courtesy of Max Cherney at Marketwatch who was on this like stink:
The company reported fiscal fourth-quarter net income of C$15.8 million, or 5 cents a share, compared with losses of $C5 million, or 43 cents a share, in the year-ago period. Revenue rose 75% to C$128.6 million, net of excise taxes, compared with the prior quarter.
Aphria said it sold 5.5 metric tons of pot, with a cash cost per gram of C$1.35. Of its C$128.5 million in revenue, C$18.5 million was from sales to the adult recreational market in Canada.
CEO Irwin Simon said “Over the last six months, our organization identified immediate priorities to help generate substantial progress near-term and long-term. We built upon existing business fundamentals and capabilities, streamlined processes, strengthened governance, and focused on building brand awareness.”
Translated: We decided to quit growth for growth’s sake, and brought it back to core business.
But hey, let’s not get into the communal dick tugging circle just yet: A large wedge of Aphria’s revenue was courtesy of Green Growth Brands’ (GGB) suspiciously timed and never completed takeover bid back when Aphria was being shorted to hell, which ultimately has gifted the company $50m. There’ll be another $38m coming in November for the same reason.
That’s a nice gift, but it’s not exactly a demonstration that Aphria is a profitable cannabis growing and selling enterprise. Yet.
Cash costs per gram are down. All in costs per gram are down. Average retail price was down $0.40 per gram, and adult use (read: Sold to the govt wholesale) returns are about $2 per gram less than selling through their own portal, which explains why adult use numbers weren’t stellar.
Also, no significant impairments, no writedowns, which some had predicted would blow holes through everything.
Tell me how you sold $APHA because some shitbird from CIBC who’s ranked 21,000 of 22,000 analysts tells you to watch out for impairments.
— Rocco the Chronic Investor (@Open_Source_Int) August 1, 2019
[contextly_sidebar id=”bQAFYQ1lCCHk37NSLgfuIYwV0jDWnnSU”]The sector has needed a giant to show institutional money that someone can be an adult here, and that it was Aphria, which was not so long ago being pounded out by short-sellers after shenanigans by the former CEO, the formerly respected Vic Neufeld, is important.
The weed sector has been weighed down by poor financials and a CEO dumping at Canopy Growth (WEED.T), lingering talk about financial problems facing Aurora Cannabis (ACB.T), and the executives at CannTrust (TRST.T) showing that a bespoke suit and a TED Talk is no evidence you’re not a scumbag.
But Aphria has turned into a rehab story, having gone out and picked up US$335 million in financing (at 5.25% interest) in a market not coughing up a lot of that sort of thing, picking up a license with their Jamaican asset, and while it’d be a stretch to make too big a deal out of their profit, considering the source of much of it (and that their rec sales numbers are still low), it all seems really quite… manageable.
$APHA was trading at 1x book value today. Feel free to fact check. They have the lowest P/B ratio out of any profitable weed company out there
$APHA vs $CGC Q4 comp
$APHA: 128M Rev vs $CGC $94M
$APHA: 36M vs $CGC $68M (gros profit)
$APHA: 15M vs $CGC -323M (net income)
— Garrijones (@contscialprblms) August 1, 2019
[contextly_sidebar id=”JGcxvIzXq3oNQ6AzF10f1nShvXfz97jg”]We booted Aphria around, and justifiably so, back when it was overpaying for assets that were connected to the CEO’s personal portfolio, and the things going on to deflect PR issues were definitely not advisable, but just as Organigram (OGI.V) has managed to turn its earlier product recall issues into a new reputation for managerial competence, so too has Aphria taken a step back from the crazy and focused instead on turning what it has bought in dark times into real assets that won’t bleed them out today.
In after hours trading, Aphria is up. Way up. So hard it wouldn’t be sensible to put a number on it because it’ll change 18 times in the hour after I post this, but these numbers will be enough to send the sector at large back into a healthy place.
Canopy Growth was late to the balance sheet appreciation party and the CEO paid for that with his job. CannTrust is looking at a cease trade order as it’s financials will miss audit deadline, and regulators are investigating them. The IPO of Sundial Growers (SNDL.Q) opened at $14 and sunk to $8.50 based on its first day based on an insane opening valuation. To be sure, there’s still plenty of largesse in the cannabis space.
But the word is now out to all LPs – right now, profitability and integrity are everything.
— Chris Parry
FULL DISCLOSURE: No dog in the fight but happy to issue respect where deserved.