Aphria is Gearing Up for a Big Expansion

Aphria Inc. (TSX:APHA), one of the Canadian marijuana stocks, said it has received a license amendment to boost production at its Aphria One location

SmallCapPower | March 7, 2019: Aphria Inc. (TSX:APHA) (NYSE:APHA), one of the Canadian cannabis stocks, Monday announced that it has received the license amendment from Health Canada, which permits production in an additional ~800,000 sq. ft. area at its Aphria One location. The permitted production will be part of the Company’s Part IV (~700,000 sq. ft.) and Part V (~100,000 sq. ft.) facilities at Aphria One, which were recently completed under Aphria’s five-part expansion.

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Once fully functional, the Part IV and Part V facilities are expected to produce an additional 80,000 kg annually, bringing the total production capacity at Aphria One to 110,000 kg (annual), with an overall production of 115,000 kg for all licensed facilities. With this amendment, Aphria is set to expand its production capacity by more than 3.0x.

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The Health Canada amendment positions Aphria as a prominent producer of cannabis, making it an attractive acquisition target. Recently in February, Aphria had rejected a hostile takeover bid from Green Growth Brands, on undervaluation concerns (deal proposal: $2.06 billion). Going forward, we anticipate Aphria will be keenly followed by investors and strategic buyers.

Aphria Inc Interim Irwin D. Simon stated, “This is a major milestone for Aphria on its path to becoming a leading global cannabis producer, as well as a positive development greatly anticipated by the Canadian cannabis industry. Aphria’s progress expanding production and automation is essential to our strategy of securing scale and long-term advantages that enable the evolution of the cannabis industry through product and brand innovation. With Aphria One, we now have the ability to expand our production capacity by over three times. We are ready to hit the ground running and look forward to alleviating industry-wide supply constraints with our greatly expanded production capacity and sophisticated, proprietary automation technology that will ensure Aphria remains at the forefront of cannabis cultivation and innovation. In anticipation of Health Canada’s approval, we had allocated a portion of our previously approved capacity to mother and vegetative plants that will be used as the initial growing crops in Part IV and Part V. As a result of these measures, growing operations in the expanded facilities are expected to commence without delay. By this Friday, we will move swiftly to establish nearly 22,000 plants in the Part IV and Part V expansion, with an additional 12,000 plants added each week thereafter until we reach full crop rotation.”

Headquartered in Ontario, Aphria produces and distributes pharma-grade medical & recreational cannabis, with a presence in more than 10 countries across five continents. Post the announcement, Aphria shares added nearly 3% to close at $13.85 on Monday. Aphria stock currently trades at a market capitalization of $3.4 billion with a price-to-book multiple of ~2.0x.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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