Aphria Inc. Expectations Unrealistic?

Aphria Inc. (TSX:APHA), one of the Canadian marijuana stocks, said it expects to have $1 billion of annual revenue by the end of 2020

SmallCapPower| March 28, 2019: Aphria Inc. (TSX:APHA) (NYSE:APHA), one of the Canadian cannabis stocks, said it expects to achieve revenues of C$1 billion by the end of FY 2020, on the back of enhanced production capabilities at its Canadian operations, Chairman and interim CEO Irwin Simon told Bloomberg in a recent interview.

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According to the CEO, Aphria’s Canadian operations are running at just 18% of its potential capacity and if awaited licenses and other constructions in the pipeline work out, the Company would be able to achieve its revenue goal of C$1 billion by the end of FY 2020 from an estimated C$209 million for FY 2019, with margins at about 40%.

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In February, Aphria had rejected a hostile takeover bid from Green Growth Brands, on undervaluation concerns (deal proposal: $2.06 billion). Green Growth offered a price of ~C$7.40 per Aphria stock, which was ~40% less the stock’s current level of C$12.33. Simon is confident that the anticipated revenue growth is possible without any help of Green Growth Brands Inc.

Irwin Simon, founder of organic food company Hain Celestial Group Inc., joined Aphria on December 27 as its Chairman after the resignation of former CEO Vic Neufeld following short-sellers attack, which accused Aphria of paying inflated prices to buy assets from insiders. Post the short-seller allegations, Aphria wiped out ~50% of its market capitalization.

Simon further stated, “The short-seller report was a wake-up call. We need to get out there and tell all the great things we’re doing. It’s time to change the conversation.” Post the short-seller fiasco, some steps have been taken towards improving Aphria’s corporate governance and boosting employee morale.

Earlier this month, Aphria received a license for an expansion at its Aphria One facility, which permits production in an additional ~800,000 sq. ft. area and has also applied for a cultivation license for its new Aphria Diamond campus. Both these facilities are located in the Company’s hometown of Leamington, Ontario. Once these facilities come online, Aphria’s total licensed growing capacity will reach ~255,000 kgs annually from 35,000 kgs.

Simon is optimistic about the potential profit opportunities at the Canadian business. He further plans to  enter the U.S. market, using contacts and experience he has gained from his previous tenure at Hain Celestial Group.

Even after the short-seller allegations, the Company continued to report positive financial and operational performance, which grabbed investor’s interest. Year to date, Aphria’s stock has recovered ~57% to close at C$12.33 on March 27, 2019. Aphria stock currently trades at a market capitalization of C$3.1 billion with a price-to-book multiple of ~1.7x.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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