Aphria is a Real Contender Following Shoppers Drug Mart Deal

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Aphria Inc.’s (TSE:APH) market cap is now more than $2 billion, and getting closer to that of Aurora Cannabis Inc. (TSE:ACB)

SmallCapPower | December 5, 2017: Aphria Inc. (TSX:APH), one of the low-cost producers in the marijuana industry, announced late Monday that it has entered into a five-year supply agreement with Shoppers Drug Mart, Canada’s largest pharmacy chain with more than 1,300 retail stores nationwide. As per the agreement, Aphria will supply Shoppers Drug Mart with 12 Aphria-branded medical cannabis products – four strains of dried marijuana flower in two different sizes and four cannabis oils. The agreement, conditional on Health Canada approving Shoppers Drug Mart parent’s (Loblaw Companies Ltd – TSX:L) application (filed in October 2016), will allow the pharmacy chain to sell products online, as current regulations prohibit the sale of medical cannabis in retail pharmacies.

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Shares of Aphria surged 18% to $13.73 on Tuesday following the announcement. Its market cap is now more than $2 billion, compared with the nearly $3 billion market cap of Aurora Cannabis Inc. (TSX:ACB).

Vic Neufeld, CEO of Aphria, said, “We have an impeccable record cultivating and producing high-quality, medical-grade cannabis. These traits make us a strong partner for an organization looking to serve and support Canadian patients.”

Aphria held a conference call post the press release to discuss the deal. CEO Neufeld said Aphria had been in discussions with Shoppers Drug Mart for months and that all those focused on medical cannabis only, not adult-use cannabis, which are expected to be legalized in mid-2018.

Late last month, Aphria obtained a dealer’s license from Health Canada that permits the Company to possess, sell and transport medical cannabis oil and resin to international markets. The current supply deal with Shoppers Drug Mart will strengthen Aphria’s market reach across Canada, boosting its revenues as well as building its brand image.

Aphria prides itself as one of the low-cost producers in the marijuana industry. In 1QFY18, the Company reported a 4% QoQ reduction in production costs to $1.61/gm of dried cannabis and reported the eighth consecutive quarter of positive EBITDA, at $1.5 million. Aphria currently trades at a price to TTM sales multiple of 79.0x and price to book of 5.6x.

Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in any of the companies mentioned above.

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