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LOST IN THE SAUCE - PART VI

October 16, 2019

 

Aphria IInc. (APHA) $5.19: Showed a "paper" profit, but lost "real" money selling marijuana.

 

You remember APHA, one the many Canadian cannabis stocks our pages claimed to be a poor investment? Almost a year ago on the 18th, our SP+GTM algorithm flashed a SHORT SALE AT $15.10 and a potential COVER at $2.50.

 

Aphria Inc.’s profits are about the paper, not the pot. The Canadian cannabis producer reported its second consecutive quarter of profitability early Tuesday, posting net income of C$16.4 million on sales of C$126.1 million. But the company’s profits weren’t the result of a massive windfall in its cannabis business, instead coming from Aphria’s previously sliding stock price and a shift in its ownership stake in another company. The fluctuations in Aphria’s share price leading up to Tuesday’s report boosted the company’s earnings by C$14.2 million because of the way the Canadian cannabis company values its convertible debt.

Valuing the convertible debenture relates directly to the company’s share price, which closed at $6.26 at the end of August, though it traded as low as $5.02 before it reported its fiscal fourth-quarter results. Another paper gain that helped push Aphria into the black for the quarter was an arcane change in accounting methods it uses to value its investment in Althea Group Holdings Ltd. AGH, +0.79%  . Aphria reduced its ownership stake and gave up its board seat and “ability to participate in Althea’s policy-making process” during the quarter, which allowed management to book profits of C$24.3 million, which it included as paper gains in its long-term investments.

 

Combined with the changes in value assigned to its convertible debentures, Aphria added roughly $30 million in paper gains to arrive at the profitable quarter. Cannabis revenue itself rose to C$30.8 million from C$28.6 million in the fiscal fourth quarter. The company disclosed that an August fire at its Broken Coast operation in British Columbia — which Chief Executive Irwin Simon has previously called its highest-margin business — had a C$1.5 million impact that “would be made up in the balance of the year,” executives said in Tuesday’s earnings conference call. Aphria did not disclose the cause of the blaze in the call. Executives also reiterated the company’s fiscal 2020 guidance of C$650 million to C$700 million in revenue, “slightly more than half” of which will come from the company’s CC Pharma drug distribution business. Chief Financial Officer Carl Merton said on the conference call that Aphria expects “annualized” Canadian marijuana revenue of $1 billion by the end of the calendar year 2020 (Aphria’s fiscal year-end occurs in May).

 

Aphria shares have fallen 65% in the past year, as the S&P 500 index SPX, -0.20%  has gained 7.8%. The ETFMG Alternative Harvest ETF MJ, +6.19%  , which tracks a basket of cannabis stocks, among other names, has fallen 53% in the past year. Horizons Marijuana Life Sciences Index ETF HMMJ, +5.12%  has dropped 55% in the past year.

 

FOLLOWING FJC NEWS CAN SAVE YOU MONEY, AND MAYBE LEARN SOMETHING ABOUT CANNABIS INVESTING. USE OUR PROPRIETARY SP+GTM ALGORITHM TO "TEST" PERFORMANCE. ONLY THEN YOU CAN "SEE" WHAT TRUE INVESTING LOOKS LIKE.

 

 

 

 

 

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