Aphria Inc. (APHQF) reported rising revenue and profits for the second quarter. Revenue for the three months ending November 30, 2017, was C$8,504 versus C$5,227 in the same period of the prior year, an increase of over 60% and C$6,120 in the first quarter of fiscal 2018, an increase of almost 40%. Gross profit for the second quarter was C$6,202, compared to C$4,121 in the same quarter in the prior year and C$7,904 in the previous quarter.

“We closed the quarter with strong top-line gains – revenue and Kilograms sold reached record highs and we moved closer to our increased our production capacity expectations,” said Vic Neufeld, CEO of Aphria. “With a growing product mix and patient base from both new and existing clients, we continue to affirm our position as a strong Canadian market leader as we remain focused on executing our strategy to drive sustainable growth and shareholder value.”

Net income for the three months ended November 30, 2017, was C$6,455 or $0.05 per share compared to a net income of C$945 or $0.01 per share in the same period of the prior year.

Increased Revenue, Profits

Aphria said that the increase in revenue was largely related to the continued growth of both wholesale shipments and sales to existing patients, as well as continued acceleration of patient onboarding and an increased average selling price (excluding wholesale). The increase in gross profit was attributed to a much larger patient base over the prior year which was offset by the increased costs per gram equivalent.

Cost Of Sales Increased

One problem that did hit the company was an increase in the “all-in” cost of sales, which Aphria addressed in its statement. The company said that costs of sales of dried cannabis per gram temporarily increased from C$1.61 to 2.13. In the statement, the company said, “In an effort to bring an increased supply of cannabis to its patients as soon as possible after obtaining Health Canada approval of its Part II expansion, the Company transferred less than ideal aged vegetative plants into the expansion upon receiving approval. The plants transferred were older than we traditionally transfer, as we dealt with a longer than expected approval process.”

The company went on to say, “The impact of transferring older plants was a decrease in yield, which spread our actual costs across lower harvest yields and resulted in a significant amount of unabsorbed overhead that was expensed in the quarter. Similarly, our per gram cash costs to produce dried cannabis increased from $0.95 to $1.45 due to the same challenges. Despite the increase, Aphria continues to have one of the lowest costs per gram in the industry.”

Looking Ahead

The company said that construction of Part III and Part IV fully capitalized expansion progressing as scheduled with the first sale from Part III expected in late May 2018 and from Part IV in late January 2019. Upon completion of both projects, the Company anticipates 100,000 kgs in annualized production capacity at 1,000,000 sq. ft. of cumulative greenhouse growing space.