Bottom Line

Aphria Inc. (TSX: APHA; NYSE: APHA) achieved a new milestone in the company’s expansion plans today with a license amendment approval granted by Health Canada.

The approval allows the company’s Aphria One greenhouse to reach max capacity of more than 110,000 kg a year, almost tripling the current capacity of 30,000 kg.

To put it in perspective 110,000 kg a year is enough cannabis to supply almost 20% of demand in Canada, but still only represents 45% of the capacity Aphria will have by 2020.

Aphria will potentially be the first company to bring a ~1mm square foot greenhouse to full capacity allowing it to capture a big chunk of the legal market.

22,000 plants will be in the ground by next week, meaning plants from Aphria One could be ready for sale as early as July, 2019.

Of all the other large licensed producers, only Aurora Cannabis is close to bringing on a major greenhouse in the same timeframe.

Aphria is the first producer to scale and we expect significant cash flow and a return to being the low-cost producer in the second half of 2019.

Aphria should return to generating positive EBITDA again later this year, helping the company close it’s significant valuation gap to peers.

EV/EBITDA 2020E

Operational Details

With the license amendment in hand, Aphria One is now cleared for an additional 800,000 sq. ft. of grow space for planned fourth and fifth phases of construction.

Previous portions of the facility had already been utilized to begin growing plants that would be moved into the additional space once approval was granted.

Aphria today estimated that 22,000 new plants would be moved into the approved space by the end of the week, with an extra 10,000 to be added weekly until the facility reaches maximum growth capacity.

Chief Executive Officer Irwin D. Simon had this to say about the company’s license amendment from Health Canada:

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.

Simon is currently serving as interim CEO after former head of the company Vic Neufeld stepped down from the position last week.

Discussing the newly approved grow space, Irwin stated the goal of Aphria One’s upcoming construction phases is to automate the processes of transplanting plant cuttings, trimming existing plants, drying product, and then disposing of plant waste.

While Aphria has focused heavily on dried flower products since recreational usage was legalized, the company is also diversifying into an unexpected cannabis delivery method.

Last month, Aphria struck an agreement with Manna Molecular Science LLC. That partnership will see the two companies developing a line of cannabis-infused transdermal patches that release dosages through the skin.

Non-smokable products such as edibles, oils, and patches are expected to continue increasing in demand in the coming years, with federal studies on usage showing a steady shift away from smoking dried flower as more customers begin trying cannabis.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.