Say what you will about Aphria Inc. (NYSE:APH) management and the class action lawsuits being filed against them. Holders of the 240 million Aphria common shares are worth more than the $1.8 billion initially offered by Green Growth Growth Brands (OTCMKTS:GGBXF). My guess is the value is more than $3.0 billion and even that could prove low by as much as $1.0 billion.

It’s little wonder then that Aphria’s Board of Directors advised it’s shareholders not to act on the unsolicited offer.

Considering the shares traded as high as $17 last September, the Green Growth offer represents something of a “take under.” It makes you wonder, what are the folks at GGB thinking. Here is why a better, higher offer, will be forthcoming.

A good combination

The deal, if consummated, will create a powerhouse. It represents a way for shareholders of Aphria to participate in the U.S. market fully. The combination of the two companies will create a monster North American player operating on both sides of the border.

[At Davos, Acreage Holdings CEO Kevin Murphy said the US will legalize cannabis in 2019. Here’s why he’s wrong.]

Imagine the combination of Aphria’s Canadian supply and wholesale agreements with Green Growth’s vertically integrated operations including cultivation, manufacturing, and retail. So it makes sense and Green Growth is offering stock anyway.

Different valuation metrics for APHA

In Wall Street’s world of mergers and acquisition, deal makers are always looking for comparables on which to price transactions. One just this week involving Aurora Cannabis (NYSE:ACB) has to qualify as the most overpriced ever paid for 5000 kilograms of cannabis (organic) capacity (Whistler Medical Marijuana.) We calculate the price is equivalent to $26+ per gram of finished product.

Aphria production, according to reports, is expected to hit 225,000 kilos about now which is a giant step forward from the 35,000 level just about six months ago. Valuing Aphria on the same basis as Whistler brings us to just north of $5.5 billion or the princely sum of $23 per Aphria share.

Under just about any scenario, that’s pretty ridiculous.

Aphria financials present the picture of a company something with unusual strengths. For most of the cannabis industry, stocks are valued more for their long term potential than current results. Many industry participants are losing money and will continue to do so for some time.

A deep-dive into Aphria’s numbers

For a better look at Aphria, let’s dig into the numbers. In fiscal 2018 revenues totaled $36 million and are currently running at an annualized rate of roundly $100 million for the year that will end May 30.

Aphria revenues are notably lower compared with big names like Canopy Growth (TSX:WEED) (NYSE:CGC) and Aurora. The big difference, however, is that Aphria earns money while others are still deep in the red.

[Piper Jaffray raises target price on Canopy Growth as analysts continue bullish wave with Canada’s number one cannabis company]

And we aren’t talking anything unusual. In fact, the company has delivered 12 consecutive quarters of positive earnings from operations. In their most recent report, gross margins (net revenues-production costs) were 54 percent.

That is impressive.

It helps that Aphria is one of Canada’s lowest cost marijuana producers. The benefit really shows in its balance sheet. Their Q2 report released this month revealed $152 million in cash and almost no long term debt. For a company growing at a bazillion percent annually, this much liquidity is quite unusual.

It looks like the major additions to capacity, for the moment at least, have taken place with the 1 million square foot Leamington facility starting to come on stream shortly. According to the press release, the new facility will be equipped to produce “world-class” cannabis concentrates, including fractionated distillates. Altogether annual production is pegged at 200,000 kilos annually.

Beyond this giant project, Aphria has committed in another 30,000 kilos of capacity at Aphria One and Aphria Diamond at a total cost of around $30 million. So with all this new capacity coming on stream, it is little wonder that Aphria revenues are surging and so are earnings.

Through the first half of 2019 earnings per share were reported at $0.32. On an annualized basis earnings are $0.88 so it is a safe guess that full-year 2019 earnings will come in between $0.80-$0.85.

Twice the current price sounds right

Critics of Aphria contend that management has not been acting in the interest of shareholders. We can’t speak to the merits of the class action lawsuits that are being filed (My father advised me to go to law school but I didn’t listen).

It is true that Aphria has liberally used equity to grow its business. This is the lowest cost of financing for just about everyone in the cannabis industry.

Yes, Aphria has 240 million shares which are not exactly chump change. However, it also has $103 in retained earnings and a net worth of roundly $1.8 billion.

[At Davos, Canopy Growth execs say business is booming — and expect the cannabis bubble to burst soon]

All this raises the question, what is a company worth that is in a highly sought after business sector, growing over 100 percent annually and is so profitable that it is throwing off excess cash? Would 20+ times which is less than the average NYSE company? Such a modest valuation would price the shares of APHA at $16 today.

That is exactly where the stock traded last September. So about twice the current price doesn’t sound overly optimistic.