A better than expected quarter has Clarus analyst Noel Atkinson raising his price target on Aphria (TSXV:APH).

On Wednesday, Aphria reported its Q4 and fiscal 2017 results. In the fourth quarter, the company lost $2.6-million on revenue of $5.7-million, a topline that was up 106 per cent over the same period last year.

“”We capped off another exceptional year at Aphria, with increased earnings and lowered all-in production cash costs that provides us with a considerable competitive advantage,” said CEO Vic Neufeld. “We increased our capacity expectations, continued to license the use of the Aphria know-how system to expand our proven operational expertise, made progress on our expansion into the U.S. market — all while maintaining our commitment to delivering clean and safe cannabis. The investments and progress we made in 2017 have positioned Aphria for continued profitable growth, in both the short and long term. As the medical marijuana industry rapidly expands, we believe there is a need to establish a consistent, responsible and transparent definition for licensed producers to calculate their costs to produce dried cannabis per gram. To ensure an accurate peer to peer comparison of this important metric, we are proposing the establishment of an industry-standard definition for costs that includes all costs related to the production of cannabis, including quality control costs.”

Atkinson says the quarter bested his expectations and its performance bodes well for Aphria’s future.

“The Company reported its Q4/FY17 (May) results on July 12, which showed the impressive economies of scale that can be achieved from advanced cultivation techniques in a greenhouse environment during a prime spring growing period,” the analyst says. “Total revenues of $5.7MM beat our $5.3MM estimate, which appears to have been supported by significant new patient growth. Shipments of 738 kg-equivalent of product were well above our 639 kg estimate with minimal (10 kg) wholesale shipments to other LPs and 20% of shipments went to patients onboarded during the quarter. Average price of $7.67/g reflected a modest sequential decline from $7.85/g in Q3, which we believe was driven by product mix and discounts to veterans.”

The analyst says he was particularly impressed with one aspect of the quarterly results.

“What was a real eye-opener for us was the new bar set by Aphria in the industry for production cost. Reported cash production cost per gram (excluding depreciation) of dried cannabis (excluding packaging) dropped to just $1.11/g in Q4, down sharply from a weather-inhibited $1.73/g in Q3 and far better than our $1.63/g estimate. We understand the significant improvement came from a handful of ongoing yield enhancement initiatives, while trim is starting to be utilized in oil extraction and the weather was highly favourable.”

In a research update to clients today, Atkinson maintained his “Buy” rating but raised his one-year price target on Aphria from $7.75 to $13.00.

Atkinson thinks Aphria will generate EBITDA of $14.5-million on revenue of $43.3-million in fiscal 2018. He expects those numbers will improve to EBITDA of $78.1-million on a topline of $189-million the following year.