Aphria stock soars as it becomes first big pot firm to turn a profit

Many more profitable quarters to come at Aphria: Interim CEO Irwin Simon

Aphria Inc. became the first major Canadian cannabis company to report a net profit, sending its U.S. shares up 33 per cent in pre-market trading Friday.

The Leamington, Ontario-based pot producer said Thursday it earned $15.8 million in the quarter ended May 31 on revenue of $129 million. The revenue figure beat the highest analyst estimate, and was up 75 per cent from the prior quarter.

The results are a remarkable shift from last quarter, when Aphria reported a significant drop in gross margin, revenue that missed expectations and a C$50 million writedown on its Latin American assets.

“In the context of poor sector sentiment, profitability becoming an increasing focus, and guidance scarce, this print is very reassuring and supports our conviction in the name,” Jefferies analyst Ryan Tomkins wrote in a note. He’s among 9 analysts carrying a buy-equivalent rating on the stock. “Names who can show a route to profitability (or are there now) have the greatest likelihood attracting near term investor interest.”

Key Insights

- Revenue from recreational cannabis sales was $18.5 million, up 158 per cent from the prior quarter, on 5,574 kilograms of cannabis sold

- It also cost Aphria less to produce pot, with cash cost per gram of dried cannabis falling to $1.35 from $1.48

- Aphria said it expects to generate net revenue of $650 million to $700 million in fiscal 2020, which ends May 31, and adjusted earnings before interest, taxes, depreciation and amortization of $88 million to $95 million.

- Analysts expected revenue of $701 million and Ebitda of $46 million

Management Commentary

- Interim Chief Executive Officer Irwin Simon indicated there’s no immediate plan to replace him with a permanent leader. “The leadership team we have in place is solid; there is no management void at Aphria,” he said. “There is no emphasis on ‘interim’ by me and my team”

- The company is “building strategic partnerships and alliances” in the U.S. CBD market, where it doesn’t currently have a presence. “Let me be clear: we’re always looking for opportunities in the U.S., but it needs to be the right opportunity, one that will create real and long-term value for our shareholders,” Simon said

- Chief Financial Officer Carl Merton reiterated the company’s intent to generate $1 billion in annualized revenue by the end of calendar 2020