Aphria (APHA) fired the first shot of cannabis earnings in 2020 -- and it missed. In fact, it missed badly once investors factor in guidance.
Still, Aphria should come out of this all right, and this dip is nothing more than giving up Monday's move higher. In fact, I think it's an opportunity to buy if your timeframe extends beyond the spring.
The company reported revenue of C$120.6 million, roughly C$10 million below expectations. Guidance of C$575 million - $625 million against last quarter's full-year guidance of C$650 million-$700 million likely weighed on the stock the most Tuesday morning.
Guiding the full-year range lower by C$75 million after only missing by C$10 million this quarter doesn't paint a pretty picture for the year, but investors need to remember the bulk of Aphria's revenue is actually led by CC Pharma in Germany. This offers us little insight on the cannabis side of the business after Germany's government changed its medical reimbursement model.
As far as cannabis rolls, things don't look tragic. The company's adult cannabis revenues hit C$29 million with net cannabis revenues of C$33.7 million. Those adult-use cannabis numbers are up 46% quarter over quarter as the company cashes in on Broken Coast, its very popular brand. Despite the net loss of C$7.9 million, Aphria did turn in a positive C$1.9 million adjusted EBITDA.
Management blamed the temporary ban on vaping products in Alberta, slower retail rollout, and delay in the now-licensed Aphria Diamond facility for weighing on margins. All-in cost of C$1.98 still trends toward the high side of the industry while cash cost to produce fell to C$1.11. Fortunately, with almost C$500 million in the bank along with a C$80 million credit line, the company sits in good position to expand.
Perhaps the most interesting takeaway for Aphria's results is the company indicated demand exceeded cannabis supply, yet adult-use price dropped to C$5.22/gram from C$6.02/gram. I expect supply to continue to be swept up, but as legit companies compete with the black market as well as each other, don't expect price to push higher. Producers will be forced to cut costs and streamline operations to remain in the game.
With its strong balance sheet and a touch of business diversity thanks to CC Pharma, look for Aphria to remain a major player in the industry.
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