It’s time to crown a Canadian marijuana company. Sure, Canopy Growth has the largest market capitalization and the largest equity partner. Aurora Cannabis has the largest production capacity. But based on the latest quarterly results, the new cannabis king is none other than Aphria.
Were Aphria’s first quarter 2020 results really that good? Yes, they were. And these financial results set Aphria apart from other leading Canadian cannabis producers.
Aurora and Canopy Growth often talk about their path to profitability. Both companies want to achieve positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) first, and then a positive net profit for the year. For Aurora and Canopy, profitability is therefore still in the future, but Aphria has already paved the way.
Aphria’s Q1 results, announced in mid-October, were characterized by solid profits for the second consecutive quarter. The company reported net income of CA$16.4 million ($12.46 million), or CA$0.07 ($0.053) per share, compared to CA$15.8 million ($12.01 million), or CA$0.05 ($ 0.038) per share, in the previous quarter.
Admittedly, Aphria’s first quarter earnings are marked with an asterisk. The company benefited from nearly CA$17.9 million ($13.61 million) in net fair value adjustments. Without these adjustments, Aphria would have reported a slight net loss. But even a small net loss is much better than the results that Aurora and Canopy achieved in the last year.
Both Aurora and Canopy Growth promised above-average numbers in their last quarterly reports and then delivered below-average results. Aurora even fell short of the forecast made just a few weeks before the publication of the Q4 2019 results. Aphria, on the other hand, beat estimates.
The consensus among analysts was that Aphria would report a loss of CA$0.02 ($0.015) per share. As we have already seen, the company slightly exceeded this estimate. Even without the increase in market value adjustments, Aphria would have exceeded analysts’ expectations.
However, Aphria fell slightly short of analysts’ sales guidance of CA$131 million ($99.59 million), with the company achieving sales of CA$126.1 million($95.86 million). This revenue was even lower than the previous quarter’s revenue of CA$128.6 million ($97.76 million)
But Aphria had a good reason for the lower sales. Its CC Pharma division’s distribution revenues were lower due to a “change in business strategy” resulting from the change in the medical cannabis reimbursement model in Germany. Aphria’s change of strategy led to a decline in sales at CC Pharm, but to a higher result. This is a compromise that analysts and investors can live with.
Strong potential in the North-American cannabis market
Meanwhile, in the US cannabis market, one company is showing that smaller caps can be a better alternative for investors who want to bet on the growing cannabis sector. Veritas Farms Inc. (OTC: VFRM), a successful producer and distributor of CBD products, experienced impressive growth in the last year.
In Q2 2019 Veritas generated more than $2.9 million in total revenue and that is a 500% increase since Q2 2018. Their gross profits reached $1,523,413 and thanks to great results, they managed to reduce the liabilities by over $1.3 million. This growth has been driven by an aggressive plan to rapidly expand the company’s distribution network, which now includes over 4,000 retailers and partners.
Veritas focuses on transparency and on offering high-quality products. The company owns a 140-acre industrial hemp farm and facility, located in Pueblo, Colorado. This way, Veritas maintains control over the whole supply chain. Its nine categories of products, with over 60 SKUs, include lotions, tinctures, vape oils and vegan capsules.
The current boom in the cannabis market offers the opportunity for high profits. But when there is a gold-rush atmosphere, you will always have money pits that you should absolutely avoid. That is why investors should be careful of what they are betting on. Veritas Farms and Aphria seems to be some of the best choices in the cannabis market right now.