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Aphria's Fourth Quarter And Expansion In Marijuana Capacity

David Butler profile picture
David Butler


  • Aphria's fourth quarter disappointed me in terms of net income, but the loss came from investment expense vs. poor sales.
  • In fact, the company grew revenue exponentially, with strong improvements in gross margins.
  • With ever shrinking costs to produce, Aphria is setting itself up well with rapidly expanding production capacity.
  • The outcomes of these efforts rests with the decisions of the Canadian government; and to a lesser extent US moves on state regulation of cannabis.

(Aphria’s financial results are in Canadian dollars)

First of all, yes. I am disappointed by the net loss for Aphria’s (APHQF) fiscal fourth quarter. That said, there’s a lot more good than bad occurring here. The company put a lot of investment into expanding its production capabilities and growing its US subsidiaries; which undermined the impressive revenue growth the company has achieved. I took a position in Aphria back around the beginning of the year; and remain long on the stock. It has until this most recent quarter, been a profitable business with expanding sales.

The latest financials

Aphria’s revenues increased by 106% (year over year) to over $5.7 million for the three months ended March 31st 2017. On a 12 month basis, the company has grown revenues by 142% to more than $20 million. The company is living up to its claims as the “low cost” producer in the Medical Marijuana industry with increasing margins.

Gross Margins increased to 85.7%; an 11.2% increase from the year prior. These margins are coming from the company’s stringent focus on improving costs at every chance. Aphria increased its production to 738.3 kilograms; a 13.11% increase from the third quarter. In the process, they drove down “all in” costs per gram to $1.67 vs. $2.23 last quarter. That’s a 25% improvement. I would caution those so focused on net income to look at the big picture here. The $2.59 million quarterly loss is nothing compared to the strong growth in EBITDA, expansion of investment, and full fiscal year profitability.

I’ve spoken before about Aphria’s vested interests in US subsidiaries. Their $25 million investment into DFMMJ allowed the subsidiary to purchase most of the assets of Chestnut Hill Tree Farm LLC. Chestnut Hill has one of the limited growing licenses for cannabis in the state of Florida. This

This article was written by

David Butler profile picture
Bit of a stock nerd. Contributor for SeekingAlpha and Jim Cramer's Real Money. I like earnings, and have very little time for chart analysis. It doesn't matter how many squiggles a chart has if the company doesn't drive meaningful earnings per share.

Analyst’s Disclosure: I am/we are long APHQF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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