COVID-19Industry updateAphria shares tank on weak international sales

While the producer holds the largest share of the Canadian adult-use market, falling prices continue to eat at margins
Jared Gnam Jared GnamOctober 15, 20206 min

Aphria Inc. (TSX: APHA) gave investors a rude wake up call Thursday after the Canadian producer reported declining revenues as the pandemic hampered its German drug distribution business.

The Ontario-based company said it earned $145.7 million in first-quarter revenue, a decline of 4 per cent from the previous quarter.

For the three months ended Aug. 31, Aphria posted record adult-use cannabis sales of $69.6 million, a 23 per cent increase from its fourth fiscal quarter and its sixth consecutive quarter of growth.

The company reported $10 million in adjusted earnings before interest, taxes, depreciation, and amortization, a slight increase from the $8.6 million recorded in Q4 2020.

Read more: Aphria shares tumble on $99M fourth-quarter loss

But Aphria’s distribution revenue, largely generated from its German pharmaceutical subsidiary CC Pharma, fell 17 per cent to $82.2 million over the same period.

“The decline in distribution revenue is largely a function of the impacts of the Covid-19 global health crisis, including a reduction in the number of elective medical procedures and in-person visits to physicians and pharmacies,” the company said in a statement.

BCMI analyst Chris Damas said in a note that Aphria’s latest financials should be “a huge reality check for cannabis investors,” after other analysts praised it as the “belle of the ball” earlier this week.

Damas highlights how Aphria may have the best market share of any Canadian producer in the recreational market, but it had to sell two-thirds more volume to increase adult-use revenues by 23 per cent.

Image via ocs.ca

Aphria introduced its new bulk value brand Bingo during the quarter, which sports an average $4.18 per gram price tag at the Ontario Cannabis store.

The firm’s large format offerings accounted for 38 per cent of total recreational sales and 6,340 kilograms of the total 20,880 kilograms sold.

Selling all that cheap weed put pressure on the Aphria’s gross margins as its average net selling price per gram after excise taxes dropped 27 per cent from the previous quarter to $3.09, according to Damas.

Despite the drop in revenue, CEO Irwin Simon called his first-quarter results “strong” as the company focuses on long-term growth both globally and domestically.

“We believe that the strength of our balance sheet and cash position, combined with our consistent focus on our highest-return priorities, will generate sustainable long-term value for all stakeholders,” he said in a statement.

Cash spent in the quarter totaled $97.2 million, leaving Aphria with $400 million as of Aug. 1. Since establishing its US$100 million at-the-market program in July, the company has yet to tap those funds.

Net loss was a reported $5.1 million, or 2 cents per share.

For Damas, Aphria’s financial results demonstrate the flawed fundamentals of the Canadian market, which continues to face oversupply issues, price declines and less cash flow.

“The best quarter by the best LP and they still lost money,” he wrote. “This is the reason almost all Canadian cannabis stocks are taking a hit today, led by Aphria, which has dipped below $5 USD after rising strongly on tips on Twitter that a takeover by Canopy was imminent.”

Shares of Aphria fell almost 18 per cent Thursday on the Toronto Stock Exchange, while the Global Cannabis Stock Index slid almost 3 per cent.

Top image via Aphria

 

jared@mugglehead.com

@JaredGnam

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