APHRIA INC COM NPV (OTCMKTS:APHQF) is one of the Canadian cannabis patch powerhouse players that we have been so high on over the past year. APHQF is flush with cash and has been working to find some creative ways to put that cash to work. The stock corrected sharply along with the rest of the space back in April-June. But things have decidedly turned back around since then, with the 200-day simple moving average holding strong as support, and shares powering over 40% higher in the interim.
At this point, we are on the lookout for the next headline explaining the latest strategy to diversify revenue streams. We have seen all of these big Canadian producers make some recent moves to diversify. Aphria is sitting on roughly $80M in cash and has been storming along with triple-digit top-line growth over the past year. While nothing is strikingly signaling risk in that picture, this is the time to plan for a rainy day.
APHRIA INC COM NPV (OTCMKTS:APHQF) bills itself as a company that produces, supplies, and sells medical cannabis in Canada. Its cannabis products include dried flowers and cannabis oils. APHQF sells its products through its online store and telephone orders, as well as MMPR licensed producers.
According to press materials, “APHQF is one of Canada’s lowest cost producers, produces, supplies and sells medical cannabis. Located in Leamington, Ontario, the greenhouse capital of Canada. APHQF is truly powered by sunlight, allowing for the most natural growing conditions available. We are committed to providing pharma-grade medical cannabis, superior patient care while balancing patient economics and returns to shareholders. We are the first public licensed producer to report positive cash flow from operations and the first to report positive earnings in consecutive quarters.”
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As noted above, we have been quite impressed with this company over the past year. The key has been strong execution. And we would look for more of the same ahead. However, what one cannot know is the context. In this case, investors need to realize that, at the end of the day, these big producers are a bit like big oil producers: this is a commodity, and the price of the underlying good is always going to be the most important part of the picture.
To take more control of the fate of its equity valuations, companies in this space have been diversifying like crazy, moving to higher margin areas of the space, or moving to hardware or financial engineering to deploy cash now as a hedge against periods when the growth in the sheer number of growers pressures margins on the primary good.
We have seen this to some extent from APHQF, but not as much as we might expect. That’s why we would be on the lookout for the next such move. The last such move was the company’s $11.5M investment in Scientus, as we previously covered.
“We are excited to enhance our relationship with industry leader Scientus Pharma,” said Vic Neufeld, Chief Executive Officer of Aphria. “Their proposed pipeline of new and innovative products represent a major step forward for cannabinoid-based medical products in Canada. Gaining access to their dealer’s license provides Aphria immediate access in the short-term to enhanced global opportunities.”
The chart shows 20% during the past month in terms of shareholder gains in the stock. Market participants may want to pay attention to this stock. APHQF is a stock whose past is littered with sudden rips. Furthermore, the company has registered increased average transaction volume recently, with the past month seeing 49% beyond its prior sustained average level.
Earning a current market cap value of $816.6M, APHQF has a significant war chest ($79.9M) of cash on the books, which is balanced by about $1.6M in total current liabilities. One should also note that debt has been growing over recent quarters. APHQF is pulling in trailing 12-month revenues of $20.4M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 106%. This is an exciting story, and we look forward to a follow-up chapter as events transpire. Sign-up for continuing coverage on shares of $APHQF stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!
Disclosure: we hold no position in $APHQF, either long or short, and we have not been compensated for this article.