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Sunday, January 17, 2021

APHRIA INC COM NPV (OTCMKTS:APHQF) Hints at Diversifying Its Game

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APHRIA INC COM NPV (OTCMKTS:APHQF) is an interesting stock. If there was a Blue Chip segment of the cannabis patch, this would be the stalwart best-in-class (or close to it). We have continued to push its virtues from a strictly financial standpoint in our coverage over recent months – fortress balance sheet, huge revenue growth trajectory, etc – but today’s update will be a little different. If there might be a concern for APHQF stock, it is the same type of concern that comes up with commodity producers (integrated oil stocks, copper miners, etc): The increased legality, and the massive media focus on pot growing has flooded the world with cheap marijuana.

Prices are falling as a result. However, at the same time, demand is likely set to ramp up as more states legalize, and as Canada legalizes nationally, leading to a wider base of consumers. But, at some point, the market on the demand side will have stabilized – not everyone wants it – and supply will likely continue to ramp up until we get the point where margins only slightly exceed 0. That’s why we like to see APHQF starting to diversify. We’ll get to that in a moment. But first, let’s re-introduce the company.

APHRIA INC COM NPV (OTCMKTS:APHQF) trumpets itself as a company that produces, supplies, and sells medical cannabis in Canada. Its cannabis products include dried flowers and cannabis oils.

The company sells its products through its online store and telephone orders, as well as MMPR licensed producers. Aphria Inc. is headquartered in Leamington, Canada.

According to company press materials, “Aphria Inc., one of Canada’s lowest cost producers, produces, supplies and sells medical cannabis. Located in Leamington, Ontario, the greenhouse capital of Canada. Aphria 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 think we see signs that this company is starting to become a deeper entity, with a more diversified operational palate.

For example, in a recent press release, Green Acre Capital announced the first close of “Green Acre Capital Fund I”, dedicated to investments in the Canadian legal cannabis industry, naming APHQF as a lead investor.

According to the release, the Fund remains open and on pace to raise the targeted amount of $25 million in Q1 2017.

Green Acre announced the team in charge of the fund, including Dragons’ Den veteran and co-founder of FirstEnergy Capital Corp, W. Brett Wilson as a lead investor alongside York Plains Investment Corp. and Aphria Inc. (APHQF). In connection with the investment, Wilson joins Shawn Dym, Managing Director of York Plains, Lorne Gertner, co-Founder of Tokyo Smoke and PharmaCan Capital (now Cronos Group) and Vic Neufeld, CEO and Chairman of Aphria on GAC’s board of advisors. The GAC team is led by Managing Directors, Matt Shalhoub and Tyler Stuart.

As we understand it, the launch of the fund was announced in early 2017 with the goal of building a diversified portfolio of the most attractive cannabis investment opportunities across numerous verticals within the industry. APHQF is one of the lead players in the fund, which means they are still in the patch, but can allocate their large cash stores (nearly $100M and growing, versus less than 1M in current liabilities) toward other avenues outside of pure cultivation.

“Canada is on the verge of what is sure to become a multi-billion dollar industry. We’re proud to be here early, and eager to shape the industry moving forward,” says Shalhoub.

The chart shows 30% during the past month in terms of shareholder gains in the listing. This is emblematic of the stock. APHQF stock has a track record that includes a number of dramatic rallies. Moreover, the listing has benefitted from a jump in recent trading volume to the tune of a bit less than 140% over what the stock has registered over the longer term. Since we last covered the name, the stock has moved 21.6% higher.

Earning a current market cap value of $550M, Aphria Inc has a significant war chest ($98.6M) of cash on the books, which compares with about $743K 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 $15.1M. In addition, the company is seeing major top line growth, with y/y quarterly revenues growing at 157.9%. As more color becomes clear on the name, we will review the situation and update our take. For continuing coverage on shares of APHQF stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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