Aphria Inc (OTCMKTS:APHQF) has long been one of our truly favorite companies. The business is growing steadily, producing a ton of cash from operations, building up virtually no debt, diversifying its income streams, and reinvesting cash in high-ROI complementary vehicles. However, its latest move is starting to feel like an interesting directional bet: the company is divesting at least some of its US exposure.
Specifically, the company just announced that it entered into a purchase and sale agreement to sell 26,716,025 shares representing all its shares in Liberty Health Sciences Inc.. that are not subject to Canadian Securities Exchange escrow requirements. According to the release, “each of Michael Serruya, Simon Serruya and Jack Serruya are purchasing 80% of all transferred shares from Aphria individually or through an affiliate. The remaining 20% is being purchased by an affiliate of Delavaco Capital.”
Aphria Inc (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, Aphria is starting to bet on the non-US cannabis market. We assume this is in recognition of two things: first, recent headlines out of the White House suggest a disdain for federal legalization of cannabis in the US and possibly an eventual clawback of state legality; and second, the sense that growth rates outside of the US may be more dramatic given that supplies are richest in the domestic US market than anywhere else.
“The sale of a portion of our investment in Liberty Health Sciences provides excellent returns for our investors and we are committed to continue to work together with the Toronto Stock Exchange to ensure compliance with its staff notice regarding US cannabis investments”, said Vic Neufeld, Chief Executive Officer of Aphria. “While I continue to believe there is tremendous opportunity in the U.S. for medical cannabis, the sale of these shares serve the best interests of our shareholders and provide additional and important capital to fund Aphria’s continued growth in Canada and expand into other federally legal international markets.”
“Liberty remains very well positioned to capitalize on opportunities in the U.S. medical cannabis industry and Aphria has received excellent value for its investment in this growing company,” said Neufeld. “Liberty’s success is a testament to its hard work and strong management team and we look forward to watching their continued success as they forge ahead with their growth plans in the U.S.”
Recent action has seen 15% piled on for shareholders of the name during the trailing week, a bounce that has taken root amid largely bearish action over the larger time frame. However, APHQF has a history of dramatic rallies. Furthermore, the stock has benefitted from a jump in recent trading volume to the tune of above 170% over what the stock has registered over the longer term.
Earning a current market cap value of $2.04B, APHQF has a significant war chest ($116.1M) of cash on the books, which stands against about $1.6M in total current liabilities. APHQF is pulling in trailing 12-month revenues of $25.5M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 62.7%. As more color becomes clear on the name, we will review the situation and update our take. 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.