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Aphria posts surprise profit as cannabis sales volumes double

Marijuana plants growing at Aphria's Leamington facility.
Marijuana plants growing at Aphria's Leamington facility.

Aphria Inc. has posted its first profitable quarter since the legalization of recreational cannabis, driven largely by revenue from its German distributing partner CC Pharma and significantly higher volumes of cannabis sales in Canada’s adult-use market.

For its fourth quarter, which ended May 31, Aphria generated net revenue of $128.6 million — an increase of 75 per cent from the previous quarter — while net income and adjusted EBITDA were both in positive territory at $15.8 million and $0.2 million, respectively.

The Leamington, Ont.-based company also exceeded most analysts’ expectations on a key indicator — the quantity of cannabis sold on the Canadian market.

For the quarter, Aphria sold 5,574 kilograms of cannabis, generating $28.6 million. In its previous quarter — largely considered a disappointing one — it sold just 2,636 kilograms of cannabis in both the recreational and medical markets, generating $15.4 million in revenue.

As in the previous quarter, the bulk of the company’s revenue — $99.2 million — came from the company’s distribution partnerships abroad, specifically with CC Pharma in Germany, which distributes pharmaceutical products including medical cannabis (some of which is supplied by Aphria) to 13,000 pharmacies across continental Europe. Aphria acquired CC Pharma for approximately $60 million in January this year.

“Our team’s solid execution across key areas of our business resulted in strong adult-use revenue growth and a profitable fourth quarter,” interim CEO Irwin Simon said in a press release.

Simon, the founder of Hain Celestial, an organic products company, was named independent chairman of Aphria’s board of directors in December, as the company faced intense scrutiny following the release of a critical short-seller report. He was named interim chief executive in February.

“The most important thing for me was getting Leamington right so that we would be able to get our supply out there,” Simon told the Post in an interview Thursday.

We had our customers, consumers, shareholders, employees all mad at us. I had to pull everyone together. — Aphria interim CEO Irwin Simon

“Before I came in, we were out there making commitments to liquor control boards but we were not able to supply. We had our customers, consumers, shareholders, employees all mad at us. I had to pull everyone together,” he said.

The company’s Aphria One cultivation site, which has a total greenhouse space of roughly 700,000 square feet is now in full use, with the company having planted 200,000 cannabis plants this past quarter. Aphria Diamond, the greenhouse facility adjacent to Aphria One, is 1.2 million square feet and is still awaiting Health Canada licensing. “That’s my next priority — getting Diamond licensed and up and running,” Irwin said.

The company says it will be able to reach annual production capacity of 255,000 kilograms once all its facilities are licensed and in full use.

The value of some of Aphria’s international assets was called into question late last year, when a short-seller report alleged the company had paid inflated prices on its Latin American assets, which the report characterized as “largely worthless.” At the behest of the Ontario Securities Commission — which found that the assets had lower margins and higher-than-expected expenses — Aphria took a $50 million non-cash impairment charge last quarter.

In a recent note ahead of Aphria’s earnings, CIBC analyst John Zamparo slashed his price target on the company, warning that it could face a similar impairment charge, possibly as soon as the most recent quarter, in relation to the $425 million acquisition of Nuuvera Inc., a company that had some cannabis-related assets in Italy, Germany and Israel. The company did not write down the Nuuvera assets in its quarterly results.

… our strategic priority over the last six months has been focusing on our Canadian operations here in Leamington. — Aphria interim CEO Irwin Simon

“I’m not sure what that was about,” Simon said, in response to the CIBC report. “As I said, our strategic priority over the last six months has been focusing on our Canadian operations here in Leamington.”

The company has also built up its cash balance over the past three months. A settlement reached with American cannabis retailer Green Growth Brands over its failed hostile bid in February resulted in $50 million cash received that was reflected in this quarter’s earnings — an additional $39 million is expected in October. The company also raised US$300 million in a convertible debt offering in April.

Since the short-seller report, Aphria has faced a slew of resignations at the executive level, including the departure of former CEO Vic Neufeld, and co-founders John Cervini and Cole Cacciavillani, who left the company in early 2019. In May, Aphria made further changes to management, bringing in James Meiers, a former executive at Simon’s previous company Hain Celestial, as chief operating officer. Jakob Ripshtein, the company’s former president also abruptly announced his departure in May.

Simon did not say when Aphria would appoint a permanent CEO, or whether he was considering seeking the job himself.

“My focus was getting the company back on track, and as you can see, all our hard work is paying off,” he said.

Copyright Postmedia Network Inc., 2019

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