Aphria Sells Off After Taking COVID Hit To Earnings

Aphria Inc. (NASDAQ: APHA) stock was falling almost 10% in early trading after the company reported its financial results for the fourth quarter and fiscal year ended May 31, 2020, in Canadian dollars. Aphria delivered net revenue of $152.2 million in the fourth quarter, an increase of 18% from the prior-year quarter, and an increase of 5% from the prior quarter. This number also beat the analyst estimate of $149 million.

However, the stock was getting beaten up after the company also reported a $98.8 million net loss for the fourth quarter, which was much worse than last year’s net income of $15.7 million. The losses were attributed to a non-cash impairment of $64.0 million in the quarter, which was due to “measures taken with respect to certain of the Company’s international businesses in response to the COVID-19 pandemic.”

For the full year, Aphria reported net revenue of $543 million, with a net loss of $84 million. The 2020 revenue increased by 129% from $237.1 million in 2019.

“Our strong finish to fiscal year 2020 demonstrates that this was a transformative year for Aphria, as our net revenue increased 129% from fiscal year 2019,” said Irwin D. Simon, Chairman, and Chief Executive Officer.  “We continue to focus on capturing strong market share in Canada by executing upon our strategic plan and positioning Aphria as a leader in category innovation. With exciting new product categories and line extensions launching in the very near future, we believe our award-winning adult-use portfolio remains unmatched in the industry.”

COVID Costs

Aphria said that it paused its previously announced extraction and processing expansions, including the on-going work completing the extraction center, up to and including its licensing as a result of the pandemic. The company said that it maintains sufficient extraction capacity to meet its current and near-term demand in Canada and abroad.

The company also noted that it sourced biological controls, product packaging, and vape componentry from outside of North America, but then stated that the equipment was readily available. It also stated that’s didn’t anticipate any difficulty in getting product packaging or equipment. The company also found alternative supply sources for essential supplies.

Still, the impairment losses that didn’t really seem related to COVID were as follows (in thousands):

• $4,800 on CannInvest Africa Ltd. and Verve Dynamics Incorporated (Pty) Ltd., the Company used a discount rate of 38.5%;
• $5,000 on ABP, S.A., the Company used a discount rate of 23.3%;
• $19,171 on Marigold Projects Jamaica Limited (“Marigold”), the Company used a discount rate of 38.5%; and
• $35,000 on ColCanna S.A.S., the Company used a discount rate of 40.0%

Medical Prices Rise, Adult Prices Fall

Aphria reported that the average retail selling price of medical cannabis (exclusive of wholesale), before excise tax, increased to $6.63 per gram in the quarter, compared to $6.41 in the prior quarter. The average selling price of adult-use cannabis, before excise tax, decreased to $5.23 per gram in the quarter, compared to $5.47 per gram in the prior quarter, primarily as a result of a change in sales mix and price reductions in key markets to solidify market share. Gross revenue for adult-use cannabis of $150.4 million in all of 2020.

The adjusted cannabis gross profit for the fourth quarter was $28.1 million, with an adjusted cannabis gross margin of 52.9%, compared to $23.7 million and 42.7% in the prior quarter. The increase in adjusted cannabis gross margin was primarily due to the increase in the higher-margin adult-use sales to wholesale transaction ratio in the current quarter, and higher usage of the lower-cost cannabis produced by Aphria versus purchased cannabis.

Adjusted distribution gross profit for the fourth quarter was $11.9 million, with an adjusted distribution gross margin of 12.1%, compared to $11.4 million and 12.9% in the prior quarter. The decrease in adjusted distribution gross margin was primarily related to the impacts of COVID-19 on sales mix.

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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