Aphria Stock Slammed On Dismal Third Quarter

Aphria Inc.  (NASDAQ: APHA) stock was getting slammed in early trading after the company reported that revenue dropped versus the last quarter and reported a whopping net loss of $361 million. In addition to that, Aphria missed analysts’ estimates for earnings and revenues. Shares slid over 9% to sell at $14.70.

Aphria delivered its financial results for the third quarter ending February 28, 2021 in Canadian dollars with net revenue increasing 6.4% to $153.6 million versus $144.4 million for the same period last year. However, revenue fell sequentially by 4.3% versus the second-quarter net revenue of $160.5 million. It also missed estimates by roughly $9 million. The company blamed the decline on a decrease in net cannabis and distribution revenue, which was partially offset by an increase in net beverage alcohol revenue from the acquisition of SweetWater.

Aphria also reported a net loss for the third quarter of $361.0 million, or a loss of $1.14 per share versus a net loss of $120.6 million, or a loss of $0.42 per share in the second quarter. This missed the analyst’s estimate by $1.09.  Last year in the third quarter Aphria posted a net income of $5.7 million, or earnings $0.02 per share. The company said that on an adjusted basis excluding the impacts of the items noted that it actually recorded a net loss for the third quarter of the fiscal year 2021 of $47.9 million, or a loss of $0.15 per share.

“The duration and impact of lockdowns across many of the regions we operate in, particularly in Canada, were greater than we initially anticipated for the cannabis industry and our business; however, we believe Aphria remains well-positioned with our leading brands and market share to experience a robust increase in our top-line as the market improves,” said Irwin D. Simon, Chairman, and Chief Executive Officer. “In the U.S., we had a solid first full quarter of contribution from SweetWater even with lower on-premise sales compared to the prior-year quarter as many foodservice industry establishments were still operating with limited capacity. Going forward, we are excited about the strategic opportunities for incremental growth as we look to parlay our branded consumer products into additional complementary product offerings in Canada, the U.S., and internationally.”

Covid & Falling Prices

The pandemic continues to weigh on the company. Aphria said that it had to lower its inventory levels due to lockdowns.  Aphria said it believes this is a transitory reduction in demand during the quarter.  “These provincial government measures resulted in decreased orders from provincial boards and product returns of approximately $5.0 million. The Company mitigated a portion of the product return by finding alternative distribution channels for some of the products but experienced a reduction in net cannabis revenue as a result of $4.1 million.”

The company also noted that the average retail selling price of medical cannabis, before excise tax, decreased to $6.69 per gram in the quarter, compared to $6.96 per gram in the prior quarter. In a statement, Aphria said that the decline was a result of specific pricing programs offered to assist patients in need who have been negatively impacted by the COVID-19 pandemic, along with other promotional programs. The average selling price of adult-use cannabis, before excise tax, decreased to $3.82 per gram in the quarter, compared to $4.29 per gram in the prior quarter, primarily due to consumer trends towards the purchase of large-format and price compression in the market.

Mr. Simon continued, “We remain excited with the opportunities created for both Aphria shareholders and Tilray stockholders in completing our proposed business combination with Tilray, and believe that together, we will create one of the strongest global cannabis and consumer packaged goods companies in the world.  We expect to have a tremendous runway for long-term sustainable growth as we build upon our existing foundation in Canada and internationally by increasing the scale of our global operations. We expect Aphria and Tilray’s complementary cultures of innovation, brand development, and cultivation to further set us apart from others in the industry along with the strength of our balance sheet and cash availability as we enhance value for all stakeholders.”

In December Aphria and Tilray announced that the two companies would be merging. Aphria shareholders will receive 0.8381 shares of Tilray’s for each Aphria stock they own. Aphria will own about 62% of the combined company, however, the merged company will supposedly be known under the Tilray name and would trade with the TLRY stock ticker. In November, Tilray reported that its total revenue for the third quarter was flat at $51.4 million and up 2.0% sequentially.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor 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 Master's degree in Business Journalism from New York University.

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