Aphria (APHA.TO)(APHA) shares climbed more than 18 per cent after the pot producer reported a record-breaking quarter for recreational cannabis sales, confirming analyst expectations for continued domination in the Canadian non-medical market.
Chief executive officer Irwin Simon said his company aims to capture 30 per cent of Canadian consumer sales, doubling its current standing, according to recent data. He’s also optimistic that the incoming Biden administration will usher in cannabis reforms in the United States, where Aphria recently purchased a craft brewery as a launch pad for cannabis expansion, should pot become legal at the federal level.
“The recent election will likely provide a stronger near-term potential for change of federal cannabis regulations and at Aphria we are ready and well-positioned for it,” he told a conference call with financial analysts on Thursday. “We expect change to happen faster and decisions to be made sooner under the new Democratic leadership.”
Simon said Georgia-based SweetWater Brewing gives Aphria access to a sprawling network of U.S. distribution points, including 29,000 retailers, more than 10,000 restaurants and bars, and Delta Air Lines (DEL). While recent shifts in the American political landscape have driven cannabis stocks higher, Simon said he does not expect the U.S. to legalize cannabis in the first 100 days of Biden taking office.
Will Aphria stay #1 in Canadian recreational pot sales?
The Leamington Ont.-based Aphria booked $160.5 million in net sales in its fiscal second quarter of 2021, a 33 per cent jump from the same period a year earlier. Aphria attributed the increase to an overall uptick in cannabis sales, rebounding revenue at its German medical unit hit by COVID-19, and sales by its newly acquired American craft brewery. Gross revenue from recreational cannabis hit a company record of $72.1 million, a 149 per cent year-over-year increase.
Speaking to analysts on the post-earnings call, Simon proudly rattled off the ways in which Aphria has secured a top spot in the legal cannabis market.
“According to OCS (Ontario Cannabis Store) data for the rolling three months of October, November, and December 2020, Aphria again is the number one LP [across] all categories, with a 16.2 per cent market share. Aphria is also the number one LP in the vape category, with 21 per cent market share. And our brands... were number one in dried flower with a 16.8 per cent market share,” he said.
While sales increased for a seventh-straight quarter, Aphria’s net loss widened to $120.6 million for the three months ended Nov. 30, compared to a loss of $5.1 million in the prior quarter. Chief financial officer Carl Merton said the increase was due to $22.6 million in M&A transaction costs, and increased share-based compensation driven by the company’s rising stock price.
In November, Aphria paid US$250 million in cash and US50 million in stock to buy SweetWater Brewing. Aphria’s plan is to wade into the American market ahead of potential federal legalization by selling cannabis-inspired drinks through SweetWater. The company announced an all-stock deal to acquire rival Canadian licensed producer Tilray in mid-December.
When will Aphria and Tilray join forces?
“The combined company would have a market share approaching 20 per cent, the largest share held by any single licensed producer in Canada, and 700 basis points higher than the next closest competitor,” he said.
Simon will lead the new company, which will use the Tilray name and trade on the NASDAQ under the ticker TLRY. Merton said Tilray is currently working towards a TSX listing with the aim of trading on both exchanges after the deal closes.
Aphria reported $12.6 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in its second quarter. This is the seventh-straight quarter where the company’s profitability has increased by that metric.
Aphria results on Thursday topped the expectations of analysts polled by Bloomberg, who called for sales of $153.7 million and $11.4 million in adjusted EBITDA.
Toronto-listed sharers climbed 17.64 per cent to $14.95 at 11:33 a.m. ET on Thursday.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.