A Bet on Canadian Cannabis: The Final Bet

TLDR: APHA 4/16 $21C

After blessing you all with the Trilogy (Part 1, Part 2, Part 3), it is unfortunately time for our last earnings bet on Aphria. Before jumping down to the comment section to give me your smooth brain opinion on cannabis stocks, please take a second to go fuck yourself.

Those of you who like to make money take a few minutes to read this DD, as it really doesn’t get easier than this. Here is my position.

Before I even get into the analysis I wanted to take a second to point out the article released today by Stifel. They are lowering earnings expectations due to weak cannabis consumption trends, the share price has dropped 4% today likely because of this article. Stifel expects $163M revenue this Q, and has given us a laughably easy expectation to beat, while also giving us a better entry point.

Why Stifel is a Joke, My DD

Last Q revenues were $160M, they need an additional $3M to beat Stifel expectations

Because I think Stifel has the smoothest brain out of anyone reading this, and I hope they are, I’ll start with Cannabis Revenues.

Last Quarter Highlights:

Canada Rec Sales: Sept: $257M, Oct: $270M, Nov: $261M

Total Canada Sales: $788M

Aphria Net Cannabis Revs were $67M last Q

Now according to Stifel there have been weak cannabis consumptions trends, and I’m not entirely sure where they’re getting this info from. I get mine from the Government of Canada who releases National Sales on a monthly basis, so lets take a look.

Dec-Feb this Q

Canada Rec Sales: Dec: $290M, Jan $282M, Feb N/A

As far as the first 2 months of the quarter go, cannabis consumption has increased 8.5% QoQ, while Stifel is claiming the opposite, in fact December and January are the 2 highest sales months since cannabis was legalized. Aphria has been the #1 LP in Canada for the last 2 quarters and I expect them to continue to hold their current market share as most of the Canadian growth comes from Ontario, where Aphria holds the largest market share.

Not only are cannabis sales NOT declining in Canada as Stifel suggests, they seemingly forgot that Aphria is adding another existing business to their books this Quarter. Aphria acquired SweetWater Brewing in November, with the deal closing on November 25. We get a glimpse of SweetWater revenues on the last report as it ended Nov 30, recording $881k of revenues in the 6 days the company was on the books. Based on the above we can expect new revenues north of $10M added to the top line from the SweetWater acquisition. That $10M+ in new revenue plus their growing Cannabis Sales should be more than enough to cover Stifel's expectations.

I’ll leave the speculation on what Stifel is trying to do up to you guys, but I do thank them for the better entry. I should also point out that Aphria/Tilray merger vote is on April 14, 2 days after earnings.

I like the stock.