The profits of Aphria Inc. are not about the pot, but about the paper.
The Canadian cannabis producer reported profitability for the second consecutive quarter on Tuesday, earning $ 16.4 million in net income and $ 126.1 million in sales. The company's profits, however, did not result from a massive slump in the cannabis business, but from the previously declining share price of Aphria and a shift in its stake in another company.
US-traded shares of Aphria
APHA, + 24.54%
APHA, + 15.46%
finished the regular session on Tuesday with a 24% gain, but was previously in the one reported on Tuesday Quarter fell slightly more than 6%. The volatility of Aphria's share price, which lasted until Tuesday's report, boosted the company's profits by $ 14.2 million as the Canadian cannabis company valued its convertible debt.
The valuation of the convertible bond directly relates to the company's stock price, which closed at $ 6.26 at the end of August, even though it traded only $ 5.02 before releasing its fourth-quarter results.
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AGH, + 4.72%
. Aphria reduced its ownership interest and gave up its board of directors and "ability to participate in Althea's policy-making process" over the quarter, giving management a $ 24.3 million profit as a paper gain in its long-term investments Included
In conjunction with the changes in the value of its convertible bonds, Aphria generated approximately $ 30 million in paper gains in the profitable quarter.
Cannabis revenues themselves increased from $ 28.6 million in the fourth quarter to $ 30.8 million in the quarter. The company announced that an August fire on the Broken Coast, British Columbia, previously known by its chief executive, Irwin Simon, as the highest-margin business, had an impact of $ 1.5 million, which was "caught up in the year's balance sheet would". Executives said in the teleconference on Tuesday. Aphria did not disclose the cause of the fire in the summons. Executives also reiterated the company's forecast for the 2020 fiscal year of $ 650 million to $ 700 million in sales, of which "just over half" will come from CC Pharma's drug distribution business. Chief Financial Officer Carl Merton said in the conference call that Aphria expects annualized Canadian marijuana sales of $ 1 billion by the end of calendar year 2020 (end of Aphria's fiscal year in May).
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Brett Hundley, an analyst at Seaport Global Securities, described the results on Tuesday as "solid" in the midst of a "market that needed urgent positive data." Hundley refers to a broad decline in the sector in recent trading days, triggered by a yield warning issued by Hexo Corp.
HEXO, + 8.47%
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"In our view, the company is optimistic about its forecast for fiscal year 2020 and we are leaving our preliminary estimates. As a result, Hundley lagged far behind its forecast. Hundley, who has a target price of 8 CAD and a buy rating for the name, wrote in a Tuesday notice. "However, we believe that this is a company that is armed and ready to prove the opposite to us, and at the same time appropriately positioned, if we prove ourselves right."
Justin Keywood, an analyst at GMP Securities, also wrote this in a note to clients. Aphria's findings were "solid" and in line with the "scuttlebutt" his team had heard about improvements in operations and customer retention, among other things.
Jefferies analyst Owen Bennett called the results "strong" and said in a statement to clients that Aphria's market share gains were most promising – executives in the conference said they had reached 12% in Ontario – combined with continued Profitability and reaffirmation of its sales forecast. Bennett buys the name with a target price of $ 11 CAD.
The Aphria share fell 65% last year, as did the S & P 500 index
SPX, + 1.00%
has gained 7.8%. The ETFMG Alternative Harvest ETF
MJ, + 6.57%
which among other things recorded a basket of cannabis stocks, fell by 53% last year. Horizons Marijuana Life Sciences Index ETF
HMMJ, + 5.12%
fell 55% last year.
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