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Aphria’s share price fell 8.6 per cent on Tuesday.

Hans Pennink/The Associated Press

Cannabis producer Aphria Inc. has slashed its fiscal 2020 sales target by $75-million or more than 10 per cent, saying that Alberta’s temporary ban on cannabis vaporizers and Ontario’s slow rollout of retail stores has thrown previous projections into question.

The revised targets, announced Tuesday with Aphria’s second-quarter earnings, are the latest example of a cannabis company tempering expectations amid a sluggish transition of consumers away from the illicit market, limited retail store openings and increasing price competition. In late 2019, Aphria rivals Canopy Growth Corp. and Hexo Corp. withdrew their fiscal 2020 targets entirely.

“While we firmly believed in our original guidance, certain market dynamics have evolved relative to our initial expectations, particularly in the last 30 days,” Carl Merton, Aphria’s chief financial officer, said on a Tuesday morning call with analysts.

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Companies revising overly optimistic outlooks is something of a theme in the volatile cannabis space. Last August, Aurora Cannabis Inc. revised its revenue guidance downwards, only to miss the revised guidance a month later when it reported earnings. Hexo slashed its revenue guidance by 40 per cent, shortly before reporting its most recent quarterly earnings.

In a research note published on Monday, MKM Partners analyst Bill Kirk noted that predictions made by cannabis companies have, to date, been incorrect more often than not. He looked at predictions made by six leading Canadian cannabis companies going back to 2017.

“The group’s predictions were no better than a coin flip,” Mr. Kirk wrote.

“It is difficult to rely on company commentary about positive expectations, but if they are making negative commentary, investors should take notice. We believe investors should assume most current predictions will fail,” he wrote.

In discussing Aphria’s revised guidance on the call with analysts, Mr. Merton cited the delay in opening additional cannabis retail stores in Ontario, whose licences were awarded in a lottery last summer.

Aphria’s forecasts were further affected by the Alberta government’s decision in December to delay the sale of cannabis vaporizers while it studies the potential impact of vaping on consumer health. The province is not expected to issue guidance on vaping "until very late in April,” Mr. Merton said.

The Leamington, Ont.-based marijuana grower now expects revenue of between $575-million and $625-million for fiscal 2020, down from a previous estimate of between $650-million and $700-million. Aphria also cut its projection for 2020 adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to between $35-million and $42-million, well below the previous estimate of $88-million to $95-million.

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Aphria’s share price fell 8.6 per cent on Tuesday.

Aphria, which sells cannabis under the brands Broken Coast, RIFF, Solei and Good Supply, reported a $5.5-million decline in sales in its second quarter, which ended in November.

Net revenue in the quarter was $120.6-million, down from $126.1-million the preceding quarter, and below the analyst consensus estimate of $128.6-million, according to S&P Capital IQ.

Aphria did see cannabis sales increase to $33.7-million from $30.8-million the previous quarter, with sales into the recreational market showing momentum. This side of the business also saw gross margin improvement, despite having to buy cannabis wholesale from other producers due to licensing delays for its largest greenhouse operation.

The increase in cannabis sales “bodes well for further supply due to come online from the [new] Diamond facility, and should give confidence that Aphria’s products will continue to take share,” Jefferies LLC analyst Owen Bennett wrote in a research note.

Most of Aphria’s sales, however, continue to come from a subsidiary called CC Pharma, which operates a low-margin drug distribution business in Germany. CC Pharma’s sales dropped by $9-million in the quarter, which Aphria said was due to a “change in the German government’s medical reimbursement model and seasonality in CC Pharma."

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After reporting a net income of $16.4-million in the preceding quarter – a paper profit that was largely due to changes in the value of convertible debentures – the company posted a net loss of $7.9-million for the second quarter. Adjusted EBITDA for the quarter increased to $1.9-million, up from $1-million the previous quarter.

The company also announced on Tuesday that its interim chief executive, Irwin Simon, will stay on as permanent CEO. Mr. Simon joined the company in February, 2019, following the departure of Vic Neufeld, who left Aphria in the wake of a short-seller report alleging the company had overpaid for assets in Latin America and the Caribbean owned by people close to company insiders.

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