Aphria Inc. beat expectations in its most recent quarter, more than doubling cannabis revenue and posting a net income of $15.8-million, up from a net loss of $108.2-million in the preceding quarter.
As with the preceding quarter, most of the Aphria’s revenue, which totalled $128.6-million, came from its German pharmaceutical distribution subsidiary CC Pharma, which did $99.2-million in (non-cannabis) sales. More important to the company’s overall prospects, however, was the Leamington-based grower’s improvements in its core Canadian cannabis business, where it did $28.6-million in sales, selling 5,574 kilogram equivalents of cannabis.
The company also managed to grow and sell cannabis more cheaply, bringing its cash cost per gram produced down to $1.35 from $1.48, and bringing the “all-in” cost of goods sold per gram down to $2.35 from $2.86.
“Adjusted cannabis gross profit for the fourth quarter was $15.2-million, with an adjusted cannabis gross margin of 53.0 per cent, compared to $7.6-million with an adjusted gross margin of 49.5 per cent in the prior quarter. The increase in adjusted gross margin was primarily due to the increase in average selling price per gram in the quarter,” the company said in a news release.
Here are some takeaways from the earnings call:
How cannabis sales increased:
The company's increase in cannabis sales was the result of restructuring growing and processing operations to increase yields and get more product out of the door, said interim CEO Irwin Simon.
“We reorganized our growing process and operations in order to provide improved quality, higher yields and a lower cost. This includes the installation of packaging automation that has increased our production,” he said.
In the previous quarter, the company had been forced to dedicate licensed growing space in Part III of its Aphria One facility to mother plants, in order to prepare for Part IV and Part V to be licensed. Now Aphria One is fully licensed, the company was able to turn that mothering space in Part III back to regular cultivation.
Still waiting on Aphria Diamond, extraction facility
Construction is finished on Aphria Diamond, the company’s 1.3 million square foot greenhouse complex, but Aphria is still waiting on approval from Health Canada for the site. The company did not provide any guidance on timing for the approval.
Aphria is also building an “extraction centre of excellence," which will be located on the same site as the Aphria Diamond facility. Because of its location, the extraction centre may not be operational for some time; the Diamond facility needs to be licensed first, and then the company needs to apply for a licence amendment.
"As a result of the open license application, we have taken steps at our licensed facilities to supplement our extraction capability. These steps ensure that sufficient capacity exists to process all of our extraction needs regardless of when the license for the Extraction Centre is received,” said Carl Merton, Aphria’s CFO on the call.
No sign of U.S. strategy
After severing ties with Liberty Health Sciences, Aphria has not made any moves in the U.S. market, at least publicly. When asked about Aphria’s U.S. strategy on the call, Mr. Simon remained tight lipped.
“There are challenges in regards to legalization. There is a challenge in regards what you can sell in products whether it's food, personal care products. We do have lots of plans for the U.S. and whether it's partnerships, acquisitions strategic alliances. And what is profitable and where there is growth accretion here is something that we'll do,” Mr. Simon said.
Plans to expand Broken Coast
Given the popularity of Broken Coast, the high-end, B.C.-based producer Aphria bought last year for approximately $217-million, the company is planning to expand Broken Coast’s capacity. Mr. Simon and Mr. Merton gave few additional details on the call, although Mr. Merton did say “We do know demand is there from the consumer, and we do know we need more capacity.”
Mr. Merton said the company is still on track to produce 255,000 kilograms of cannabis once all of its facilities, including Aphria Diamond, are fully operational.
“We remain on track to reach half a billion annualized in Canadian cannabis sales once we are in full crop rotation at all facilities and one billion on an annualized basis by the end of Calendar Year 2020,” Mr. Merton said.
While Mr. Simon still has the title “interim CEO,” which he’s held since the departure of Vic Neufeld in January, the former Hain Celestial Group CEO showed no signs of leaving or looking for a replacement.
“The leadership team we have in place is solid. There is no management void at Aphria. As chairman and CEO, I am leading the company forward with our team every day. There is no emphasis on interim by me or my team,” he said.