Aphria’s Major Growth Could Mean Big Gains
The “sin segment” usually refers to companies in the tobacco, booze, and drug spaces. Whether you favor investing in these areas is your choice, but there are plenty of opportunities for gains, especially in the massively growing marijuana space.
A small-cap player in this space that offers an intriguing risk-to-reward opportunity is Aphria Inc (OTCMKTS:APHQF, TSE:APH), based in Canada, a country that will see marijuana legalized soon.
Countries like Australia, India, Israel, Jamaica, Mexico, Netherlands, Portugal, and Spain also have lax marijuana laws.
So, where can you smoke up and not worry about being thrown in the slammer in the United States? There are a handful of states where the use of marijuana is legal, or close to it.
The reality is that the marijuana market is massive and accelerating, which bodes well for leading edge pot producers like Aphria, as an early entrant.
APHQF stock is well up from its 52-week low of $3.39, but is down 43% from its high of $19.86. That’s a good opportunity for patient, aggressive capital.
Chart courtesy of StockCharts.com
The market estimates support the superlative growth. The global market for legal marijuana is estimated to surge to $57.0 billion in 2027, according to Arcview Market Research and BDS Analytics. The North American market is expected to be the big driver, with a market size predicted at $47.3 billion by 2027, versus $9.2 billion in 2017. (Source: “Legal Cannabis Industry Poised For Big Growth, In North America And Around The World,” Forbes, March 3, 2018.)
In my view (and many others), that’s a whole lot of marijuana, which should make the folks at Aphria smile.
Aphria was an early entrant in the marijuana segment, a licensed pot producer under the Cannabis Act in Canada. The company recently became the first licensed producer in Canada to be certified by SGS based on U.S. Food and Drug Administration (FDA) standards.
What makes Aphria a solid bet is the top pharma-grade quality of its medical marijuana. None of that homegrown, backyard quality; it’s grown in advanced controlled greenhouses subject to strict standards.
Big Growth Ahead for APHQF Stock
Aphria currently operates 101,000 square feet of licensed capacity, which will rise to another 200,000 square feet after approval from Health Canada. The capability is enough to produce about 30,000 kg annually. The longer-term plans include expansion to around one million square feet and annual capacity of 100,000 kg.
While Aphria is still in the early stages of its growth, the numbers so far give us reasons to be optimistic.
Revenues for APHQF stock surged from $441,762 in fiscal-year 2015 to $6.44 million in fiscal-year 2016 and $15.13 million in fiscal-year 2017.
And while it’s still early on, Aphria generated healthy gross margins of 85% in fiscal-year 2017 versus 71% the year prior, which has already made the company profitable.
The balance sheet has strong working capital and net cash of around $108.0 million.
The legalization of marijuana in Canada and in many U.S. states will spell opportunities for Aphria as the company expands its capacity.
For APHQF stock, the trading will likely continue to be volatile, but, for the patient, longer-term investor, the payoff on this sin stock could be enormous.