NYSE:APHA Stock Forecast Against the Recent Marijuana Market Fall

NYSE:APHA Stock Forecast Against the Recent Marijuana Market Fall
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Aphria Stock Forecast

The Aphria Inc (NYSE:APHA) stock forecast remains bullish, despite the sell-off in the marijuana sector. This is for a number of reasons.

The recent sell-off is broad-based and has more to do with global economic concerns and rising interest rates than apathy about marijuana stocks. For weed investors, Aphria continues to be an excellent stock.

It’s the first public licensed medical cannabis producer to report positive cash flow from operations and the first to report positive earnings in consecutive quarters. There is potential for a partnership with Altria Group Inc (NYSE:MO) and/or Diageo plc (NYSE:DEO) and the company recently started trading on the New York Stock Exchange (NYSE).

Should You Consider NYSE:APHA stock?

With so many pot companies vying for your attention, it can be difficult to tell what separates one from another. Aphria is one of Canada’s lowest-cost producers of medical cannabis. Now that Canada has legalized recreational marijuana sales and use, you can expect to see Aphria having low-cost production in the recreational market as well.

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Aphria is located in Leamington, Ontario, which is known as the greenhouse capital of Canada. Meaning, there is lots of sunshine, providing the company with everything it needs to develop and produce the best pharma-grade medical cannabis plants and cannabis oil products available.

As Aphria ramps up production to meet the growing demand for legal marijuana use, you can expect it to use its economies of scale to reduce the cost of production, giving it a competitive edge over its larger peers.

It should also help the company meet the strong demand for recreational marijuana amid the pot supply shortage that is plaguing the Canadian market right now.

To get there, Aphria announced plans in June to spend $55.0 million to build a state-of-the-art extraction center in Leamington, capable of producing around 200,000 kilograms of cannabis annually. (Source: “Aphria To Build State-of-the-Art Extraction Centre Of Excellence,” Aphria Inc, June 6, 2018.)

Construction has already begun and the company expects to release its first concentrates in March 2019.

The company also provided updates on two other construction developments: Aphria’s new facility “Aphria One” and another facility, “Aphria Diamond.”.

Aphria is pumping $10.0 million into Aphria One, adding another 10,000 kilograms of annual yield.

The company is also spending $20.0 million to increase production at its Aphria Diamond facility by 20,000 kilograms annually, bringing total capacity to 140,000 kilograms per year.

Combined, the operational changes will result in an increased capacity of 30,000 kilograms, bringing Aphria’s total annualized capacity to 255,000 kilograms.

The increased production and processing capacity will help boost Aphria’s revenues and earnings in the coming years, which should also reward buy-and-hold investors.

Aphria Reports Solid First-Quarter Results

Speaking of earnings, Aphria recently reported solid first-quarter results and an encouraging outlook.

In October, Aphria announced that revenue for the first quarter of fiscal 2019, ended August 31, 2018, increased 117% year-over-year and 10% sequentially to $13.29 million.

The best part, this is the last quarter the company will announce revenue as a pure play medical marijuana company.  (Source: “Aphria Records Solid Revenue Growth in First Quarter of 2019,” Aphria Inc, October 12, 2018.)

First-quarter net income was $21,176 or $0.09 per share, compared to $15,041 or $0.11 per share in the same prior year period.

“Aphria started fiscal 2019 by taking significant steps to solidify our position as a premier global cannabis company,” said Vic Neufeld, CEO.

We advanced the build out of our expansion in Leamington, signed coast-to-coast supply agreements, launched our strong portfolio of adult-use brands, and created strategic collborations [sic.] with leading companies like Perennial that will ensure Aphria continues to lead the consumer experience as the cannabis industry evolves.

(Source: Ibid.)

As a point of reference, Aphria has signed supply agreements with every province in Canada and the Yukon Territories. Combined, these distribution channels reach 99.8% of Canada’s population.

APHA Begins Trading on the NYSE

On November 2, Aphria graduated from the dodgy world of over-the-counter (OTC) trading to the NYSE, opening at $11.75 per share.

As it has with other Canadian weed stocks that trade in the U.S., this should help increase the company’s exposure, increase volume, and its valuation. (Source: “Aphria to Commence Trading on the NYSE on November 2,” Aphria Inc, October 30, 2018.)

Over the next three trading days, Aphria’s share price responded favorably, rising 10.4% and hitting an intra-day high of $12.98, on November 6.

Whereas investors dumped many cannabis stocks in the days after Canada legalized recreational marijuana sales, for the most part, Aphria has bucked that trend. Or rather, has rebounded better than most.

Neufeld previously stated that the Aphria NYSE listing would help the company expand its presence in Latin America, the Caribbean, and Europe.

“Listing on the NYSE provides Aphria with access to the largest equity market in the world, with increased exposure to a vast array of US institutional and retail investors,” Neufeld said.

“We are excited to usher in a new era with the recent legalization of adult-use cannabis in Canada and as we aim to further expand our footing in exciting markets such as Latin America, the Caribbean and Europe,” he added.

Analyst Take

So, should you consider NYSE:APHA stock? There’s a lot going on at Aphria, all of which should help position it as an early leader in the burgeoning marijuana industry. It has a strong infrastructure, enviable financials, a growing product portfolio, and a massive footprint in the Canadian market.

In April, it launched Aphria International, a wholly-owned subsidiary. Aphria International is focusing its activities on established regulated cannabis markets around the world, including Europe, Africa, the Middle East, and Australia.

While Aphria is not as large as the biggest weed companies in Canada, it is profitable, something the others struggle with. There’s no reason to think Aphria can’t parlay its existing low-cost pot production model to its recreational weed offerings, creating greater profits and rewarding long-term investors.