Aphria prof­its up on Lib­erty Health sale

Kingston Whig-Standard - - BUSINESS - MARK REN­DELL

Aphria Inc.’s third-quar­ter in­come nearly tripled year-overyear, in a busy three months that saw the cannabis com­pany be­gin to sell its U.S. as­sets and ac­quire smaller li­censed pro­ducer Bro­ken Coast Cannabis Inc.

On Mon­day, the Leamington, Ont.-based med­i­cal mar­i­juana grower an­nounced Q3 net in­come of $12.95 mil­lion or 8 cents a share, com­pared to $4.95 mil­lion or 4 cents a share the year be­fore.

The in­crease was due, in large part, to a $26.3 mil­lion gain re­al­ized on the sale of Lib­erty Health Sci­ence Inc. shares.

Aphria, which still owns 28 per cent of the U.S.-fo­cused mar­i­juana com­pany, be­gan sell­ing its Lib­erty Health shares af­ter the TMX Group Ltd. came out against TSX-listed cannabis com­pa­nies op­er­at­ing in the U.S.

Quar­terly profit also got a boost from growth in rev­enue, which dou­bled year-over-year, to $10.3 mil­lion from $5.1 mil­lion.

“This in­cludes $1.1 mil­lion from Bro­ken Coast dur­ing the month of Fe­bru­ary, the first month of our own­er­ship,” Aphria chief fi­nan­cial of­fi­cer Carl Mer­ton, said on a call with an­a­lysts. Aphria ac­quired the bou­tique B.C. grower in Jan­uary for roughly $230 mil­lion, mostly in shares.

New med­i­cal pa­tients also drove rev­enue growth, with Aphria sell­ing around 270,000 gram equiv­a­lents (of dried bud and oil) to pa­tients on-boarded in the third quar­ter.

Re­tail prices were up, with the av­er­age gram sell­ing for $8.30 com­pared to $8.10 in the pre­vi­ous quar­ter (whole­sale ex­cluded). Mean­while, “all-in cost of sales” de­clined to $1.56 a gram from $2.13 in the sec­ond quar­ter.

While the com­pany sold 445 kg to other li­censed pro­duc­ers in the three months lead­ing up to Feb. 28, the quar­ter marked a turn­ing point in Aphria’s strat­egy, chief ex­ec­u­tive Vic Neufeld said on the an­a­lyst call.

The com­pany will no longer sell mar­i­juana whole­sale to other LPs, in or­der to stock­pile prod­uct ahead of recre­ational le­gal­iza­tion, which is ex­pected some­time in late sum­mer or early fall.

“If we don’t have 8,000 to 10,000 ki­los avail­able for the rec mar­ket in the month of Septem­ber, then we will not be able to ser­vice what we are pro­ject­ing to be the con­ser­va­tive open­ing or­der from var­i­ous pro­vin­cial reg­u­la­tors,” Neufeld said.

Like other li­censed pro­duc­ers, Aphria is rac­ing to build new fa­cil­i­ties or adapt ex­ist­ing green­houses in ex­pec­ta­tion of recre­ational de­mand.

It re­cently com­pleted a 200,000-sq.-foot green­house ex­pan­sion, which Neufeld says will start pro­duc­ing in the com­ing weeks. A fur­ther mil­lion square feet of green­house space is under con­struc­tion, al­though it won’t come on­line un­til Jan­uary 2019.

“We can strug­gle from Oc­to­ber through Jan­uary,” Neufeld said.

Un­like other large LPs, such as Canopy Growth Corp. or Aurora Cannabis Inc., Aphria hasn’t be­gun to gen­er­ate rev­enue from cannabis ex­ports.

It ac­quired Nu­u­vera Inc., which it has re­branded as Aphria In­ter­na­tional Inc., af­ter the end of the third quar­ter, in an at­tempt to match its com­peti­tors’ in­ter­na­tional scope. It’s still wait­ing, how­ever, on GMP cer­ti­fi­ca­tion for its fa­cil­i­ties, which is a pre­req­ui­site for sell­ing mar­i­juana into Europe.

Re­cent de­vel­op­ments in the U.S., how­ever, may give Aphria at least one com­pet­i­tive edge in­ter­na­tion­ally, thanks to its in­vest­ment in Lib­erty Health.

On Fri­day, it was re­ported that U.S. pres­i­dent Don­ald Trump was con­sid­er­ing pro­tect­ing states that had al­ready le­gal­ized mar­i­juana from fed­eral gov­ern­ment in­ter­ven­tion.

“We’re very ex­cited,” said Neufeld. “This is just an­other ad­vance­ment of get­ting to the po­si­tion where med­i­cal cannabis in the U.S. moves to a Sched­ule II (drug).”

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