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Cannabis Investments Company Break Down

Aphria, “the EBITDA king”

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This is our 3rd instalment of our 4 part series on our top cannabis picks.

Aphria, based in Leamington Ontario, is one of the 5 largest cannabis companies in terms of market cap as well as fully funded production, with 270 000 kg per annum.

Standing Out

The major factor that has set Aphria apart so far from the Auroras and Canopy’s of the world is their profitability. Aphria has managed to maintain an impressive track record of 11 straight quarters of positive EBITDA (that’s 9 more than Tesla) from their ACMPR operations, while growing one of the biggest companies for the future rec market. This is in part due to having one of the best management teams out there. Led by Vic Neufeld, a past CEO of Jamieson Vitamins, he arguably is the most experienced CEO in the business. Since day 1, he has been pursuing a long term vision, one which we will get into later on. Remember, you don’t just bet on a horse, but also the jockey, and this is one of the most experienced jockeys in the cannabis industry.

Network like its LinkedIN

Let’s start with their vast network. So far, Aphria has made good connections starting with Shoppers Drug Mart as their first supplier. This could be big, and asserts Aphria’s name as major player on the medical side. With one of Canada’s largest chains, should they be allowed to sell directly. It would be quite easy to imagine, just like prescriptions, getting your medical cannabis at the drugstore, with one day medical coverage potentially paying for it. Aphria continued this with the acquisition of one of Canada’s top craft growers, Broken Coast, and then Nuuvera, a company building a portfolio of deals and off take agreements. Their latest investment, Fire and Flower, will be a way to play private retailing, where Fire and Flower is planning on opening 58 locations.

Selling like Hot Cakes

Aphria has been given a 12000 kg/year agreement in Quebec, 2500 kgs in New Brunswick through Nuuvera,  2700 kgs in Manitoba, over 5000 kgs in bc, and an opening order of least 870 kgs in Alberta. One could expect a large amount from Aphria’s home market, and Canada’s largest, Ontario, which should be announced soon. These deals along with there growing medical network which is over 40 000 patients and did 12 million in revenue last quarter gives them a solid base to build off. Where a lot of their future will come is by international expansion which Aphria is at the forefront of, with plans for Europe and Malta, Australia with there investment in Althea , Africa in Lesotho, and Latin America with their purchases in Uruguay and Columbia as well as Jamaica and potential for Brazil as well. Aphria realizes that Latin America will be the growing place of the future, with there cheap labour, and perfect conditions, and this is where Aphria is at the forefront.

Napkin Math

For the mathletes at home, with their current deals in place and discounting: medical, shoppers, fire and flower potential, Ontario, and any other potential international shipments. Aphria is expected to move about 23,000 kgs a year. By selling at a 2$ profit per gram at 4$ selling price (with Aphria’s low cost per gram) they will earn around 92 million annually of which 46 million would be profit.

How does Aphria Compare?

For a company with a market cap of around 2.5 billion, for the cannabis industry, it is undervalued compared to peers. Aphria has similar world wide connections as, yet Canopy has a cap over 7 billion. Canopy does have more supply deals in Canada, but with their orders totalling around 60,000 kgs and Aphria’s totaling around 23000 kgs(so far) it is not relevant to market cap size, especially with both having similar international plans. One could argue Aphria has the management to get it done. Considering their constant profitability, they clearly know how to squeeze margins and turn a profit, something many companies can’t. All this without recreational sales. The runway for this Leamington future landmark is substantially larger than the large caps in the space, Canopy, Aurora, TGOD, and Tilray in our view.

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