nvestors who loaded up on Canadian cannabis producers ahead of the legalization of adult-use marijuana have a lot to be disappointed about. Market values for Aphria Inc. (NYSE:APHA), Canopy Growth Corporation (NYSE:CGC), and Tilray, Inc. (NASDAQ:TLRY) have fallen by a combined $4.5 billion since legalized recreational marijuana sales began on Oct. 17.
The global market for legal cannabis is expected to reach $57 billion by 2027, which has some investors expecting swift recoveries. While recovery isn’t outside the realm of possibility, investors should understand what needs to happen before they can mount a comeback…
Aphria Inc.: Inauspicious beginning
Shares of Aphria Inc. have already fallen 19% since they began trading on the New York Stock Exchange in early November. Investors are nervous, because the last operating results they’ve seen were for the three month period that ended in August, and they weren’t what you might expect from a company with a $2.1 billion market cap at the moment.
Total revenue for Aphria came in at just CA$13 million during the company’s fiscal first quarter. Some non-recurring gains helped Aphria report a net profit, but operations lost CA$10 million during the three-month period.
In an attempt to meet current supply agreements, and secure more, Aphria’s investing heavily to raise annual Canadian production capacity to 255,000 kg annually, from 35,000 kg annually in October. Simply keeping these facilities up and running will create some big fixed costs, and investors need to see big gains when Aphria reports results for its fiscal second quarter, which wraps up at the end of November.
Aphria previously boasted about supply agreements with every Canadian province but reported just around 5,000 kg of initial purchase orders before recreational sales got started. A complete lack of bricks-and-mortar storefronts in Ontario, a near-complete lack of stores in British Columbia, and product shortages reported by the limited venues that are open are discouraging omens for Aphria’s next earnings call. Although Aphria could bounce back with a surprisingly strong sales, it might be better to…
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