Shares of Aphria (APHA) jumped 9.8% as of 10:50 a.m. EST on Monday after rising as much as 11.9% earlier in the day. The Canadian marijuana producer didn't announce any news. None of its major peers reported any new development that would have lit a fire beneath Aphria. So what's behind Aphria's big gain?
The most likely answer is that the marijuana stock's momentum from last week is continuing to generate excitement among investors. That momentum was kicked off by a report that Green Growth Brands (GGBXF) could increase its offer to buy Aphria.
Will Green Growth Brands acquire Aphria? Probably not -- even if the U.S. cannabis producer significantly increases its offer. However, Green Growth's interest in buying Aphria underscores the reasons why the stock is worth investors' consideration.
Aphria has had a lot of bad news over the last few months. Its stock took a shellacking after short-sellers alleged that the company paid way too much for its acquisition of LATAM Holdings and that key insiders profited from the transaction. Aphria had hoped to secure a license for its Aphria One and Aphria Diamond expansions, but Health Canada's backlog means that the company is still waiting to increase its production capacity.
The big drop in Aphria's stock price attracted Green Growth Brands. But while Green Growth wanted to buy Aphria, the prospects of a deal quickly drove Aphria's stock so much higher that it was worth more than Green Growth's offer.
It didn't hurt that Aphria is transitioning to new leadership that doesn't have the baggage associated with questionable deals made in the past. The company brought in new independent directors to its board. CEO Vic Neufeld and co-founder Cole Cacciavillani announced they were stepping down from their executive roles.
Investors appear to be realizing again the tremendous prospects that Aphria has before it. The Canadian recreational marijuana market is just beginning to take off. An expansion of this market to include cannabis edibles and concentrates is expected later this year.
More countries across the world are legalizing medical marijuana. And the chances that the U.S. could relax its federal marijuana laws in a way that would allow Aphria and its peers to enter the huge U.S. market are better than ever. They're even improving as more candidates who support marijuana legalization enter the presidential race.
There are three key things that investors should look forward to with Aphria. One is the aforementioned licensing of its Aphria One and Aphria Diamond facility expansions. This licensing is key for Aphria to boost its production capacity and increase sales.
A special committee made up of independent directors of Aphria's board is also reviewing the allegations about the company's LATAM Holdings acquisition. No timeline has been provided for when this review will be complete, but the committee's report could allow Aphria to move past the dark cloud hanging over it related to the allegations.
Aphria's board of directors will also soon make its formal recommendation to shareholders about the Green Growth Brands acquisition proposal. Unless the offer price increases significantly, that recommendation is sure to be against the deal. However, it's nice to be wanted -- and the Green Growth takeover attempt has been exactly what Aphria needed to remind investors about the company's potential.