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Why Aphria Shares Surged 53.6% in January

By Todd Campbell – Updated Apr 14, 2019 at 12:41AM

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The marijuana stock could be getting itself back on track.

What happened

After Aphria (APHA) reported that sales had skyrocketed in its fiscal second quarter and the company announced a C-suite shake-up, its shares shot 53.6% higher in January, according to S&P Global Market Intelligence.

So what

Aphria's share price fell harder than many of its peers after Canada's recreational marijuana market opened last October. Short-term investors who "sold the news" of adult-use marijuana's legalization in Canada contributed to that. But Aphria's shares also toppled because of allegations from short-sellers that its CEO, Vic Neufeld, wasn't on the up-and-up with investors regarding his involvement in companies Aphria acquired last year. The sell-off in Aphria's shares may have been overdone, however, based on Aphria's market-trouncing performance in January.

A man in a shirt and tie points upward in front of a wooden sculpture of an upwardly aiming arrow.

Image source: Getty Images.

Sparking the run-up were Aphria's fiscal second-quarter results and changes to its leadership, both of which were reported on Jan. 11. 

The company's quarter ended Nov. 30, so the earnings it reported provided early insight into how Canada's recreational market was shaping up for the company. Aphria's sales skyrocketed 154.9% year over year to $21.67 million Canadian dollars ($16.32 million) in the period -- and up from CA$13.3 million in the previous quarter.

The company also said that if things go well with regulators, its annual marijuana production capacity could climb to 255,000 kilograms later this year from 35,000 kilograms in January. 

Additionally, Neufeld announced that while he'll remain on the company's board of directors, he'll be transitioning out of his CEO role once a successor is hired. Neufeld said his CEO duties have taken a toll on his "health, family, and personal priorities," and that now's the time for a change because of cannabis "legalization and globalization, including a huge market opportunity with positive developments in the U.S."

An internal investigation into last year's acquisitions is ongoing, but Neufeld's decision to leave as CEO is a good step toward restoring investor confidence. 

Check out the latest earnings call transcripts for companies we cover.

Now what

Canadians spend about CA$6 billion on marijuana annually, so Aphria could see its revenue jump in the coming years as sales shift from the black market to Canada's regulated market.

Aphria could also be poised to enter the U.S. hemp market following the passing of the U.S. Farm Bill in December. The bill removed hemp from the controlled substances list, clearing the way for widespread farming and hemp-derived products. A type of cannabis, hemp contains little of the psychoactive chemical tetrahydrocannabinol (THC), but plenty of cannabidiol (CBD), a nonpsychoactive chemical found in hemp and marijuana that's associated with health benefits.

Aphria hasn't announced a U.S. strategy yet. But given that Americans spend $50 billion annually on marijuana, and that CBD product sales could total in the billions of dollars per year someday, it could only be a matter of time before a U.S. plan is unveiled.

 

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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