Better Marijuana Stock: Aphria vs. Canopy Rivers

Which stock wins in a matchup between a top Canadian marijuana producer and an investment spinoff of its biggest rival?

Keith Speights
Keith Speights
Mar 5, 2019 at 6:01AM
Health Care

It's been a very good year so far for Canopy Rivers (NASDAQOTH:CNPOF), the cannabis investment spinoff of Canopy Growth (NYSE:CGC). It was the hottest marijuana stock on the market in January. Even after giving up some of those gains, Canopy Rivers is still up close to 45% year to date.

But 2019 has been a great year for Aphria (NYSE:APHA). Although the stock plunged in in the fourth quarter of 2018, Aphria has rebounded nicely to recover much of its loss. Its share price has soared more than 80% so far this year.

Which of these two high-flying marijuana stocks is the better choice for investors now? Here's how Aphria and Canopy Rivers stack up against each other.

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

Marijuana plant beneath a light

Image source: Getty Images.

The case for Aphria

Aphria's sizzling performance so far in 2019 has stemmed in part from the company's moving past allegations that its management drastically overpaid for the acquisition of LATAM Holdings. A special committee made up of independent members of Aphria's board of directors ultimately concluded that the company didn't overpay for the acquisition. However, some positive changes to Aphria's governance policies were made in the wake of the allegations.

There are several reasons for investors to like Aphria now that the dark cloud hovering over the company appears to be gone. The company ranks among the top marijuana producers in terms of production capacity. Aphria recently won a license amendment from Health Canada that enables the company to boost its annual capacity to 115,000 kilograms. The company thinks it's on track to produce around 255,000 kilograms of cannabis annually by the end of this year.

This capacity is important for Aphria to capitalize on the tremendous opportunity in the Canadian recreational marijuana market. Aphria's revenue in its second quarter, which ended Nov. 30, 2018, skyrocketed by 155% year over year and 63% above the previous quarter -- and it only included six and a half weeks of recreational pot sales. With more capacity on the way, Aphria's revenue should really take off over the next few quarters.

Aphria secured supply agreements with all 10 Canadian provinces and with the Yukon Territory. The company's partnership with Southern Glazer's, the largest wine and spirits distributor in North America, gives Aphria an extensive retail reach for the Canadian adult-use recreational marijuana market. 

An even bigger opportunity exists in international medical marijuana markets. Aphria is already active in Europe, Australia, Latin America, and Africa. The most important market right now is in Germany, where Aphria has a supply agreement with a distributor to more than 13,000 pharmacies.

The case for Canopy Rivers

Canopy Rivers is a distinct entity from Canopy Growth. The two stocks are traded separately. The companies have different boards of directors. And they focus on different aspects of the cannabis market, with Canopy Rivers' mission centered on providing capital for cannabis businesses.

But Canopy Rivers and Canopy Growth are nonetheless joined at the hip. Canopy Growth remains the largest shareholder of Canopy Rivers and recently upped its ownership to more than 27% of the spinoff. Canopy Rivers' CEO is Bruce Linton, who also happens to be the co-CEO and chairman of the board for Canopy Growth. 

The relationship to Canopy Growth is what sets Canopy Rivers apart from other cannabis investment companies. Small cannabis businesses looking for capital know that Canopy Rivers brings more than just money to the table. It brings a connection to the biggest marijuana producer in the world in terms of market cap and global reach.

Investors who buy Canopy Rivers stock get more than just a tie to Canopy Growth, though. They benefit from a diversified portfolio of investments made by Canopy Rivers that could pay off over the long run.

Canopy Rivers' portfolio currently includes 14 companies that span the cannabis supply chain. Two of the company's most recent deals are an equity investment in Herbert, which focuses on the Canadian adult-use cannabis beverage and edibles market, and a debt financing deal with Greenhouse Juice Company, a plant-based food and beverage company that's expanding its focus to include developing CBD-infused beverages.   

Unlike most marijuana stocks, Canopy Rivers has reported positive net income in three out of its last four quarters. A recent deal added around $93.5 million Canadian (roughly US$70 million) to its coffers to use in investing in additional cannabis businesses that could drive future growth. 

Better marijuana stock

My view is that Aphria is more likely to be the bigger winner, at least in the near term. Even though the stock has largely recovered from its Q4 slump, it's still not all the way back to its previous levels. Aphria should have several catalysts in the months ahead, with quarterly updates including more Canadian recreational pot sales and the anticipated opening of the country's market for cannabis edibles, beverages, and concentrates.

I like the overall prospects for Canopy Rivers, too. However, I'd prefer to wait and see how some of the company's initial investments pan out. My take is that Aphria is the better marijuana stock right now, but I'd definitely keep Canopy Rivers on your radar screen.