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Why Aphria Stock Sank Today

By Keith Speights - Oct 14, 2019 at 4:30PM

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Investors' anxiety about forthcoming earnings results appeared to weigh on the Canadian marijuana stock.

What happened

Shares of Aphria (APHA) were sinking 9.9% lower as of 3:37 p.m. EDT on Monday. The Canadian marijuana producer didn't report any news today. Instead, the stock appears to have fallen as investors anticipated news that's on the way: Aphria announces its fiscal 2020 first-quarter results on Tuesday.

So what

Based on today's sell-off, it certainly looks like many investors expect Aphria to report disappointing Q1 results. Why would there be such pessimism?

Blue-gloved fingers holding a cannabis leaf in front of a Canadian flag

Image source: Getty Images.

Some could be looking at HEXO's (HEXO -2.82%) worrisome preliminary fiscal 2019 Q4 update. HEXO had originally predicted that its net revenue would double in the fourth quarter from the previous quarter. But the company now projects relatively small sequential net revenue growth. It also withdrew its optimistic full-year 2020 outlook. One major factor behind its woes -- slower-than-expected launches of cannabis retail stores throughout Canada -- could also hurt Aphria. 

But Aphria's business model is much different from HEXO's. Most importantly, Aphria's ownership of German medical cannabis distributor CC Pharma makes it much less dependent on the Canadian adult-use recreational cannabis market than HEXO is. Also, HEXO makes most of its revenue in one province (Quebec), while Aphria's recreational sales footprint is broader. 

Now what

We'll know within a few hours if Aphria has good news or bad news. The company announces its fiscal 2020 Q1 results before the market opens on Tuesday.

The smartest way to invest in marijuana stocks (or any other stocks, for that matter) is to ignore temporary fluctuations and to not worry too much about a single quarterly update. Instead, focus on the long-term prospects for a business and the capability of the company to execute a solid strategy to capitalize on those prospects.

For now, at least, Aphria appears to have good long-term prospects, a good management team, and a solid plan to succeed in the global cannabis market.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

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