Aphria's (NYSE:APHA) stock has performed well in 2019 by pot-stock standards. Year to date, its share price has fallen 17%, which is nowhere near the Marijuana Life Sciences ETF's decline of 39% over the same period. However, for Aphria to continue its above-average performance in 2020, investors will be looking for a strong start to the year to ensure it hits its ambitious targets for the new fiscal year.

Here are three key things that investors should watch for when the company reports its Q2 results in January. 

1. How much the company's sales rise from Q1

In October, Aphria released its first-quarter results of fiscal 2020, where its revenue was $126 million Canadian dollars. While that was an improvement from the prior-year results of CA$13 million, when the recreational marijuana market was still not open for business in Canada, there was no quarter-over-quarter growth from Q4 when Aphria generated sales of CA$129 million. 

This coming quarter will be the first time Aphria will be up against prior-year results that include recreational pot sales. However, with Q2 ending Nov. 30 and legalization of marijuana in Canada taking place in mid-October last year, only half of the quarter last year includes sales from the adult-use market. And at just CA$22 million reported in Q2 of fiscal 2019, it'll still be an easy hurdle to clear. 

Cannabis greenhouse.

Image Source: Getty Images.

The big question is whether Aphria will be able to improve from Q1. During October's earnings call, the company said that it expects net revenue for fiscal 2020 to be between CA$650 million and CA$750 million. Aphria will need to generate about CA$200 million in revenue in Q2 for it to hit roughly CA$325 million and be at the halfway mark of the lower end of that target. However, analysts are expecting a more modest revenue number for Q2, with CA$130 million being the average estimate among analysts.

2. Amount of other income 

Aphria has recorded a profit for two straight quarters, but the results have been a bit misleading because other income significantly boosted the company's bottom line. In Q1, Aphria's operating income of CA$4 million wouldn't have been able to cover its finance expenses of CA$5.3 million last quarter had it not been for the CA$20 million bump it received from non-operating income.

While there's nothing wrong with non-operating income, the problem is that it includes non-recurring items like non-realized gains, including those from foreign exchange. These items can fluctuate significantly from one period to the next, so relying on other income to add to Aphria's earnings again can be dangerous. At worst, exchange and fair-value losses could have the reverse effect and pull a profitable quarter into the red.

When Aphria reports its earnings, investors should look at non-operating income to see how much of an effect it has on the company's bottom line. Ideally, investors would like to see the company be profitable without needing non-operating items to prop up its earnings.

3. Whether the company improved its rate of cash burn

Cash burn is an increasingly important issue for marijuana stocks, especially as share prices continue to fall. It means that if a company needs to raise capital, more shares will be issued, which will send its stock down even further.

Last quarter, Aphria used CA$31 million in cash to fund its day-to-day operating activities. It burned through another CA$68 million for its investing activities, coming in at just under CA$100 million combined. Cash and cash equivalents on hand in Q1 totaled CA$449 million. Aphria's not in any trouble in terms of cash burn just yet, but this is another area that investors should be looking at to see if the company is making any progress.

A cash burn problem today could lead to share dilution in future periods, and no investor wants to see that.

Which number is most important?

Aphria's been one of the better-performing cannabis companies in terms of profitability and sales growth in 2019, but it still has a lot of work to do in proving that it can grow and consistently stay in the black while doing so. Although profitability and sales growth are important, the most important figure is arguably cash flow.

A positive flow of money is imperative in minimizing a company's need to raise cash. It opens doors for potential acquisitions and other growth opportunities. All three items listed above are important, but the first place I'd start when reviewing Aphria's Q2 results next month would be its statement of cash flow.