Please ensure Javascript is enabled for purposes of website accessibility

Better Cannabis Stock: OrganiGram or Aphria?

By David Jagielski - Jun 9, 2020 at 6:57AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Which of these two Canadian pot producers should you invest in today?

Aphria (APHA) and OrganiGram (OGI 4.96%) are two Canadian cannabis producers that have struggled over the past year. But with Aphria's stock down just 35% and shares of OrganiGram plummeting more than 75%, their paths haven't exactly been similar. OrganiGram's even done considerably worse than the Horizons Marijuana Life Sciences ETF (HMLSF -1.83%), which is down 60% over the same period.

Let's take a closer look at these two stocks to see whether the larger decline in price makes OrganiGram a better value buy, or if the divide between the two pot stocks will become even larger this year.

Can OrganiGram turn things around?

When OrganiGram released its second-quarter results on April 14, the results just weren't good. Not only was net revenue of 23.2 million Canadian dollars down 13.7% from the prior-year period, but the company's loss deepened as well, from CA$6.4 million to CA$6.8 million.

Map of Canada with cannabis leaf over top.

Image source: Getty Images.

The one positive for investors is that the company is diversifying. In Q2, OrganiGram reported that cannabis 2.0 products, including chocolate and vape pens, accounted for 13% of its net revenue. In the prior-year period, they didn't contribute to the company's revenue at all, as the new segment of cannabis edible products only began hitting store shelves in December.

OrganiGram's wholesale revenue also made up 24% of its revenue, and that too was 0% a year ago. But despite all the diversification, it still wasn't enough to get the company's numbers up, and that's concerning as it means its existing segments are struggling. OrganiGram blamed the lower sales numbers in Q2 on flower and cannabis oil volumes being down. If the company was already showing signs of struggling to generate growth even before the pandemic, that doesn't bode well for future quarters.

An added risk for investors is that OrganiGram may not have the luxury of time on its hands. As of Feb. 29, OrganiGram had CA$41.1 million in cash and cash equivalents. That's a problem given that the company burned through more than CA$25 million over a six-month period leading up to the end of February.

Even if OrganiGram can generate growth, it may end up running out of time if it can't improve its rate of cash burn. In April, the company announced it was temporarily laying off 400 workers, which should help stop some of the bleeding but whether it's enough remains to be seen.

Aphria continues to show consistency

There's no question that Aphria is a safer buy than OrganiGram. When it released its third-quarter results on April 14, it was the third time in four quarters that Aphria recorded a profit. The company's net sales of CA$144.4 million were also up 19.7% from the second quarter.

And although Aphria's used CA$124.4 million on its operations over the trailing nine months, it has CA$515.1 million in cash on its books. There's little risk that Aphria will run out of money given where it is today, even if its cash burns at a higher rate amid the pandemic.

The key for investors is whether the company will be able to remain profitable in light of COVID-19, but the pandemic will create issues for the entire industry, not just Aphria.

Aphira's the better cannabis stock and it's not even close

Not only has Aphria performed better in recent quarters, but it's also a cheaper buy given its level of sales:

APHA PS Ratio Chart

APHA PS Ratio data by YCharts

At a more modest multiple of price-to-sales, better sales and profit numbers, and a healthier cash balance, Aphria is clearly the better investment option today.

Outside of both companies operating in Canada, there's not a whole lot these two pot stocks have in common, and there's a reason their returns look as different as they do over the past 12 months. While neither stock is in positive territory, there's a lot more reason to be optimistic that Aphria's shares can climb from where they are today than there is that OrganiGram's stock will rally.

Whether you're a risk-averse investor or a growth investor, Aphria's the stock you'll want to go with today.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends OrganiGram Holdings. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

OrganiGram Holdings Stock Quote
OrganiGram Holdings
$1.17 (4.96%) $0.06
Aphria Stock Quote
Horizons Marijuana Life Sciences Index ETF Stock Quote
Horizons Marijuana Life Sciences Index ETF
$5.50 (-1.83%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.