Covid 19 and a great western democracy dwindled down to a banana republic may have had a tiny affect on the economy. If you’ve been following financial news lately you may have noticed that the stock market has been reacting to the news like we all have- in complete shock. Also like the stock market we have our own lives and businesses to run so we can’t focus on all that noise for too long. Even though there is a high unemployment rate and a crippling recession the markets have seen a bit of a boom lately. I am writing this in November of 2020 so please take that into account if you are reading this blog on your tablet using potato batteries in the unforgiving wasteland of the post apocalypse.
This is the first part of a mini blog series we like to call, “Know Your Pot Stocks”. We are in no way qualified to recommend investing in a company. Think of this as a one stop shop to start your research if you are interested in investing in cannabis stocks. I just so happen to be in the same boat as I have yet to pull the trigger on a stock. Therefore I figured that I would share my research with you and then when we can all make our own decision.
Today we will focus on the cannabis company Aphira.
Who Is Aphria (APHA on the TSX)
Aphria was founded in 2013 and is based in Leamington, Ontario. They specialize in medical marijuana and currently have a 1, 100, 000 square foot greenhouse grow operation. That is enough to produce 110, 000 kg of cannabis per year. They were listed on the Toronto Stock Exchange in 2017. Also in 2017 they signed a deal with Shoppers Drug Mart to sell their medicinal marijuana products online.
In 2020 Aphria voluntarily delisted from the New York Stock Exchange and listed on the Nasdaq.
Aphria differs from other large cannabis corporations as their market niche is medical marijuana. If you go to their website their product section is set-up like any other online cannabis store. The catch is you have to be registered as a patient with medical documents in order to purchase their products. However, they do have deals in place like Great North Distributors to sell recreational cannabis in Canada.
Acquisition Is Their Game
While Aphria might be good at growing 100 metric tons of sweet mary jane every year, they are also very good at acquiring companies. Lets look at who they have purchased in the last couple of years.
- Broken Coast Cannabis $230 million
- Nuuvera $826 million
- Sweet Water Brewing $300 million
- Latam Holdings $200 million. This acquisition includes
- 90% Ownership of Colcanna based in Coloumbia
- ABP an import and distribution company in Argentina
- 49% ownership of Marigold based in Jamaica
Aphria was one of the big pot stocks to gain momentum going into legalization in Canada. They were licensed to grow a giant crop from their “state-of-the-art” greenhouse to produce over 100 metric tons of cannabis a year in 2017.
Soon after, they began acquiring companies in order to broaden their international stake in the cannabis market. Nuuvera had dealings in Germany and Italy while Latam Holdings had a big stake in a market of over 600 million people in South America and the Caribbean. Aphria is not small potatoes and should be carefully considered if you are looking into pot stocks.
A corporation this big and acquiring companies this fast is going to have some warts.
Lets look at the acquistion of Nuuvera and Latam. The two companies that were supposed to grow Aphria internationally. According to a class action lawsuit filled by Morganti & Co Aprhia as been accused of the following:
- Aphria artificially inflating the reported values of the Nuuvera and LATAM assets (in order to make the Nuuvera and LATAM acquisitions seem more attractive to Aphria’s investors); and
- Aphria concealing and failing to disclose that the Individual Defendants had large financial stakes (which were valued at over one hundred million dollars), in Nuuvera and LATAM. (source: https://morgantico.com/aphria-inc/)
While I was unable to find a resolution stated online I will assume this court battle is on-going. It’s not for me to say if its true or not but I’m just reporting the information that’s available to the public. Will it end up hurting Aphria? Most likely even if they are absolved from any wrong doing. Long term is a different story and any investor buying into cannabis stocks has to look at the big picture and the long game.
What Is Aphria Up To Now?
The most recent news of this writing is the acquisition of Sweet Water Brewing. It’s not unusual for a cannabis company to partner with a beer company but it is unusual for a big cannabis corporation to acquire a craft beer company. For 300 million smackaroos too.
Infused beverages are the next step in the evolution of the cannabis industry. Molson-Coors, Anheuser-Busch InBev and Heineken have all partnered with cannabis companies in order to distribute infused beverages.
That’s what makes Aphria‘s acquisition of Sweet Water Brewing so unique. It’s not a partnership but an ownership and it’s with a craft brewery and not a mainstream beer sold everywhere. There are probably multiple advantages to this and it’s being analyzed by all the big name financial news outlets. Infused beverages have the ability to spark big revenue and all the big cannabis companies know it.
Currently, Aphria sits at 7.16 a share on the TSX and 5.48 a share on the NASDAQ. While their ambition is noteworthy the question is did they bite off more than they can chew? It seems like they have a lot of territory such as South America, the Carribean, Italy, Germany, USA and Canada. The question is what will the revenue look like? They are using a craft brewery from Atlanta to distribute infused beverages. They acquired an American company with a subsidiary, Great North Distributors, to sell recreational cannabis to Canadians even though they are based in Canada themselves. Are they the Monopoly player that owns one half the utilities, two railroads and random properties but no Monopoly to buy houses and hotels (in a board game sense not in the real world) ?
Not to mention a controversial lawsuit that has yet to be settled. Nothing has been proven yet so if I would want to wait for that to conclude before pulling the trigger on stocks.
- Lots of capital
- Increased international presence
- Infused beverage with craft brewer can take advantage of a niche market
- Controversial lawsuit
- Lots of spending have low profits – short term
- Canadian pot company partners with American booze company to distribute pot to…Canadians?
What do you think? Is Aphira the pot stock you were looking for?