Canada: Aphria has a good thing growing

Aphria Inc. reported its third quarter results, for the three and nine months ended February 28, 2017. “With five consecutive quarters of profitability and further growth in our production capacity, Aphria continued to build strong, positive momentum in the third quarter,” said Vic Neufeld, Chief Executive Officer, Aphria.

“Despite unusual weather conditions that temporarily added to our growing costs for the quarter, we continue to report costs per gram that are among the lowest in the industry. At the same time, we are making strategic investments that will increase our supply of high-quality cannabis and position Aphria to drive further growth in our medical-grade cannabis business, meet future demand for recreational cannabis, and drive strong, sustainable shareholder value creation.”

Revenue for the three months ended February 28, 2017 was $5,118,516, representing a 2% decrease over the prior quarter’s revenue of $5,226,589. The decrease in revenue for the quarter was consistent with expectations and was primarily a result of the $8.50 per gram cap placed on the price of medical cannabis for veterans. The impact of the price cap on revenue was offset by increased revenue per gram for non-veterans, primarily a result of selling less wholesale product and the continued growth of our cannabis oils.

Adjusted gross profit for the third quarter was $3,582,312 with an adjusted gross margin of 70.0%, generated from both retail and wholesale shipments of medical cannabis. The decrease in the adjusted gross margin from the prior quarter is consistent with the reduction in revenues in the quarter.

During the quarter, Aphria's “all-in” costs of dried cannabis per gram increased from $1.79 in the prior quarter to $2.23 in the current quarter, representing a $0.44 increase. The increase largely related to abnormal winter weather conditions in Leamington but also included costs related to preparing for Aprhia's Part II expansion.

This winter the Leamington area experienced unusual conditions related to the amount of sunlight it received. The most common measure of light intensity is referred to as lumens. During the quarter, the Leamington area received approximately 80% of the historical three-year average of lumens for this period.

More specifically, the month of January was 67% of the three-year lumen average and the month of February was 76% of the three-year lumen average. This reduced lumen measure directly led to (i) lower yields on individual cannabis plants during the quarter which caused a $0.20 increase in Aphria's “all-in” costs of dried cannabis per gram; and, (ii) increased heating and electrical costs, which caused a $0.14 increase in their “all-in” costs of dried cannabis per gram.

The remaining $0.10 per gram related to incremental labour costs as they added greenhouse staff during the quarter so they would be fully trained to work in the Part II expansion, the moment the area is approved by Health Canada. As they move from Health Canada’s approval to use our Part II expansion toward the first sale from that area, Aphria will continue to incur incremental labour costs in their vault and packaging staff. "These incremental costs will be directly tied to revised head counts as we properly train staff in advance of additional product flow that will result from the increase in our annual harvest from 2,600 kgs to 8,000 kgs."

Net income for the three months ended February 28, 2017 was $4,950,250 or $0.04 per share as opposed to a net income of $3,720 or $0.00 per share in the same quarter in the previous year and an income before tax of $945,678 or $0.01 per share in the previous quarter.

EBITDA for the third quarter was $1,005,516, compared to an EBITDA of $423,350 in the same period of the prior year and EBITDA of $1,198,620 in the previous quarter.

"We have a good thing growing", the company concluded.

For more information: www.aphria.com