Sometimes cannabis investors do silly things. For example, this week the big cultivators gave back about 3% of last week’s Kamala Harris-inspired rally, and the catalyst has nothing to do with the plant they produce.
Aphria Corp. (NASDAQ:APHA) triggered the retreat with an 18% post-earnings loss. While some of that selling was deserved, actual cannabis sales remain both brisk and profitable.
Unlike some of its counterparts, APHA saw net revenue on that side of the company swell 18% from the previous quarter, and that business is already big enough to make money. It costs $1.41 to produce each gram of cannabis, which the company can then sell for $4 to $7, depending on the sales channel.
The COVID-19 pandemic did not interfere with that core cannabis calculation. Ironically enough, the problem came from APHA’s more conventional pharmacy distribution subsidiary, where the virus has pushed all other medical concerns to the sidelines.
That’s what APHA’s management classifies as “distribution” revenue. And since it accounts for half of the company’s top line, that weakness spawned an overall miss.
It happens. Management already sees conditions improving. But because cannabis investors are so jumpy, the stock cratered.
I’ve said it before, and I’ll say it again. APHA is my favorite of the big cultivators. Pricing on medicinal marijuana is improving where more recreationally oriented rivals like Aurora Cannabis Inc. (NYSE:ACB) are struggling to achieve any kind of price power at all.
APHA will be a winner when the weak hands finally fold, and the cannabis wars are over. You’ll just need to hang on a little longer for that scenario to play out.
