With Sales Rising, Aphria Eyes Potential Play For CannTrustAugust 6, 2019
After posting robust sales growth for its fiscal year ended in May, Canadian cannabis producer Aphria has expansion on its mind. The company reported a net profit of C$15.8 million ($12m) for the quarter ended May 31, as sales jumped 75% quarter-on-quarter to C$128.6 million ($97.4m). For the full year, sales reached C$237 million ($179m) and the company took a net loss of C$16.5 million ($12.5m). With sales expected to continue trending upward—guidance calls for net revenue of C$650-C$700 million ($492m-$530m) in the next fiscal year—interim CEO Irwin Simon said Aphria will look at potentially acquiring scandal-plagued competitor CannTrust.
The solid results come only a few months after Aphria endured some turbulence of its own, including short-seller attacks, a failed takeover bid by Green Growth Brands, and the resignation of former CEO Vic Neufeld.
Aphria’s higher revenue in the most recent quarter was driven by C$99.2 million ($75.1m) of distribution revenue from German acquisition CC Pharma and other distribution companies and C$33.5 million ($25.4m) of revenue from cannabis produced. Net revenue includes over 3,228 kilogram equivalents sold for the adult-use market and 1,417 kilogram equivalents for the medical market. The company has planted more than 200,000 cannabis plants at its Aphria One facility, for a total of over 500,000, and is on track to produce 255,000 kg of cannabis annually once all its facilities are fully licensed.
“In what was a challenging time for us, our team came together as an organization,” said Simon on an earnings call, referencing the difficulties earlier this year. “We identified immediate priorities to help generate substantial progress near-term. We built upon existing business fundamentals, capabilities, streamlined our processes, and strengthened our governance and focused on building our brand awareness, all with an emphasis on consistent execution.” Aphria’s brands include Solei, Good Supply, Riff, and Broken Coast.
Meanwhile, the fallout around the discovery of unlicensed grow operations at CannTrust has opened up a possible acquisition play for Aphria and other key cannabis players. CannTrust fired CEO Peter Aceto and accepted the resignation of chairman Eric Paul after it became known that Aceto had given his blessing to the illicit activity. With an investigation now open with the Ontario Securities Commission’s Joint Serious Offences Team, CannTrust has retained Greenhill & Co. as a financial advisor to explore a sale of the company.
Asked about CannTrust in an interview with Bloomberg, Simon expressed interest in a potential sale. “I think they have some great medical clients and they have some real interesting assets,” he said. “It’s something that absolutely we would be looking at.” He clarified that Aphria hasn’t spoken to the special committee of CannTrust’s board responsible for a sale and will wait for it to finish its review before any potential offer.—Danny SullivanSubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning. You will also receive the Cannabis edition as part of your subscription.