Canadian licensed medical cannabis producers traded significantly higher yesterday on the heels of a strong fourth quarter earnings report from Aphria Inc. (APH.TO) (APHQF).
Aphria closed out the 2017 fiscal year by generating $2.8 million in EBITDA in the fourth quarter, a 181% increase when compared to the prior quarter. The 2017 fiscal year was a banner year for Aphria and we expect 2018 to be even more significant.
The greenhouse cannabis producer reported several milestones in the fourth quarter and we expect these events to help support continued growth. During the quarter, the company:
- Expanded its presence in the United States and entered Florida
- Increased its investment in and membership units in Copperstate Farms Investors
- Health Canada approved its Part II expansion and Aphria increased its annual production capacity expectations for Part II, Part III, and Part IV expansions
- Raised $105+ million through a bought deal and debt financing
During the last quarter, shares of Aphria has fallen approx. 25% and we see significant upside to current levels. We expect to see Aphria report significant revenue growth over the coming year and our only concerns stem from potential weather issues.
Aphria is well positioned to capitalize on Canada’s medical cannabis sector as well as the proposed legal recreational market, expected to be implemented by July 2018, and we are favorable on its long-term outlook.
Revenue from Cannabis Oil Continues to Increase
Cannabis oil has already become a significant revenue stream for licensed producers in Canada and this is a trend we expect to continue for the foreseeable future. Cannabis oil represents a fantastic opportunity and solution for licensed producers.
The opportunity is great because not only does the product generate more revenue for the company but it also has higher margins. Cannabis oil is also a great solution when a licensed producer has too much dried cannabis product. The process of turning dried product into oil increases the shelf life of medical cannabis.
Aphria received its license to sell medical cannabis oil in August 2016 and subsequently began to sell cannabis oils to its registered patients. Currently, Aphria has capacity to produce up to 1,200 bottles (60mL per bottle) per day. During the fourth quarter, cannabis oil represented 32% of all Aphria’s revenue.
Licensed medical cannabis producer CanniMed Therapeutics Inc. (CMED.TO) (CMMDF) started selling cannabis oil in the first quarter of 2016. In June, the company said that cannabis oil accounts for almost 50% of total revenues for its current quarter.
Canopy Growth (WEED.TO) (TWMJF) also recently reported to have invested in an industrial cannabis oil extraction system (now operational) that can produce as much oil in approximately one month as it has produced since it started extracting cannabis oil in November 2015.
An Industry that is Just Getting Started
The global medical marijuana industry is in the first inning of a growth super-cycle and is already a multi-billion-dollar business. The opening of new markets and the development of new products continue to serve as catalysts that will advance and expand the legal medical marijuana industry and we think this industry is only getting started.
The companies mentioned above and the following firms are ones that we think investors need to watch: Aurora Cannabis (ACB.V) (ACBFF), Organigram (OGI.V) (OGRMF), Cronos (MJN.V), MedReleaf (LEAF.TO), Cannabis Wheaton (CBW.V) (KWFLF), Canabo Medical (CMM.V) (CAMDF), Reliq Health Technologies (RHT.V) (RQHTF), Golden Leaf Holdings (GLH.CN) (GLDFF), ICC International Cannabis Corp (ICC.V) (ICCLF), Invictus MD Strategies (IMH.V) (IVITF), Lexaria Bioscience (LXX.CN), (LXRP), and Friday Night (TGIF.CN).
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