Cannabis Weekly Round-Up: Aphria Takes Hit, New Warehouse for OCS

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Aphria CEO Irwin Simon is looking ahead to the future — he said he sees opportunity in the US and in Cannabis 2.0 products.

In the marijuana space this week, one key Canadian cannabis player’s latest quarterly results secured much attention from market watchers.

Meanwhile, news hit that the Ontario Cannabis Store (OCS) is getting a second warehouse, a development that could improve the province’s cannabis industry.

Read on for a closer look at some of the biggest cannabis news over the last five days.

Impairment overshadows Aphria’s revenue boost

Canadian licensed producer Aphria (TSX:APHA,NASDAQ:APHA) experienced a sharp share price drop this week after reporting its latest quarterly results on Wednesday (July 29).

The company began the week at C$6.99 on the TSX, then rose on Tuesday (July 28) to C$8.18, its high point for the period. However, by Friday’s (July 31) close, Aphria was sitting at just C$6.39. It experienced similar share price activity on the NASDAQ over the course of the week.

As mentioned, the downtrend follows the release of Aphria’s financial results, which cover its fourth fiscal quarter and its most recent fiscal year, both ended on May 31. While the company reported positive adjusted EBITDA for both periods, and saw its net revenue increase year-on-year both for the quarter and the year, it also recorded a non-cash impairment of C$64 million for the quarter.

According to Aphria, the impairment was “largely attributable to measures taken with respect to certain of the Company’s international businesses in response to the COVID-19 pandemic.”

Speaking to BNN Bloomberg after the release of the results, CEO Irwin Simon emphasized that the charge makes sense in the long term for the company. “I’m a little puzzled why everybody’s focused on the C$68 million non-cash loss,” he said. Aphria’s total net loss for the quarter was C$98.8 million.

The interview also covered the recent rumor that Aphria and Aurora Cannabis (TSX:ACB,NYSE:ACB) discussed merging, but ultimately saw their talks fall through. Simon was tightlipped about whether the conversations actually happened, but did say the cannabis industry needs to see consolidation.

Overall he emphasized the opportunity he still sees in the cannabis space as a whole, particularly in terms of Cannabis 2.0 products in Canada, and what could happen in the US when federal legalization happens. The latter also came up in a conversation Simon had with CNBC’s Jim Kramer — “One of the important things … is legalization in the US,” he said.

New warehouse coming for Ontario Cannabis Store

The OCS, Ontario’s sole legal online retailer of recreational cannabis, is reportedly set to get a second marijuana warehouse, a move that would expand its distribution capacity.

According to Marijuana Business Daily, Ontario has given the OCS the go-ahead for the expansion, and at least one market watcher thinks it could happen sooner rather than later — BMO Capital Markets analyst Tammy Chen said in a recent note that it could be open by September.

However, the OCS itself has not confirmed that date, simply telling the news outlet:

“After the consultations last winter where the producers opted out of delivery, we received confirmation from the government to continue to expand our privately operated distribution network when necessary.”

Chen describes the warehouse as a “tailwind” for the Ontario cannabis sector, saying that the OCS’ lone warehouse has contributed to supply chain issues in the province for quite some time. Although Ontario is Canada’s largest province in terms of population, its cannabis sales have consistently lagged.

“As a result, we believe a second warehouse should drive an increase in sell-in during Q4/20 and better support inventory needs from a growing store network,” Chen said.

Cannabis company news

Aside from Aphria, a number of other cannabis companies provided their latest quarterly results this week. Marijuana company news during the period also centered on delivery programs.

  • Aleafia Health (TSX:AH,OTCQX:ALEAF) announced that AssureHome Delivery, its medical cannabis delivery service, now offers same-day delivery. Separately, MediPharm Labs (TSX:LABS,OTCQX:MEDIF) revealed a supply deal with the Hybrid Pharm, a pharmacy that provides medical cannabis patients with a “full in-store experience,” including same-day registration and delivery. The partnership is renewable and will initially last for one year.
  • Delta 9 Cannabis (TSX:DN,OTCQX:VRNDF) shared guidance on its upcoming quarterly results, noting that it expects revenue to come in at $12.7 million to $13.2 million; that would be up both year-on-year and from the previous quarter. The company’s full results will come out on August 14.
  • FSD Pharma (CSE:HUGE,NASDAQ:HUGE) is exiting the cannabis business in favor of focusing on its lead compound FSD201; the company plans to submit an investigational new drug application to the US Food and Drug Administration for the use of FSD201 to treat hospitalized COVID-19 patients. All activities of FSD’s cannabis subsidiary, FV Pharma, will be suspended within 30 days.
  • GTEC Holdings (TSXV:GTEC,OTCQB:GGTTF) reported its latest quarterly results, saying that its revenue sank 36 percent compared to the prior quarter, coming in at 1.5 million. The company attributed the decline to packaging bottlenecks; it doesn’t expect a repeat of these issues in the future. GTEC also reported a much-improved net loss of $197,000, but an adjusted EBITDA loss of $406,000, down from a positive result in the previous period.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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