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Aphria shares jump, company now ‘uniquely positioned’ for German sales

Germany marijuana and German cannabis symbol with the flag on rustic wood with leaves as a border in a 3D illustration style.

Shares of Canadian pot producer Aphria (APHA.TO)(APHA) climbed nearly 10 per cent on Wednesday after the company announced a significant step towards improving sales in Europe’s largest cannabis market. 

The company said its Aphria One facility in Leamington, Ont. has received European Union Good Manufacturing Practices (EU GMP) certification, allowing it to supply bulk dried flower throughout the European Union, including the highly sought-after German medical market. 

The news follows Aphria’s announcement on Tuesday that its smaller Avanti Rx Analytics subsidiary also received EU GMP certification. The company expects its first shipments to its German pharmaceutical business will occur in the fourth quarter of its fiscal 2020 year. 

"We believe that this is a game changer for Aphria and will significantly advance our leadership in permissible medical cannabis markets across Europe, where demand for product is strong," chief executive officer Irwin Simon stated in a news release. 

A one-day view of Aphria shares trading on the Toronto Stock Exchange on Jan. 22, 2019. (Yahoo Finance Canada)

Declining sales at Aphria’s German pharmaceutical distribution business weighed on the company’s fiscal second-quarter results released last Tuesday. CC Pharma was among the firms impacted by the German government’s recent changes to its medical reimbursement model. Distribution revenue for the three months ended Nov. 30 decreased to $86.4 million, from $95.3 million in the prior quarter.

The German medical cannabis market is expected to grow to nearly $11 billion (7.6 billion Euros) by 2028, according to a recent report from Prohibition Partners. The European research firm said the market was worth $106 million or (71 million Euros) in 2018.

“Aphria remains the only licensed producer [growing] in Germany. We're permissioned to grow all three strains of medical cannabis approved by the German authority,” Simon told analysts on a Jan. 14 conference call. “We remain confident that not only the first harvest in Germany happened before the end of this fiscal year but that our CO2 extraction capabilities will be ready in January 2021.”

Jefferies analyst Owen Bennett is bullish on Aphria’s growth potential in Europe’s largest economy. Although, he notes sales in Germany are a fraction of the revenue opportunity in Canada today. 

“With Germany currently by far the largest addressable European market, it will likely remain the focus for Canadian names looking at near term international growth. To this, we think Aphria is uniquely positioned,” he wrote in a research note on Wednesday. 

Only a handful of Canadian cannabis companies have secured permission to export product to Germany. In addition to Aphria, other Canadian licenced producers with adequately certified facilities include Tilray (TLRY), Cronos Group (CRON.TO)(CRON), Canopy Growth (WEED.TO)(CGC) and Aurora Cannabis (ACB.TO)(ACB).

Aurora’s medical cannabis products have been temporarily unavailable in Germany pending a review by health authorities, according to a report in November by Marijuana Business Daily

Aphria downgraded its full-year outlook after it reported weaker-than-expected quarterly results last week. Bennett now expects the company to hit the low end of its revised $575 million to $625 million revenue forecast for fiscal 2020. 

He has a ‘buy’ rating on Toronto-listed shares, with a price target of $10.30. The stock was up 7.19 per cent to $7.45 at 2:31 p.m. ET. 

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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