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MARKETS LIVE BLOG:

STOCKS SLIDE AFTER META'S REALITY CHECK, DOWNBEAT GDP

Caterpillar sinks 7% after earnings, management sees weakness in Europe, Asia-Pacific

Aphria, Valens prove pot profit is still a thing

Jeff Lagerquist
Updated ·3 min read
(GETTY)
(GETTY)

Quarterly profit is a rarity in the Canadian cannabis sector, but two large pot companies surprised investors with strong financial results.

Aphria (APHA.TO)(APHA) shares jumped seven per cent in the first hour of trading on Wednesday after the Leamington, Ont.-based producer reported fiscal third-quarter profit and revenue that trumped analyst expectations late Tuesday. This is the company’s fourth consecutive quarter of positive adjusted EBITDA.

The Valens Company (VLNS.V)(VLNCF), which specializes in cannabis extraction, also bucked the trend set by pot peers, posting revenue and profit results that topped estimates. Valens also announced it will be up-listing to the Toronto Stock Exchange from the TSX Venture Exchange.

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Cannabis firms had been dealing with a myriad of headwinds long before the COVID-19 pandemic sent a shockwave through the broader economy. Those include a stubbornly robust illegal market, shrinking access to affordable capital, and a slow roll out of physical stores and cannabis 2.0 products like drinks and edibles.

Craig Wiggins of the analyst group TheCannalysts predicted in January that the coming six months would be akin to the opening scene of the World War Two thriller Saving Private Ryan, with surviving companies leaving behind less fortunate peers in a brutal fashion. So far, 2020 has not been kind to the sector. Mass layoffs, asset sales, warnings about oversupply and too much cultivation capacity were taking place prior to the ramp up of COVID-19 cases in North America.

Organigram (OGI.TO)(OGI) continued the trend of disappointing results on Tuesday, reporting a $6.8 million net loss, up from $0.9 million in the previous quarter.

Meanwhile, Aphria said revenue in its latest quarter climbed 96 per cent to $144.4 million from $73.6 million in the same period last year. The company said its cannabis revenue jumped to $55.6 million, a 65 per cent increase quarter-over-quarter. Net income for the three months ended Feb. 29 was $5.7 million or $0.02 cents per share.

“We continue to focus on the highest return opportunities for growth and long-term value creation," said Aphria chief executive officer Irwin Simon in a statement.

PI Financial analyst Jason Zandberg said in an earnings preview report that Aphria’s strong cash position distinguishes the company from many rivals who are scrambling to secure additional funding. Aphria said its cash position was $515.1 million in its latest quarter.

Aphria said COVID-19 has cast significant uncertainty over the business. Citing the “near-term financial impact of the pandemic,” the company suspended its previously announced guidance for revenue of $575 million to $625 million, and adjusted EBITDA of $35 million to $42 million for fiscal 2020.

“The Ontario control board temporarily cancelled two weeks of purchase orders from all licenced producers while it assesses its inventory balance, and is generally expecting lower volumes due to COVID-19. The Alberta control board’s replenishments are down 40 per cent since COVID-19,” chief financial officer Carl Merton said on a call with analysts on Wednesday.

However, he noted e-commerce sales in Quebec are up 200 per cent since COVID-19 restrictions were put in place.

Valens also saw strong revenue growth in its fiscal first-quarter, reporting $31.9 million, up from $2.2 million a year earlier. It was the Kelowna, B.C. company’s third straight profitable quarter, with net income of $2.5 million, compared to a loss of $6.4 million in the same period last year.

CEO Tyler Robson said while oil-based cannabis 2.0 products hitting shelves in Canada was a milestone for the company, the launch also posed challenges.

"We saw a moderation in extraction volumes in the quarter as our customers continued to shift to smaller processing lots as a result of the slower rollout of Cannabis 2.0 products in the broader market," he said in a statement.

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

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