Aphria stock was ticking along nicely at the start of April. By mid-month, however, shares dropped significantly, leaving Aphria (TSX:APHA) (NYSE:APHA) down 19% on the month. Now, selling for $6.94 USD on the NYSE and up 4% in pre-market trading, some of those losses have been pared. But is it enough?
Aphria Stock Down in April
With a market cap of $1.7 billion, Aphria sits comfortably within the top ten cannabis producers in the world. It is the third-largest grower in Canada with an expected 255,000 kilos of peak annual output when at full capacity.
Its recent Q3 report showed $73.6 million CAD in revenue—an increase of 615% from the prior-year period. You would have expected Aphria stock to soar on this figure, but not so.
The reason it didn’t is that the majority of that revenue didn’t exactly come from sales of cannabis.
According to analyst Sean Williams:
“Rather, the company’s acquisition of distributor CC Pharma was responsible for most of the revenue recognized during the quarter, with cannabis sales retracing.”
In fact, concerningly, Aphria sold less cannabis this quarter than the previous quarter, with the books showing depleting figures of 3,409 kilos in Q2 versus 2,637 kilos in Q3.
Now, investors may offer their condolences here regarding the sector-wide supply chain issues in Canada regarding the procurement of cannabis. After all, Aphria is not the only company affected by growing pains such as this.
But this is only one issue highlighted by the Q3 results. There is another which is a bigger problem for Aphria stock and suggests that investor trust hangs in the balance.
$50 Million Write-Down
The company had to take a $50 million CAD write-down on the value of its, now infamous, Latin American assets. This was the culmination of reports that claimed that Aphria grossly over-paid for the assets in late 2018.
Acquired for $195 million CAD, the company was accused of lining the pockets of the sellers for its own vested interest at the expense of its investors. The accusations rocked Aphria stock as investors lost trust in management.
An independent review held by the company found the accusations to be false. However:
“Just a few months later an impairment test on these assets requested from the Ontario Securities Commission resulted in a write-down that pushed Aphria to a $108.2 million CAD net loss in Q3 2019.”
Herein lies the problem and one that Aphria stock is currently reflecting. By overhauling its management team, the crisis of confidence was arguably mended. But in announcing this write-down, old wounds have opened, especially as it physically costs the company and investors $50 million CAD.
What do you think? Will Aphria stock rebound in May?
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