Our Aphria Stock Prediction In 2019 (Buy or Sell?)
Signs are emerging that the marijuana “green rush” is actually a bubble in search of a pin. Sure, enormous opportunities for cannabis profits still abound. But we’re starting to see a proliferation of dubious investments.
One pot stock that’s come under critical scrutiny is Aphria (NYSE: APHA, TSX: APHA). There’s definitely a bull case to be made for Aphria, but withering scrutiny from critics has weighed on APHA shares.
Is the criticism unwarranted, making Aphria a buying opportunity right now? Or is the stock a dangerous play positioned for further declines?
Complicating the story is a recent hostile takeover bid from another marijuana company, an unexpected development that has garnered a lot of financial headlines. Let’s look for the story behind the story, to see if Aphria is a good buy in 2019 or a harbinger of the marijuana shake-out to come.
What Is Aphria?
Aphria produces and sells medical cannabis in Canada and internationally. The company offers sativa, indica, and hybrid medical marijuana products, as well as cannabis oils. It serves patients and health professionals. The company also sells its products online.
Sporting a market cap of $1.6 billion, Aphria is based in Leamington, Canada. (Aphria means agreeable in Celtic.)
How Has Aphria Stock Performed?
Since it started trading on the NYSE on November 2, 2018, APHA has lost 43.4%, compared to a loss of 5.0% for the S&P 500.
Year to date, APHA has gained 19.3% whereas the S&P 500 has gained 3.1%.
Who Are Aphria Rivals?
Tilray (NSDQ: TLRY)
With a market cap of $7.4 billion, Tilray makes a variety of drug treatments for medical uses. These products are based on tetrahydrocannabinol (THC) and cannabinoid (CBD) compounds, which are extracted from marijuana.
Tilray makes THC-dominant, CBD-dominant and THC/CBD balanced treatments. The THC and CBD potencies are directly reflected in the company’s products, which can be administered or consumed via several methods. Tilray also sells accessories, such as vaping tools.
Tilray is headquartered in Nanaimo, British Columbia, with operations around the world.
Canopy Growth (NYSE: CGC, TSX: WEED)
Based in Smith Falls, Canada, Canopy Growth grows and sells medical cannabis in Canada and internationally. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps.
With a market cap of $11.3 billion, the company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names.
Aurora Cannabis (NYSE: ACB)
Based in Edmonton, Canada, Aurora Cannabis produces and distributes a wide variety of medical marijuana products.
The company’s products consist of dried cannabis and cannabis oil; CanniMed vegan capsules; and hemp products. With a market cap of $5.3 billion, Aurora Cannabis also operates CanvasRX, a network of cannabis counseling and outreach centers.
Will Aphria Go Up In 2019 (Should You Buy)?
Aphria is in expansion mode and recent earnings results have been positive.
In May 2018, Aphria reached a deal with Southern Glazer’s Wine & Spirits for that company to distribute Aphria’s recreational cannabis products in Canada.
In July 2018, Aphria announced it would acquire several South American cannabis companies for about $200 million in a deal with Scythian Biosciences.
For the first quarter of 2019, Aphria reported encouraging operating results. On a year-over-year basis, grams sold increased 35%, revenue increased 117%, and net income increased more than 40%.
Also in the first quarter, the company signed supply partnerships with every province in Canada and the Yukon Territory, ensuring access to Aphria’s products for nearly 100% of the Canadian population.
When it comes to legalized marijuana, Canada is in the vanguard. In October 2018, Canada legalized on the federal level the possession and use of recreational marijuana. Canada was the first G7 nation to take this bold step and it triggered an earthquake in the worldwide marijuana industry.
In tandem, an increasing number of states in the U.S. are legalizing weed. The recreational use of cannabis is legal in 10 states (Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington), the District of Columbia, and the Northern Mariana Islands. Another 13 states plus the U.S. Virgin Islands have decriminalized.
Will Aphria Go Down In 2019 (Should You Sell)?
Aphria stock got torpedoed in December 2018, in the wake of a devastating short-seller report from Quintessential Capital Management founder Gabriel Grego.
During a recent New York conference, Grego called the stock a “black hole.” Ouch. There’s nothing ambiguous about that description.
Grego laid out a convincing case that Aphria is mismanaging its assets. He asserted that management has diverted about 50% of the firm’s net assets for inflated investments that are held by insiders at the company.
This video depicts the details of Grego’s brutal takedown of Aphria:
The report from Quintessential Capital Management comes along with a negative assessment from Hindenburg Research.
Hindenburg claims that insiders at Aphria used assets from retail shareholders to buy large positions, via shell companies, in highly overpriced overseas entities involved in the cannabis industry.
Hindenburg says Aphria spent $280 million for apparently worthless assets in Jamaica, Argentina and Colombia. The report says a few insiders might have benefited from these financial dealings, at the expense of majority shareholders. Aphria has dismissed the accusations as slanderous.
APHA shares plunged in the immediate wake of these revelations, but has since recovered somewhat as enthusiasm for the overall marijuana market remains strong.
Overall Aphria Forecast And Prediction For 2019
Green Growth Brands (CSE: GGB), an Ohio-based cannabis operator, stunned the marijuana industry in late December 2018 with a hostile, all-stock takeover bid for Aphria.
Green Growth valued Aphria at $2.06 billion; the latter rejected the offer as too low. Regardless, Green Growth vows to persist. The takeover attempt is a foretaste of industry consolidation to come.
In 2019, I expect a shake-out in the cannabis industry to occur that separates the winners from the losers, which makes picking the right marijuana stock all the more imperative. More pain is likely ahead for APHA investors.
Will the entire marijuana industry go bust? Absolutely not. The marijuana boom represents one of the greatest investment opportunities that you’ll ever see in your lifetime.
But not all marijuana stocks are created equal. And I’m siding with the bears on Aphria.
Aphria is a toxic investment you should avoid, especially as uncertainties mount in the broader financial markets. As Wall Street grows more anxious, now’s not the time to take a flyer on a suspicious pot stock.
John Persinos is the managing editor of Investing Daily.