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Aphria, the first large pot producer to report second profit, soars in early trading

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Aphria Inc. became the first large pot producer to report a second consecutive profitable quarter Tuesday, sending its stock up as much as 18 per cent.

The company said it earned $16.4 million on revenue of $126.1 million in the quarter ended Aug. 31, a slight decline from the prior period. It also reiterated its outlook for fiscal 2020, which calls for revenue of $650 million to $700 million and adjusted Ebitda of $88 million to $95 million.

Notably, revenue from recreational cannabis sales rose 8 per cent quarter-over-quarter to $20 million. The increase comes as other companies like Canopy Growth Corp. and Aurora Cannabis Inc. have reported sales declines or warned of an impending slowdown. Hexo Corp. withdrew its guidance for fiscal 2020 last week, citing slower-than-expected store openings, a delay in government approval for new products and early signs of pricing pressure. Other companies are still having trouble supplying the market.

Aphria’s interim Chief Executive Officer Irwin Simon said he hasn’t seen a slowdown in sales or pricing pressure.

“I always thought there was something out there called supply and demand,” Simon said in a phone interview. “If there’s still supply issues, I’m not sure how the pricing pressure is being applied against companies that are having issues supplying.”

Aphria also took market share from its competitors in the quarter. In Ontario, Canada’s most populous province, it gained four points to 12 per cent of the market, Simon said.

Aphria’s stock increase was the largest since its last quarterly report on Aug. 2. Prior to Tuesday, the stock had lost about 16 per cent since the beginning of the month amid broader weakness in the pot sector.

“We believe the reaction is due to industry sentiment (and valuations) near all-time lows, making an in-line quarter very well received by many industry investors,” CIBC analyst John Zamparo said in a note.

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Other cannabis producers also joined in the gains, with the ETFMG Alternative Harvest ETF adding 6.9 per cent. Tilray Inc. rose 8.9 per cent, Cronos Group Inc. gained 7.8 per cent and Organigram Holdings Inc. jumped 16 per cent.

Aphria has posted a remarkable turnaround since late last year, when it was the target of short sellers who accused it of paying inflated prices to buy Latin American assets from insiders. That resulted in the ousting of Chief Executive Officer Vic Neufeld, who was replaced on an interim basis by Simon, former CEO of Hain Celestial Group Inc.

Simon said in August that he was “absolutely” interested in acquiring assets from CannTrust Holdings Inc., which had its license suspended following a regulatory breach. He was less definitive on Tuesday.

“There’s a big focus today at Aphria on our medical cannabis business, and if I don’t have to go buy assets and those patients are there and I can build it on my own, that’s a better place to be,” he said.

Bloomberg.com

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