Aphria Inc. APHA

Aphria, which is headquartered in Ontario, produces and sells medicinal and recreational cannabis. The company operates through retail and wholesale channels in Canada and internationally. Aphria is a main distributor of medical cannabis to Germany and has operations in over 10 countries outside of Canada. However, it does not have exposure to the U.S. CBD or THC markets due to the constraints of federal prohibition. It has some U.S. exposure through the acquisition of SweetWater, a craft brewer

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Aphria Inc.

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Comment by CytochromePon Apr 01, 2017 5:24pm

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Post# 26063515

RE:Wholesale sensitivity price analysis

Not really sure if this is throwing a stone at your analysis, think it's just an additional consideration. You're doing IFRS, so you assume FIFO when LIFO may be more appropriate due to the ever changing reduction in cost per gram from scaling. You might need to see what their cost/gram was 1 or 2 quarters ago, especially with CGC and their massive stockpile of product.

GoBlue2016 wrote:
I need someone to throw some stones at this analysis I did.

I did the analysis to determine at what point wholesaling and/or introducing Pharmacy into medical chain would start affecting Aphria and CGC. Because of IFRS inventory is not at Lower of Cost or Net Realizable Value, but at a Gross up of Market less Selling Cost. So any selling price pressure below the IFRS gross up may result in inventory write-down.

CGC last Q:

Average Sale Price per gram $7.36.

Dry bud $42,109,000 inventory for 8375 kg = $5.02/gram.

Their MDA stated Average cost per gram from MDA $2.47. Can not tell if that is "all in cost" or "cash cost" from their descriptor. Being conservative I'll call it "all in".

(NOTE: IFRS accounting is why the inventory would be stated at a $ amount greater than cost, which other non agriculture industries don't do)

$5.02 inventory - 2.47 MDA reported cost = $2.55/gram which is the Fair Value Increment Gross up over Cost in inventory.

Aphria directly from MDA last Q:

Average Sale Price per gram $8.18/gram.

Inventory:

Harvested bud - at cost $1.76/gram

Harvested bud - fair value Increment $1.99/gram.

Harvested bud - all in $ 3.75/gram in inventory

Is CGC really carrying bud in inventory at a 34%/gram premium to Aphria's (5.02 divided by 3.75)?? YET they sell at a 10%/gram lower average revenue!!

Did I screw something up???

If I didn't what would this mean?

Aphria can wholesale at above $3.75/gram without a write down to inventory AND turn a positive forward Gross Margin. (They would need to be above $3.75/gram to cover Selling Costs which are tacked on during period the sale is made).

If CGC wholesales below $5.02/gram (to Germany or to a pharmacy) they might have to write down inventory AND take negative forward Gross Margin.

That is $1.27/gram advantage. That is monstrous!!!

NOTE: The lack of a Futures Market to set the market price across ALL CANADIAN LPs allows each LP to independently determine at what price they gross up inventory to. Which further makes this accounting treatment a crock of sh!t.