GoBlue2016 wrote: New Gross Margin Presentation
Both CGC and Aphria debuted new presentation formats for Gross Margin last Q. And they are a step in the right direction on improving transparency.
The new format readily shows
- The cost of production for the Q
- How much profit was taken at harvest on Gain on Biologicals through the Fair Value Increment for the product SOLD in the Q
- How much profit was booked to Inventory on Gain on Biologicals for the change in growing plants AND the plants harvested (although I would really like them to split these components too)
- By adding Production Costs to Fair Value Adjustment on Inv sold and comparing it to sales, you get a pretty good indication of how much profits will be realized in the Inventory bank presently on the balance sheet.
CGC last Q:
Grams sold 1,830,000
Sales. $15,873 ($8.67/gram)
Production costs $6,848 ($3.74/gram)
Gross Profit b4 Fair Value adjustments. $9,025 (57%)
Fair Value Adjust on sale of inv $11,000 (69%)
Fair Value Adjust on Growth on Bios. ($21,670)
Aphria last Q:
Grams Sold 852,000
Sales. $6,120 ($7.18/gram)
Production Costs. $1,347 ($1.58/gram)
Gross Profit b4 Fair Value adjustments. $4,774 (78%)
Fair Value Adjust on sale of inv $1,136 (24%)
Fair Value Adjust on growth of Bios. $(4,226)
Before looking at some analysis, some might not understand the components of Production Costs. Simply put Production Costs are:
- Variable Costs of goods sold during
- Fixed costs and overhead of production facilities
- Amortization of production facilities
With this new presentation you can now see how much the Actual Cost of Inventory was grossed up by FVI at harvest. This gross up is the pulling of future Profit forward from the point of Sale to point of Harvest.
You can only take profit once. And IFRS allows management their discretion to take up to Selling price less selling expenses at harvest.
CGC: $11,000 divided by 1,830= $6.01/gram
Aph; $1,136 divided by 852 = $1.34/gram
So at harvest CGC pulled forward Profit if $6.01/gram and Aphria $1.34/gram.
And you can extrapolate and also get a good idea if there is still Profit to be had by selling inventory by adding Production Costs + Fair Value Adjustment and compare to sales.
CGC $6,848 + 11,000 = 17,848 vs Sales of $15,783= ($2,065) deficit. No Profit remains to be had from sale of inventory.
Aph. $1,347 + $1,136 = $2,483 vs Sales of $6,120 = $3,647 surplus. Profit remains to be had from sale of Inventory.
Or on per gram basis: Production Costs plus Fair Value Adjust vs Sales
CGC $3.74 + $6.01= $9.75 vs Sales of $8.67 Rev/gram
Aph $1.58 + $1.34 = $2.92 vs $7.18 Rev/gram
So what does this mean?
It would appear that CGC is pulling Profit forward at HARVEST 4.5 times ($6.01/1.34) than Aph. Aphria is leaving more profit in their inventory bank to be recognized at point of Sale.
Last Q CGC had inventory of $63 million in bud and oil inventory. Aph $5.5 million.
Unless production costs drop DRAMATICALLY for CGC they have to sell $63 million in inventory that has no profit left in it, before they can become profitable on a sales (not harvest) basis.
[Aphria even shows in Notes that of $5.5 million in inventory, $3.6 million is Fair Value Adjustment. As they have 1,555 kgs in inventory this equals $2.31/gram in Fair Value Adjustment. As Aphria caps the booking cost of inventory at $3.75/gram, trim $3.00/gram and oil at $0.62/millilitre... and they have for well over a year... the Fair Value Adjustment is going up on per gram basis as a function of cash costs going down.]
The OTHER VERY IMPORTANT thing to remember is all of the above is before we start deducting Operating Expenses.
GoBlue