Night time reading :) Well, I guess we were right, huh?
Big Canadian cannabis producer Aphria (APHA.T), fresh off a scandal involving allegations the from short sellers the company was overpaying for garbage assets their top execs part owned, released their first financials today since the scandal broke.
It was so unpretty, interested observers had to get through the interim CEO spending a paragraph counting how many employees he has, and bullshitting about how he’s going to “continue to drive sustainable long-term shareholder value” before getting to the part where he admits his group lost $108.2 million in the last four months.
Actually, you also had to get through the bit where the company writes off $50m it spent on the assets that were at the heart of the earlier scandal.
The Ontario Securities Commission requested as part of a continuous disclosure review that the company perform an impairment test on its LatAm assets subsequent to the filing of the 2019 second quarter financial statements. As a result of this impairment test conducted by the company, the company determined that a $50-million non-cash impairment charge to the carrying value of the LatAm assets was required..
OOF.
If you were interested in the details of that loss, you also had to get past the further decoupling of assets once brought to the table by the infamous Andy Defrancesco.
Defrancesco was a founding investor in Aphria, and had brought them the Latin American assets now being written down, and the odious Nuuvera deal. Flipping canna-assets is what he does, and the LPs who buy them seem to always end up paying ‘admittedly on the high side’ for them.
Defrancesco’s ties to Liberty Health Sciences (LHS.C) are no secret; he managed to, reportedly, flip a Florida property to LHS a week after he bought it, for a $5m profit. He’d also introduced the company to Aphria, who took a nibble.
Well, so long LHS.
- Announced early termination and liquidation of interests in Liberty Health Sciences (LHS.C), in line with the company’s commitment to enhanced corporate governance practices and strategic priorities, while at the same time generating cash without dilution to shareholders;
OOF.
To get to that fat loss in today’s Aphria news, you also had to get past the likely early demise of the supposed Green Growth Brands takeover offer, which now seems to have been, as we said it was all along, a big old fake bid designed to inspire competing bids and serve as a diversion from the scandal that had been brewing.
Green Growth Brands update
In a separate release issued today, the company also announced that it has entered into a series of transactions that will accelerate the expiry date of the unsolicited offer launched by Green Growth Brands Inc. and will provide up to an additional $89-million of liquidity to the company without dilution to shareholders.
No, it won’t.
There was an announcement of some new ‘independent’ board members, and talk about how they’ve invested capital in automation and packaging and how 2020 is going to be rad.
And then, pages down the document, came the mic drop:
Three months ended Three months ended Feb. 28, 2019 Feb. 28, 2018 Net revenue $73,582 $10,267 Gross profit $17,295 $8,570 Adjusted gross profit $13,366 $7,912 Adjusted gross margin 18.2% 77.1% ----- Net income (loss) ($108,209) $12,944 ----- Adjusted EBITDA ($14,435) $2,727 -----
OOF!
A $108 million net loss, combined with a fall in margin of nearly 60 points.
That net revenue jump is nice, but how much of it is actual weed?
Not as much as previously, it seems.
Q3 2019 Q2 2019 Net revenue $73,582 $21,668 Kilograms (or kg equivalents) sold 2,636.5 3,408.9 Cash cost to produce cannabis/gram $1.48 $1.34 All-in cost of goods sold/gram $3.76 $2.60 Adjusted EBITDA (loss) fr. cannabis($13,804) ($6,073)
Kilos are down. Costs are up.
OOF.
Selling, general and administrative costs in the quarter rose to $106.6-million, from $27.5-million in the prior quarter and $16.9-million in the prior year. The increase was primarily due to the $50.0-million impairment for the LatAm acquisition, an increase in non-cash share based compensation, and the inclusion of a full quarter of LatAm and two months of CC Pharma.
Christ.
Selling, general and administrative costs in the quarter rose to $106.6-million, from $27.5-million in the prior quarter and $16.9-million in the prior year. The increase was primarily due to the $50.0-million impairment for the LatAm acquisition, an increase in non-cash share based compensation, and the inclusion of a full quarter of LatAm and two months of CC Pharma.
Now, if it sounds like I’m relishing all this, well, I don’t mind saying I told you so. A ton of APHA homers were slinging around abuse back at the beginning of the year, accusing us of being short sellers and bashers and asholes for suggesting there was something seriously rotten at Aphria.
Well, the ‘independent review’ found they’d overpaid and hadn’t had great systems to prevent abuse, and these financials, frankly, they’re the clean up that had to happen, with probably more write downs coming down the line.
As much as these are terrible numbers, they’re necessary terrible numbers, if this company is ever going to get back on level footing again.
Those people who’d been crowing online for the last month that Aphria was a-boomin’ and heading to the moon were working hard to convince themselves and others that the smoke wasn’t really fire, and we’ve learned in these numbers that the fire was in full effect.
But hey… they got a new corporate logo, so that’s nice.
— Chris Parry
FULL DISCLOSURE: No dog in this fight.
Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.