LABS and VLNS
Cannabis Summary for April 15, 2020
2020-04-15 16:44 PT - Market Summary
by Stockwatch Business Reporter
The S&P/TSX Cannabis Index lost 1.2 points to 129.01 Wednesday, while the Canadian Securities Exchange Composite Index lost 2.48 points to 274.94. Irwin Simon's Aphria Inc. (APHA) gained 24 cents to $5.33 on 16.47 million shares on its fiscal third quarter results (for the three months ending Feb. 29), which the company released last night at 6 p.m. PT. The company had net revenue of $144-million in fiscal Q3, up nicely from $120-million in fiscal Q2. Aphria's revenue comes from two main areas: distribution and cannabis revenue. It was a surge in cannabis revenue that drove the increase this time; Aphria's net revenue from cannabis products rose to $55.6-million in Q3 from $33.7-million in Q2. The three months ending Feb. 29 was the first period in which sales of cannabis 2.0 products were reflected. Aphria sold $6-million worth of vape products in the quarter.
Historically, the bulk of Aphria's sales have been made by its German pharmaceutical distribution business, CC Pharma, which Aphria acquired near the start of 2019. In fiscal Q3, CC Pharma's revenue climbed modestly to $88.3-million from $86.4-million in fiscal Q2.
Aphria insists that its cannabis sales would have been higher had it been able to meet customer demand. Indeed, Aphria wholesale purchased cannabis products from other licensed growers in Q3 to resell to customers. This, Aphria says, hurt its margins. It was not just a slight shortage. The company sold $20.2-million of cannabis in Q3 that it had purchased from other cannabis companies.
Despite the seemingly heavy demand, at quarter-end, the company had cannabis inventory of $225-million. Aphria offered no ready explanation for that oddity. It could be that there are questions about the quality of that cannabis or that Aphria has been unable to get the cannabis from the plant into packaging.
Whatever the issue, Aphria certainly has the means to address it. Aphria has a robust balance sheet with $515-million in cash and cash-equivalents. Unlike Canopy Growth Corp. (WEED: $20.85) and Cronos Group Inc. (CRON: $8.25), Aphria does not enjoy the backing of a big investor. The company raised the money through public offerings. Two years ago, Aphria raised about $375-million and then another $350-million (U.S.) in April, 2019, when the marijuana bubble was near its peak.
With all of that cash, the company should be able to stomach any worse-than-anticipated effects caused by COVID-19. Still, citing uncertainty and possible suspensions on business, Aphria withdrew its revenue and adjusted EBITDA guidance for fiscal 2020 (Aphria's fiscal 2020 ends May 31, 2020). The cannabis producer was calling for revenue of between $575-million and $625-million (which was already revised down from $650-million to $700-million). Even without COVID-19, that target looks to have been a stretch. Aphria had revenue of $391-million in the first three quarters of fiscal 2020, so it would have needed lofty Q4 net revenue of $184-million (compared with $144-million in Q3) to reach the low end of its guidance.
Cannabis extractor Valens Groworks Corp. (VLNS) lost 25 cents to $2.29 on 1.5 million shares on its fiscal first quarter results (for the three months ending Feb. 29), which Valens released after the market closed yesterday. The company reported a profit of $2.5-million in Q1 2020, not quite as impressive as its $4.4-million profit in Q4 2019. Its revenue continued to increase, though, to $31.9-million in Q1 2020 from $30.6-million in Q4 2019.
The modest rise in revenue comes after Valens's four straight quarters of exponential-like growth. In fiscal 2019, its revenues went from $2.2-million to $8.8-million to $16.4-million to $30.6-million. Even though the growth slowed, its quarter was much more impressive than that of its top extraction competitor, Medipharm Labs Corp. (LABS: $1.68). After Medipharm's steady revenue growth in 2018 and most of 2019, the company reported Q4 revenue of $32.4-million, down significantly from its Q3 revenue of $43.4-million. Medipharm also lost $3.5-million in Q4 after recording a $3.2-million profit in Q3.
Unlike many companies in the sector, Valens has remained profitable, with a bit of a catch. The company has now had three straight profitable quarters (although its profit has dropped in each quarter: $5.8-million in fiscal Q3, $4.4-million in Q4 and now $2.5-million in Q1). Its revenue continues to rise in less-than-optimal market conditions, and yet Valens is still down considerably from $3.95 when it released its Q4 results to today's closing price of $2.29.
South of the border, Las Vegas-based retailer Planet 13 Holdings Inc. (PLTH) gained 14 cents to $1.54 on 326,900 shares after releasing its 2019 results. Planet 13 lost $2.6-million in the fourth quarter and lost $6.7-million on the year overall. The company's revenue stayed relatively steady throughout the year, mostly because Planet 13 only has one dispensary. Its Q4 revenue of $16.5-million was slightly lower than Q3 revenue of $16.7-million.
While 2019 was a steady if not uneventful year, the presence of COVID-19 alone will make 2020 much more turbulent for Planet 13. In mid-March, Nevada ordered all dispensaries in the state to close. Since that time, cannabis companies have only been allowed to make sales in Nevada through delivery. In response, Planet 13 has increased its delivery service from five vehicles to 28. That is not the only adjustment the retailer had to make. With the Las Vegas economy being obviously reliant on tourism, businesses there have been hit particularly hard. Indeed, 85 per cent of Planet 13's revenue came from tourists. That entire revenue stream is wiped out for now. The company's sales to local area residents have risen from 15 to 100 per cent (which, in dollar terms, undoubtedly translates to far less revenue).
Investors seem to share these concerns, as Planet 13's stock dropped from a February high of $2.60 to 98 cents in mid-March. In the last few weeks, with the broader market's improvement, Planet 13 has climbed back to $1.54. Considering the fact that only part of march was affected by COVID-19, its estimated first quarter sales of $16.6-million look achievable. Planet 13's sales in April and -- depending on how long the shutdown continues -- in Q2 will be more telling of how COVID-19 will affect the company's revenue.
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