On April 15, Aphria Inc. (NYSE: APHA) reported earnings for its first fiscal quarter of 2020. The company’s stock price bounced off a year-to-date and 52-week low of $1.95 on March 18 after a few kind words from a Bank of America analyst. In late January, Aphria had accepted a strategic investment from an unnamed institutional investor of C$100 million (US$76.14 million).

When the deal was announced, Aphria stock traded at around $6, yielding a market cap of more than $1.5 billion. By April 13, that number had dropped to around $935 million.

The big difference, of course, has been the COVID-19 outbreak. At first, cannabis stocks got a boost as recreational and medicinal marijuana buyers flocked to retail outlets in Canada. The traffic surge was short-lived, though, and Canadian pot retailers had plenty of supply for stores that got little to no traffic due to stay-at-home orders.

What did investors hear when Aphria reports earnings?

The Analysts’ Take on Aphria

Analysts were looking for the company to report a loss per share of C$0.04 ($0.03) on sales of about C$131 million (around $94 million) for the company’s third fiscal quarter that ended in February. Aphria reported net revenue of C$144.4 million and net income of C$0.02 per share. Compared with the same period in 2019, Aphria performed much better. The company lost C$0.43 a share last year on sales totaling C$69 million.

The company’s strength in the medical marijuana market has been a source of confidence in the stock, as has its strong cash position following the January investment. Third-quarter sales included 1,352 kilograms of medical cannabis and 8,171 kilograms of recreational marijuana. The company’s average selling price for medical cannabis was $6.41 per gram, and recreational cannabis sold for an average of $5.47 a gram. Cash costs per gram totaled C$0.93 and the all-in cost of goods sold totaled C$1.69, both lower than a year ago.

The province of Ontario decided that the cannabis industry was not an essential business and two weeks ago shut down marijuana retail shops in Canada’s most populous province. Nearly 40% of Canada’s population lives in Ontario, and the province accounted for about 25% of the country’s sales. Canada’s marijuana industry couldn’t afford to lose that much business.

One slim positive for Aphria is that medical cannabis deliveries and recreational sales are still allowed in Ontario, although the recreational pot must be delivered by mail.

Bank of America analyst Christopher Carey commented in January that Aphria made a good defensive play among the marijuana stocks. The addition of the C$100 million investment, Carey said, meant that just over half of Aphria’s value at the time was in cash. That’s the sort of thing stock market investors like to hear, even if there was more than a full month left in the quarter.

What Aphria Investors Have to Look Forward To

When its cash pile topped C$500 million back in January, Aphria said it planned to use C$100 million for international expansion and working capital. There’s no evidence that the company ran out and bought something before the COVID-19 outbreak hit, so it’s likely that Aphria is still sitting on a good-sized amount of cash.

While it might have been a good idea two months ago to expand, now is not the time for cannabis companies to be thinking about anything but survival. Balance sheets are more important than income statements.

Aphria may have a chance literally to steal some market share once Canadian retailers reopen. The company, like all the others, will have ample inventory and could buy market share from competitors by lowering prices. It might even use some of its cash to acquire another small retail chain in Canada to increase its footprint in its home country.

The catch is that no one knows when the lockdowns will end and the Canadian pot growers will get another chance to make some money. Aphria could get stronger as the lockdowns continue.

The entire Canadian pot industry is in wait-and-see mode, both the companies and investors. However, it will not remain that way forever.

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