It’s been a long ride down for shares of Canadian cannabis producer Aphria (NYSE:APHA). In February 2019, Aphria stock was trading hands north of $10, riding high on broad cannabis sector optimism. That optimism has since faded. So has APHA’s $10 price tag.

Today, Aphria stock trades hands below $5.

Time to write off Aphria as a loser? No. Far from it. Indeed, Aphria’s long-term fundamentals remain favorable, the company is doing everything right to ensure a bright future, and there is a tangible pathway here for Aphria to rise nearly five-fold over the next few years.

Sure, at the current moment, near-term cannabis market headwinds are weighing on APHA stock. They will continue to weigh on shares for the foreseeable future. But, they should pass, and once they do, all the underlying good stuff should power a big multi-year rally in Aphria stock.

The investment implication? Sit on the sidelines. Be patient. Wait for cannabis market headwinds to reverse course, and turn into tailwinds. When that happens, buy the dip in Aphria with both hands.

The Near-Term Outlook Isn’t Great

Even the biggest of cannabis bulls must admit that the near-term outlook for pot stocks is not great.

Cannabis demand globally is robust; there’s no denying that. But companies like Aphria are having a lot of trouble converting that demand into the legal channel. Why? Because the black market doesn’t have to pay taxes. They don’t have legal and regulation fees. They also have a more robust supply, know cannabis logistics better and have more developed distribution networks.

So, black market weed is cheaper, less likely to be sold out, and easier to get than legal weed. The result? Many cannabis consumers are sticking to the black market, which is putting a damper on sales growth at all legal Canadian cannabis producers.

In response, those producers are cutting their prices and investing big to build out distribution and production capacity. This costs money, so margins are taking a hit, too.

This double headwind of sluggish sales/demand growth and eroding margins has killed the entire cannabis sector over the past few months. Unfortunately, it doesn’t look like things will get better any time soon.

The one thing that could fix all of these problems is legislation. Canada could pass legislation which increases punishment of black market cannabis sales, or which lowers taxes, regulations, and fees. That isn’t happening today, nor is it in the works.

Alternatively, the U.S. could pass legislation which legalizes cannabis at the federal level, and turn everyone’s attention away from the troubled Canada market. But, the one bill that aims to do that (dubbed the “MORE” Act) still has to go through a Republican-controlled Senate before it becomes reality, and that could take a while.

Big picture — the headwinds which have killed Aphria stock over the past few months, will stick around for the next few months.

Aphria Stock Has Huge Long-Term Potential

The long-term bull thesis on Aphria stock rests on one simple idea. Legislation will eventually “catch up”, and when it does, Aphria will become a very important player in a huge global cannabis market.

Breaking that bull thesis down, it all starts with legislation. Today, legislation isn’t where it needs to be to support a several-hundred-billion-dollar cannabis industry. One day it will be as consumer attitudes globally continue shifting in favor of cannabis legalization.

Governments already have all the power they need to shut down the black market and push demand into the legal channel via harsher black market punishments, lower legal market fees, and much more. Net net, then, we are in the early innings of the birth of a global legal cannabis super-industry that will one day rival the global alcoholic beverage and tobacco markets.

Those are several hundred billion dollar markets with several multi-billion dollar producers. The cannabis market will evolve into something very similar, and Aphria has a great opportunity to be one of the cannabis market’s multi-billion producers in several years.

Why Aphria? Because the company is doing everything right today. They are successfully growing their reach in an otherwise depressed Canadian cannabis market, registering 7% sequential volume growth last quarter while other major producers actually saw their volumes fall sequentially.

At the same time, the company’s gross margins are impressively stable, while management is successfully keeping costs down to the point where Aphria has actually been profitable for two quarters in a row, something no other cannabis company has even done once. Production capacity is expanding. The company is geographically expanding, too.

In other words, Aphria is doing everything right today. Assuming they keep doing everything right, then the math works out here for Aphria stock to hit nearly $25 by fiscal 2025.

Bottom Line on Aphria Stock

I think there is a reasonable chance that long-term cannabis market tailwinds and strong execution push APHA stock towards a $25 price tag one day.

But, that huge run higher won’t start today. There are simply too many near-term headwinds clouding the long-term outlook here for investors to get excited about the buying the dip. Eventually, those headwinds will pass. When they do, the stock will start its huge march higher.

Until that happens, though, the best place to hang out is on the sidelines.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.