Aphria stock may be the best house on the block in the Canadian pot business. However, investors can’t forget that it is in a bad neighborhood.
As I have noted before, the Canadian pot market has been a buzzkill for investors. But, the sector hasn’t hit bottom yet.
There is plenty of blame to go around for challenges facing the legal weed business from Health Canada’s slow licensing processing to the glacial pace that provinces have approved permits for retail stores. The gains that investors expected APHA and its rivals to receive from U.S. legalization haven’t been as bountiful as investors have expected. Moreover, prices for legal pot in Canada continue to be 45% more expensive than black-market weed, further undermining APHA.
Aphria Stock Outperforms Its Rivals
Nonetheless, Aphria stock is a beacon of hope for beleaguered fans of legalized pot stocks. During its most recent quarter, APHA reported a net revenue of 126.1 million CAD, an 849% increase over the same period year-over-year. Net income was CAD 16.4 million — or 7 cents per share — reversing an earlier loss; This is due to the strength of its German affiliate, CC Pharma. The company also reiterated its fiscal 2020 revenue guidance of 650 million CAD to 700 million CAD on adjusted EBITDA of $88 to $95 million.
Rivals of Aphria stock, though, fared much worse. Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) both reported sales declines and issued profit warnings. Hexo (NYSE:HEXO) withdrew its 2020 financial guidance, and the stocks of all four companies are likely going to finish 2019 in the red.
Over the past year, Aphria is down 18% because it has disappointed investors. During that same period, Canopy Growth is off 30%, Aurora is off 62% and Hexo is down 78%.
Overall, Aphria stock has had a rocky history. Earlier this year, CEO Vic Neufeld and co-founder Cole Cacciavillani left the company after short-sellers accused the company of purchasing assets from insiders at inflated prices. Neufeld and Cacciavillani denied wrongdoing. The company has roughly 600 million CAD in goodwill on its books, which indicates that a writedown looms on the horizon.
The History of Hain Celestial
Hain Celestial (NASDAQ:HAIN) CEO Irwin Simon succeeded Neufeld. Simon, however, has issues of his own. HAIN was targeted by an activist investor called Engaged Capital, who raised concerns about Simon’s management of the parent company of Celestial Seasonings tea.
New York-based HAIN reached an agreement with Engaged in 2017 that lead to sweeping changes to HAIN’s board. A year later, Simon left HAIN, one of the many packaged-food companies to replace their leaders under pressure from activists.
The SEC also admonished HAIN for accounting errors that occurred under Simon’s watch, though it stopped short of fining the packaged food company since it reported the issue to the staff of the commission.
Aphria stock has been on a downward spiral since 2018, plunging more than 67%. So, until I see evidence that Irwin has figured out how to overcome the pot sector’s many challenges, I will stay on the sidelines.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.