Canadian cannabis producer Aphria (NYSE:APHA) reported strong fourth-quarter results in late July that broadly underscored one big idea: APHA stock is one of the best marijuana stocks to buy today.
Aphria increasingly represents the cream-of-the-crop in the cannabis space.
While pretty much every other player in this space has seen its revenue growth trends slow, margins come under pressure and net losses widen, Aphria has seen none of that.
Volumes and revenues are surging higher. Gross margins are holding up at industry-high levels. The company has been able to score a profit in five straight quarters. More than that, adjusted profits are growing every quarter.
In other words, from a financial perspective, Aphria is a shining star in the struggling cannabis space.
And because of this, APHA stock is one of — if not the best — cannabis stock to buy today.
A Shining Star
When you look out across the cannabis landscape today, you’ll see some consistent patterns.
Sluggish and sometimes negative revenue growth on the back of weak demand. Big gross margin erosion thanks to too much supply chasing too few customers, which has resulted in a ton of promotional activity and intense pricing pressures. Widening losses as opex cuts haven’t been enough to offset significant gross margin erosion.
You don’t see any of that over at Aphria.
Sluggish growth? Nope. Cannabis revenues rose 90% year-over-year last quarter. That’s been the trend all year long. Huge revenue growth.
Eroding margins? Nope. Last quarter, adjusted cannabis margins came in at 52.9%, essentially flat year-over-year. Again, this has been the trend all year long. Adjusted margins in the cannabis business have remained solidly above 40%, which stands in stark contrast to the negative gross margins some other companies are reporting thanks to inventory write-offs.
Widening losses? Again, nope. Last quarter, Aphria reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 8.6 million Canadian dollars ($6.5 million). For the full year, adjusted EBITDA was CA$17.2 million. Both are up huge year-over-year.
In other words, Aphria is sustaining huge growth, strong margins and steady profit growth, in an industry that’s broadly seeing none of that.
The implication, of course, is that Aphria is the best-in-breed when it comes to cannabis companies.
Aphria Stock Has Upside Potential
Because of Aphria’s superior operating model, there is clearly visibility to huge upside gains in APHA stock over the next few years.
The global cannabis market is in the first inning of huge growth over the next several years. Demand for alternative recreational drugs is robust across the globe. Cannabis is the most popular, safest, and most accessible of those drugs. Legislation is increasingly pivoting to support widespread legalization of and easier retail access to cannabis, so that within the next five to 10 years, buying cannabis will be as easy as buying household products from Amazon (NASDAQ:AMZN).
Connecting the dots, I see the global legal cannabis market growing to be a mini-version of the global alcoholic beverage market at scale.
That’s a market in the hundreds of billions of dollars. Reasonably, then, the global cannabis market could grow to $100 billion or more within the next one to two decades.
Because Aphria is able to grow profitably today — giving it more resources to invest back into future growth opportunities — the company projects to be one of the major players in this industry at scale.
The major players in the alcoholic beverage market command a market share of 1% or more. That means Aphria will be a multi-billion-dollar revenue company one day with healthy margins and hundreds of millions of dollars in profits. That could easily lead to this being a $10 billion company in the future.
Aphria has a $1.2 billion market cap today.
Needless to say, APHA stock has huge long-term upside potential.
Bottom Line on APHA Stock
Aphria isn’t just another cannabis producer. At present, it’s the strongest cannabis producer in the market, with rising revenues, stable, industry-high margins and sizable profits.
To that end, APHA stock is one of the best pot stocks to buy today.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long AMZN.