Has CEO Irwin Simon Earned His Keep at Aphria?

According to Aphria’s (NASDAQ:APHA) latest annual information form dated July 29, 2020, Irwin Simon has been the chief executive officer of the Canadian cannabis company since March 2019. From December 2018 to March 2019, he was chairman of the board. In the 20 months since becoming CEO, Aphria stock has lost 54% of its value through Oct. 27.

An Aphria (APHA) marijuana product
Source: Shutterstock

I’ve been somewhat positive about the former Hain Celestial (NASDAQ:HAIN) CEO’s involvement with the company since taking the reins. While I still believe he’s got an opportunity to do something special with Aphria, shareholders have to be getting impatient.

Interestingly, while the information form says Simon’s been CEO since March 2019, he wasn’t officially made the permanent boss until Jan. 14 of this year. Some would argue that any commentary about the stock’s performance should be from Jan. 14 through Oct. 27, and not from March 2019.

On that basis, APHA is down 6.6% since Simon became CEO. It’s something for me to keep in mind as I assess whether he’s earned his keep.

So, I’ll look at three areas to assess whether he’s earned his keep: Compensation, growth, and financial strength. By the end, I’ll have a conclusion.

Simon’s Compensation

In October 2019, BNN Bloomberg stated that Simon was one of the cannabis industry’s highest-paid executives, earning almost 9.6 million CAD in fiscal 2019. This includes option- and share-based awards worth 8.8 million CAD.

On Sep. 23, Aphria filed its management information circular for fiscal 2020 (July 29, 2020, year-end). It showed that Simon’s pay doubled to 18.6 million CAD, including 12.1 million CAD in share-based awards.

Not included in the 2020 compensation is 3.9 million CAD from share-based awards that vested during the fiscal year, upping the total compensation to 22.5 million CAD.

If Simon is terminated without cause due to a change in control, the CEO will receive 10.6 million in CAD for his trouble.

That’s a lot of money to pay out for any CEO, let alone one whose stock has lost more than half its value on his watch.

Aphria’s Growth

The company reported its first-quarter 2021 earnings on Oct. 15. They were quite good.

Key highlights include:

  • A 23% increase in sales of adult-use cannabis to 69.6 million CAD, which was a record. It was also the sixth consecutive quarter of growth.
  • On the downside, its CC Pharma distribution business saw revenues drop by 17% to 82.2 million CAD.
  • Overall sales fell by 4%.
  • The all-in cost of goods sold per gram fell 17% to 1.41 CAD.
  • Overall adjusted earnings before interest, taxes, depreciation and amortization rose 11% over the previous quarter. Year-over-year, adjusted EBITDA increased 900% to 10 million CAD.

So, except for the CC Pharma business, Aphria’s business remains full-speed ahead.

“Our strong first quarter results reflect the continued robust growth and development of Aphria’s adult-use cannabis brands in Canada,” Simon commented on the quarter.

“We are consistently taking a diversified approach to our innovation, strategic partnerships, global expansion and corporate citizenship to fuel sustainable, long-term growth. We believe that the strength of our balance sheet and cash position, combined with our consistent focus on our highest-return priorities, will generate sustainable long-term value for all stakeholders.”

Simon’s comments lead me to the third and final area of examination.

Financial Strength

Aphria finished the first quarter with 128.6 million CAD in long-term debt. Add in its credit facilities, short-term debt, lease liabilities, and convertible debentures, and its contractual obligations were 432.6 million CAD at the end of August.

At the same time, it had 400 million CAD of cash and cash equivalents on its balance sheet. This means it had net debt of 32.6 million CAD or less than 2% of its current market cap.

From where I sit, Simon’s 100% bang-on when he suggests its cash position and balance sheet is fortress-like.

The Bottom Line on Aphria Stock

Is Irwin Simon paid a lot of money? You bet.

Is he worth more than 20 million CAD for being CEO? Probably no one is.

However, if shareholders want to see a return on their investment anytime soon, now is not the time to go looking to pick a fight with the CEO.

If you compare the business before Simon got involved to where it is today, I don’t think you can conclude anything other than it’s on the right path.

As long as APHA trades below $5, I see it as a screaming long-term buy.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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