You’ve got to hand it to faithful long-term investors in Canadian cannabis producer Aphria (NASDAQ:APHA). It hasn’t been easy to hold Aphria stock as it’s been in an extended and painful bear market since early 2018.
Without a doubt, the onset of the novel coronavirus didn’t make things any easier for Aphria stock holders. The pandemic, along with an oversupply of cannabis and disappointment with the cannabis derivatives market, drove the Aphria stock price to multi-year lows in 2020.
So, is there a light at the end of the tunnel for Aphria stock holders? Some folks would point to political catalysts which could bode well for Aphria and its shareholders. I’ll give you the lowdown on those catalysts, but there’s another surprising development that you shouldn’t miss.
What development am I referring to? You’ll have to read further to get the details, but I’ll give you a clue right now. Let’s just say that marijuana isn’t the only mood-altering recreational consumable that Aphria can profit from anymore.
A Closer Look at Aphria Stock
In 2020, the bulls’ primary objective has been preventing Aphria stock from being a penny stock. Technically, a penny stock is defined by the U.S. Securities and Exchange commission as a stock trading for less than $5.
That’s why $5 is, psychologically, such a crucial price level for stocks. Interestingly, the bulls have attempted to push Aphria stock above $5 on five different occasions this year. They failed at the first four attempts.
Now, in mid-November, they’ve broken through the $5 barrier a fifth time and they really need to keep Aphria stock above that level. The bulls should be persistent but also realistic. Don’t expect to push the shares into bubble territory like it’s 2018 again.
It’s also worth noting that Aphria stock has a trailing 12-month price-to-earnings ratio of 18.93. That’s quite reasonable and it indicates a fair value for Aphria shares. Heck, some pot stocks don’t even have P/E ratios because their earnings are negative.
Getting High on Politics
Don’t worry – I promise that I won’t take a political stance one way or the other. Just suffice it to say that recent events tend to favor the pro-cannabis movement, and hence Aphria and its stakeholders.
In the middle of November, it appears highly likely that Joseph Biden and Kamala Harris will be the next president and vice president of the United States. Overall, the financial markets have accepted this and reacted favorably.
There are no guarantees, but a Biden-Harris administration could benefit the cannabis industry. After all, Harris famously declared that she is no advocate of “half-steppin’” when it comes to marijuana law reform.
Not only that, but five U.S. states (Arizona, Mississippi, Montana, New Jersey and South Dakota) recently voted in favor of some form of cannabis legalization. As a result, the U.S. now has 15 states which have approved cannabis for adult use.
Crafting a Beer Strategy
I’m about to reveal the details on how Aphria plans to diversify outside of cannabis. Nonetheless, it needs to be said that Aphria is chiefly a cannabis company and the political winds seem to be shifting in the company’s favor.
Now that we’ve gotten that out of the way, here’s the big reveal. Aphria has agreed to acquire SweetWater Brewing Company, which is one of the biggest independent craft brewers in the U.S. in terms of volume.
The $300 million acquisition isn’t cheap by any means, but consider what Aphria’s getting in return. Along with a state-of-the-art brewery in Atlanta, Georgia, Aphria will have access to a premier beverage brand that’s already available in roughly 29,000 off-premise retail locations as well as more than 10,000 restaurants and bars.
Plus, SweetWater 420 Extra Pale Ale and IPA (India Pale Ale) are served on all Delta Air Lines (NYSE:DAL) flights in the U.S. Moreover, these beverages are served on Delta’s flights internationally, totaling 50+ countries across six continents.
As Chairman and CEO Irwin D. Simon explains, this foray into the beer market has the potential to benefit Aphria’s cannabis business:
“… we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff and Solei, through our participation in the growing $29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalization.”
The Bottom Line
Are there politically driven reasons to own Aphria stock? Sure, it’s fine to take that angle if you’re so inclined.
However, politics needs not enter into the picture if you’d rather avoid it. Instead, prospective investors can buy Aphria stock as a surprisingly diversified stake in beer, cannabis and a company that’s preparing to go international.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
