Despite Mixed Signals in Cannabis Industry, Aphria Could Offer Long-Term Upside

Shares in Canadian cannabis producer Aphria Inc (NASDAQ:APHA) are sliding today. They’re currently down by about a third after closing at an all-time high of $26.30 on Feb. 10. Does that make APHA stock tempting? If you are interested in having a cannabis stock in your portfolio, this might be the right time to make a move.

a marijuana leaf displayed among other numbers related to stock performance

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Those who have been following companies in this sector may be feeling some deja vu. Aphria and other cannabis stocks have been poised to take off several times over the past few years.

Big gains have been followed by rapid drops, as expected catalysts failed to ignite the cannabis market. This time has the potential to be different for APHA stock. Here’s why.

Canadian Cannabis Market is Finally Starting to Live Up to Its Billing

The story of cannabis stocks — including Aphria — is closely tied to cannabis legalization in Canada. 

Shares in cannabis companies soared in 2018 when it was announced that Canada would legalize the sale of recreational marijuana. APHA stock peaked near $18 in January 2018 in anticipation of what was expected to be a gold rush. Only two year prior, it had been a penny stock. After the initial excitement died down, the stock surged again that summer an fall as the Oct. 17, 2018 legalization date approached.

However, the rush to buy legal recreational marijuana in Canada failed to materialize. A number of factors were at play, including production ramp up and distribution challenges, and a lack of retail locations, but Canadian consumers seemed disinterested. 

The next big hope was that “Cannabis 2.0” would kickstart interest. This was the move to allow companies to sell cannabis edibles and beverages in Canada, beginning in December, 2019. That also fizzled. APHA stock started off 2020 trading under the $5 level.

The pandemic seems to have done what the initial launch hype couldn’t manage. The Canadian recreational cannabis market finally began to take off. The number of licensed retail outlets in the country rose from 760 at the end of 2019 to over 1,400 by the end of 2020. Sales of cannabis products in the country rose by 120% year-over-year. Aphria’s earnings reflected that trend. In its latest quarter, the company reported net cannabis revenue up 99% YoY.

Of course, the American market for recreational cannabis dwarfs that of Canada. It’s the real long-term prize, but an elusive one. There have been positive signs on that front. More states are legalizing marijuana, including New York last week. 

But at the federal level, the message is still mixed. At the same time as a marijuana reform bill is being promised by the Democrats, White House staffers have reportedly been fired after background checks showed past marijuana use.

The Bottom Line on APHA Stock

Amid many developments in the cannabis industry, APHA shares have gained 440% over the past 12 months. The question is, will these developments provide momentum for the price to continue rising?

Many investment analysts are hesitant to recommend APHA stock. Of the nine analysts polled by CNN Money, the stock rates a narrow consensus “Buy.” In other words, there’s not a wealth of optimism that any of the factors currently in play is going to turn out to be a major catalyst for growth.

I get that. APHA shares currently rate a “B” in Portfolio Grader. It’s far from a sure thing. However, the potential is there. And don’t forget the proposed merger that would see Aphira become the world’s largest cannabis company. But investors may consider buying APHA stock now and holding onto it past the merger, since the Canadian cannabis market is finally livening up and it looks like the U.S. cannabis situation is evolving. If the pieces fall into place there is real long-term growth potential here. 

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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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