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Here's Why Investors Hated Aphria's Q3 Results

Aphria (NASDAQ: APHA) ranks as one of the three best-performing cannabis stocks so far in 2021. However, that sizzling performance is cooling off somewhat now.

The Canadian marijuana producer announced results from its fiscal 2021 third quarter, which ended on Feb. 28, 2021, before the market opened on Monday. Aphria's shares sank 13% in early trading. Here are the highlights from the company's Q3 update.

Image source: Getty Images.

By the numbers

Aphria reported net revenue in the third quarter of 153.6 million Canadian dollars. This reflected a 6.4% increase from the net revenue of CA$144.4 million in the prior-year period. However, it came in well below the average revenue estimate of CA$166.2 million from analysts surveyed by Refinitiv.

The company announced a net loss in Q3 of CA$361 million, or CA$1.14 per share. In the prior-year period, Aphria posted net income of CA$5.7 million, or CA$0.02 per share.

Aphria recorded an adjusted net loss of CA$47.9 million, or CA$0.15 per share. This marked significant deterioration from the adjusted net loss of CA$9.8 million, or CA$0.04 per share, generated in the prior-year period. It also failed to meet the average analyst's estimate of an adjusted net loss of CA$0.04 per share.

Behind the numbers

Aphria primarily makes its money in two ways: distribution revenue from its CC Pharma operations in Germany and selling recreational and medical marijuana. The company's distribution revenue in Q3 slid 5% from the previous quarter to CA$87.1 million. Net cannabis revenue fell nearly 24% quarter over quarter to CA$51.7 million.

There was a common reason behind both sequential declines: lockdowns in major Canadian provinces and in Germany. Aphria Chairman and CEO Irwin Simon stated, "The duration and impact of lockdowns across many of the regions we operate in, particularly in Canada, were greater than we initially anticipated for the cannabis industry and our business."

Lower marijuana selling prices also hurt Aphria. The company's average retail selling price of medical cannabis (before excise taxes) fell to CA$6.69 per gram in Q3 from CA$6.96 per gram in Q2 due in part to pricing programs to help patients impacted by the pandemic. The average selling price of adult-use recreational cannabis declined to $3.82 per gram in Q3 from CA$4.29 per gram in Q2 due primarily to consumer buying shifts and pricing pressures.

Despite the lower revenue and missing analysts' estimates, Aphria did have some good news in the third quarter. The company remained No. 1 in both Ontario and Alberta in cannabis sales. Its market share in Quebec rose to the No. 2 spot.

The company also recorded CA$14.8 million in net revenue from its alcoholic beverage business. Aphria completed its acquisition of craft beer maker Sweetwater Brewing in November 2020.

In addition, Aphria posted its eighth consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The company's adjusted EBITDA rose to CA$12.7 million in Q3 from CA$12.6 million in the previous quarter.

Looking ahead

The increased availability of COVID-19 vaccines should help boost Aphria's business across the board. However, the biggest thing to look forward to is Aphria's impending merger with Tilray (NASDAQ: TLRY).

Aphria shareholders are scheduled to vote on this proposed combination on Wednesday. Once the deal is finalized, the resulting entity, which will be named Tilray, will be the biggest cannabis company in the world.

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