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Why Aphria Shares Are Soaring Today

What happened

Shares of Aphria (NYSE: APHA) were soaring 22.4% higher as of 9:48 a.m. EDT on Tuesday. Before the market open, the Canadian cannabis producer announced results for its fiscal 2020 first quarter, which ended on Aug. 31. And those results were very good, with Aphria reporting its second consecutive quarter of profitability.

So what

Aphria stock fell Monday as investors appeared to worry that the company would give disappointing news along the lines of HEXO's preliminary fiscal 2019 fourth-quarter revenue update. Those worries were misplaced.

Image source: Getty Images.

HEXO had warned about pricing pressure in the Canadian adult-use recreational market. But Aphria reported a higher average selling price than in the prior quarter. The company's recreational net revenue increased 8% from the previous quarter to 20 million Canadian dollars ($15.1 million).

Although Aphria's total net revenue slipped a little from the prior quarter, the culprit was the company's CC Pharma medical cannabis distribution operation in Germany. But even this seemingly bad news was actually good news. Aphria said that the revenue dip stemmed from "a change in business strategy at CC Pharma to maximize profitability after recent changes in the German government's medical reimbursement model." That strategy change appeared to have paid off: Aphria's net income increased from CA$15.8 million in the previous quarter to CA$16.4 million in Q4.

This latest quarterly update showed that the company is managing to succeed while several of its peers are struggling. That's the kind of message that fires up investors, as we've seen with the stock's big jump today.

Now what

The main thing to watch with Aphria now is the company's launch of new products in the "Cannabis 2.0" derivatives market. Although this new market technically opens this week, cannabis producers must provide a 60-day notice before introducing new products. That means Aphria won't roll out any of its new cannabis-derivative products until mid-December.

Investing in marijuana stocks has come with more bad news than good over the last several months. But after its latest display of financial strength, Aphria appears to be in a position to deliver more good news.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.


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