David George-Cosh

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Shares of Aphria Inc. plunged Thursday after the company reported fiscal first-quarter results that missed analyst expectations, despite an increase in recreational cannabis sales, as the COVID-19 pandemic weighed on its German pharmaceutical distribution business. 

The Leamington, Ont.-based cannabis producer said it generated $145.7 million in revenue in its first quarter, up 16 per cent from the same period a year earlier, but down four per cent from the prior quarter. Aphria also recorded $10 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), a slight improvement from $8.6 million in the prior quarter.

Analysts tracked by Bloomberg expected the company to report about $159.6 million in revenue during the three-month period that ended Aug 31, with $11.9 million in EBITDA. 

Aphria said first-quarter revenue from its cannabis business came to $62.5 million, an improvement from $53.1 million in the prior quarter, as more customers flocked to the company's large-format products. However, Aphria's gross margins on its cannabis operations slipped as a result of the popularity of its lower-priced offerings to the Canadian market. 

Still, recreational cannabis sales climbed 23 per cent from the prior quarter, helping to maintain the company's market share lead in Ontario and Alberta, according to Irwin Simon, the company's chairman and chief executive officer. 

"All our brands grew in the quarter with no cannibalization," he said. "[The large-format offerings] are targeting consumers that are on the fence on price and those who were buying on the illicit market." 

Simon added that the company's German pharmaceutical business saw revenue decline about 14 per cent from last year as supply chain issues caused by COVID-19 hurt Aphria’s ability to ship medicine to patients, while doctor visits were also impacted by the pandemic. 

The company said its vape products - its sole offering to the industry's still-nascent "Cannabis 2.0" segment - represented about 13 per cent of total sales, and expects to eventually hit about 20 per cent of its cannabis-related revenue. Simon said that other Cannabis 2.0 products including drinks and edibles will be launched sometime early next year. 

"We want to focus on where consumers are going rather than what consumers want," Simon said. "To some degree, I don't mind being slower because I don't want to have something that consumers don't want and I don't want to make the same mistakes."

Aphria is also keeping a close eye on legalization efforts in the U.S. as well as additional countries in Europe for potential acquisition opportunities, and is prepared to be a player in consolidating the Canadian market, Simon added. 

"Consolidation has got to happen in Canada and there's a chance we will be part of it," he said. "I don't know with who -- or when it will happen; and if it doesn't, that's okay because we can go it alone with our brands and portfolio."