Aphria Inc. reported a first-quarter profit that beat analyst expectations after the cannabis producer increased the amount of marijuana sold in the Canadian recreational market while lowering costs.

The Leamington, Ont.-based pot producer reported $16.4 million in net income in the first quarter of fiscal 2020 or seven cents per share, compared to $21.2 million or $0.09 per share for the same period last year. Analysts polled by Bloomberg expected the company to report an adjusted loss of $7.7 million or three cents per share.

Aphria reported net revenue of $126.1 million, an increase of 849 per cent from the same period last year. The increase was largely driven by the company’s Germany pharmaceutical distribution business, and selling more recreational cannabis than the prior quarter, Aphria said. It reported $30.8 million in cannabis revenue in the quarter selling 5,969 kilograms, up from $28.6 million and 5,574 kilograms in the prior three-month period. Analysts expected Aphria to report $130.6 million in revenue.

"We are pleased to report a second consecutive quarter of profitable growth with strong contribution from our Canadian cannabis operations,” stated Irwin Simon, Aphria’s interim chief executive officer and chairman. “Our success was also driven by our international business and the strength and growth of our brands, particularly Broken Coast, despite a small fire at our British Columbia facility at the end of the quarter. This solid start to the year keeps us on track to achieve our fiscal year 2020 financial outlook."

Aphria reaffirmed its forecast for fiscal 2020 with revenue projections between $650 million to $700 million, with its German distribution business representing slightly more than half of the total net revenue. It also expects $88 million to $95 million in adjusted earnings before interest, tax, depreciation, and amortization.

Justin Keywood, a cannabis analyst with GMP Securities, said in a research note the company’s financial results were “solid” amid broader industry challenges and a plunge in cannabis-listed stock values.

“The results are also consistent with our recent scuttlebutt, including that Aphria has greatly improved in how it operates, along with good customer pull-through for its brands,” said Keywood, who maintains a ‘buy’ rating and $14 target on Aphria’s stock.

The company said its cash cost to produce dried cannabis increased slightly in the first quarter to $1.43 a gram, from $1.35 a gram in the prior quarter. Seaport Global analyst Brett Hundley said in a research note published last week that producing cannabis at the lowest cost possible is “the most important factor at this particular point in time” for the sector.

Aphria said it ended the quarter with $464.3 million of cash, cash equivalents and “liquid marketable securities” earmarked to help fund the company’s planned Canadian and international growth. It remains on track to produce 255,000 kilograms of cannabis annually once all of its facilities are licensed. However, its Diamond greenhouse – estimated to produce about half of the company’s pot – remains unlicensed by regulators. During a conference call with analysts on Tuesday, Simon stated Health Canada told the company on Friday it is “expediting” its licence for its Diamond greenhouse.

The company is also embroiled in a supply dispute with Toronto-based cannabis producer Aleafia Health Inc., which ended a deal to receive 175,000 kilograms of high quality dried cannabis flower and crude cannabis oil from Aphria last week.  

During an interview with BNN Bloomberg, Simon said the company was slow to meet its supply obligations as it has yet to receive licensing for its Diamond facility. “We are a very, very large shareholder of Aleafia and being a large shareholder, we want to supply them. We’ve had every bit of intention to supply them,” Simon said.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.

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