David George-Cosh

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Aphria Inc. reported fourth-quarter results Wednesday that beat analyst revenue expectations as the company expanded its market share across Canada, but took a steep impairment charge on some of its international operations due to the COVID-19 pandemic. 

The Leamington, Ont.-based company said it made $152.2 million in revenue in its fourth quarter while recording $8.6 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Analysts polled by Bloomberg expected the company to report about $146 million in revenue during the three months ended May 31, with $8.5 million in positive EBITDA. 

"At Aphria, we are setting ourselves apart from the rest of the cannabis industry," Aphria Chair and CEO Irwin Simon said in a release. "We have generated some of the strongest sales growth, we have one of the strongest balance sheets and cash positions, compelling consumer brands and a well-diversified global business.”

Aphria said it expanded its recreational cannabis market share in Ontario to a leading 16.1 per cent from 13 per cent in the prior quarter, and also remained the top cannabis producer in Alberta with 12 per cent market share in that province. 

However, Aphria said it took a $63.9 million impairment charge as the pandemic impacted production efforts in its businesses located in Jamaica, Lesotho, Colombia, and Argentina, as well as $27 million from a revaluing of its convertible debentures. That led to Aphria reporting a net loss of $98.8 million in the quarter. 

The company also initiated a US$100 million at-the-market equity offering, which may weigh on its shares, but will provide added levels of flexibility for its balance sheet, Stifel analyst Andrew Carter said in a report to clients on Wednesday. 

Simon said during a television interview with BNN Bloomberg Wednesday that the impairments "makes sense in the long term of the business" and those businesses weren't much of a focus for him when he took on the CEO role last year. 

Aphria is the first major cannabis company to report a full quarter during the COVID-19 pandemic, which has turned out to be a boon for the legal marijuana industry. Sales of legal cannabis rose about 20 per cent to $545.5 million from March to May from the prior three-month period, according to Statistics Canada. 

Despite the rise in sales, Canadian cannabis companies have struggled to demonstrate a steady quarterly run of profits. That's led to several major players such as Canopy Growth Corp. and Aurora Cannabis Inc. reporting steep write-downs, facility closures, and widespread layoffs. Simon noted during his interview with BNN Bloomberg that Aphria didn't lay off any production staff during the recent pandemic period. 

However, Aphria appears to be emerging from the industry's woes largely intact with its second straight profitable quarter. The company may also eclipse Canopy Growth as Canada's largest seller of legal pot with $65.5 million in recreational cannabis sales in the fourth quarter. The Smiths Falls, Ont.-based company reports its next fiscal quarter next month. 

Meanwhile, Aphria has seen its stock climb more than 52 per cent over the past three months, far outperforming its Canadian peers such as Canopy, Aurora, and Tilray Inc. 

Aphria also sits on a sizable $497.2 million cash position, a key asset that could help the company spur M&A activity. Earlier this month, BNN Bloomberg reported that Aphria and Aurora were engaged in merger discussions but talks fell apart due to disagreements about board composition and executive compensation. 

Simon told BNN Bloomberg that while he does have discussions with other cannabis companies, he declined to provide further details on his discussions with Aurora. 

"This is an industry that needs consolidation," he said. "We don't need it, but if there's an opportunity to consolidate and get efficiencies and get costs out of there, we'd very much like to be a part of that."