Apr 12, 2021
COVID-related lockdowns weigh on Aphria's Q3 sales ahead of Tilray merger
Aphria's Q3 sales suffer amid increased pandemic lockdowns
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Aphria Inc. reported third-quarter revenue Monday that missed analyst expectations as pandemic-related lockdowns, particularly in Ontario, weighed on cannabis sales during the period.
The Leamington, Ont.-based cannabis producer said it generated $153.6 million in revenue in its three-month period ending Feb. 23, an increase of 6.4 per cent from the prior year. Revenue from the company's cannabis operations fell 7.8 per cent to $51.7 million, while sales in its SweetWater beverage division was $14.8 million in the first full quarter since the business was acquired in November.
Irwin Simon, chief executive officer of Aphria, said in a phone interview that nationwide lockdowns, from British Columbia to Quebec, hurt some selling opportunities and could have seen some consumers migrate back to the illicit market. Simon added that the company held back on releasing new cannabis products to the Canadian marketplace as it was largely unable to get its sales staff to meet with retailers due to the lockdowns.
"Consumers do not like to buy cannabis online right now if they're concerned with confidentiality. So far that has not proved to be a successful way of selling like other online businesses," he said.
"It was a cold winter for people to stand there for curbside pickup as well. I think that drove sales back to the illicit market to some degree."
Analysts widely expected sales in Canada's recreational cannabis market to be soft in the early part of 2021, as the pandemic weighed on retailers across the country. Statistics Canada said cannabis sales in January fell 5.6 per cent from the prior month to $282.8 million and some industry data trackers anticipate a four per cent decline in February.
Aphria, which is expected to close its deal to merge with Tilray Inc. sometime in the current quarter, said it posted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $12.7 million, little changed from the prior quarter. Aphria's cannabis business reported $7.9 million in adjusted EBITDA, down from $12.9 million in the prior quarter. The net loss in the quarter was $361 million, compared to a profit of $5.7 million in the prior year.
Analysts expected Aphria to report $163 million in revenue while posting $14.9 million in adjusted EBITDA.
Stifel Analyst Andrew Carter said in a research note on Monday that Aphria's results will likely lead to "a difficult earnings season" for Canadian cannabis producers. Additional lockdowns in April will also further constrain the market, he added.
The company said in a statement it identified several "cost savings initiatives" in the quarter to protect its profitability. Simon said one measure was changing its work week for some staff to four days from five as it looked to better manage its production facility.
Simon added that once the Tilray merger closes he expects to focus much of his attention to growing Aphria's consumer business in the U.S. prior to the country legalizing cannabis federally. That will happen through further expansion of its Sweetwater Brewing division to all 50 states and its hemp food business, while exploring potential M&A as well.
"I'd like to double the size of my consumer business that can ultimately parlay into THC or CBD products once legalization happens," he said.
Aphria said it believes there was a "transitory reduction in demand" for its cannabis products during the quarter due to COVID-19 lockdowns and some provincial buyers managing their inventory levels, which resulted in a $5-million hit from fewer orders and product returns.
