Has Irwin Simon Really Turned Aphria Around?

Aphria (APHA) has impressed investors with its earnings results this year. Overall, the cannabis industry has struggled due to various headwinds. Meanwhile, Aphria continued to deliver higher revenue growth and profitability. The other cannabis companies disappointed investors with their earnings results. As 2019 comes to an end, let’s see what factors helped Aphria in its journey towards profitability.

Aphria’s impressive earnings

Recently, Aphria reported impressive earnings for the first quarter of 2020. The company reported 849% growth YoY (year-over-year) in its revenues to 126.1 million Canadian dollars. Also, the company reported a positive EBITDA of 1.3 million Canadian dollars in the first quarter. Aphria reaffirmed its fiscal 2020 guidance in the earnings results. The company expects to earn revenues of approximately 650 million–700 million Canadian dollars in fiscal 2020. Aphria also expects its adjusted EBITDA to be around 88 million–95 million Canadian dollars.

In fiscal 2019, the company’s revenues increase to 237.1 million Canadian dollars compared to 36.9 million Canadian dollars in fiscal 2018.

New CEO contributed to the success 

We think that Aphria’s success this year could be due to its new CEO—Irwin Simon. He brought stability to the company. Aphria suffered regulatory issues in 2018. In January, BNN Bloomberg reported that the company was accused of short-sellers’ allegations in December 2018. As a result, Aphria stock took a hit. Aphria’s ex-CEO and founder, Vic Neufeld, resigned due to personal and health reasons.

In December 2018, Simon joined Aphria as an independent chair of its board of directors. At the time, Neufeld served as the company’s CEO and director of the board. After Irwin’s appointment, Neufeld said, “As we continue to focus on building an extremely dynamic, global cannabis company with tremendous opportunity for substantial shareholder value creation, Irwin’s decades of operational and strategic experience in health and wellness and consumer packaged goods will be very valuable.”

After Nuefeld resigned, Irwin took over as the CEO amid Aphria’s regulatory issues. He has 25 years of experience as Hain Celestial’s founder, chairman, and CEO. During that period, he transformed Hain Celestial into a successful company.

Simon might have been a lucky charm for Aphria. An Investor Place article discussed why Aphria has an edge over its competitors. Notably, Irwin has brought the company to a profitable position with a strong balance sheet. Aphria can tackle demand and supply issues. Currently, the marijuana industry faces these issues. Aphria’s peers are cutting down the workforce as a cost-cutting strategy.

Simon’s role in putting Aphria on the map

Last month, a Growth Op article discussed how Irwin solidified the company’s foundation. When he took over as the CEO, Irwin said, “We were kind of all over the place. We have a great team, we just needed to focus on the roots.” Now, Aphria, a $1.3 billion market cap company, is shining in the cannabis space. Irwin mainly focused on growing the company’s core business to drive profitability. He’s confident that Aphria is in a good position now.

A Seeking Alpha article also discussed Simon’s views and strategies when he joined Aphria. He realized that the company had the right combination of assets, people, industry, and prior experience to turn it around. Simon also realized that Aphria should only focus on the Canadian market right now. Marijuana legalization at the federal level still looks hazy in the US.

How have peers performed this year?

Aurora Cannabis and Canopy Growth have been investors’ favorite marijuana stocks. However, they have suffered a lot this year. Aurora Cannabis (ACB) reported a negative EBITDA of 39.6 million Canadian dollars in the first quarter of 2020. The company also lowered the profitability for its second quarter of fiscal 2020. Canopy Growth reported a negative EBITDA of 155.7 million Canadian dollars.

While Aurora Cannabis is struggling with the debt burden, Aphria has a strong balance sheet. In Aphria’s earnings results for the first quarter of fiscal 2020, it mentioned that it ended the quarter with 464.3 million Canadian dollars of cash, cash equivalents, and liquid marketable securities. The company plans to use the profits to expand in Canada and international markets.

Financially, Canopy Growth is backed by Constellation Brands. Could Constellation Brands doubt its investment in Canopy Growth due to the losses? Read Was CGC a Big Mistake for Constellation Brands? to learn more.

Will Cannabis 2.0 be positive for cannabis companies?

Cannabis 2.0, if it kicks in, could do wonders for the cannabis industry. All of the cannabis companies are ready with their products and expansion plans for the edibles market.

Last week, Aphria announced that it received $80 million in financing for its Aphria Diamond facility. Simon said, “Aphria has the largest cash balance in the cannabis industry without the dilution of a strategic partner. This loan strengthens our balance sheet without being dilutive, and positions Aphria Diamond for success as we expand into new categories and growth opportunities in cannabis to enhance value for shareholders long term.”

Cannabis stocks have suffered in 2019. As of today, Aphria has fallen 13.0% YTD (year-to-date). Aurora Cannabis, Canopy Growth, Hexo (HEXO), and Cronos Group (CRON) have lost 49.1%, 25.2%, 58.3%, and 34.2% YTD.

At 10:18 AM ET today, Aphria stock has risen 0.80%. Meanwhile, Canopy Growth, Aurora Cannabis, and Cronos Group have risen 1.0%, 0.18%, and 1.7%. So far, Hexo has fallen 1.8% today.

We’ll have to wait and see if the company continues to rise in 2020 under Irwin’s leadership.

To learn more about the cannabis industry, visit 420 Investor Daily.